Background of Property Disclosure Laws
In the wake of the consumer-rights movement and the increasing influence of realtor organizations around the country, many states began to draft and implement property disclosure laws in the 1980’s that were designed to protect buyers of residential properties. The goal was to protect uninformed and inexperienced buyers in an era where typically only sellers had agents leaving buyers to fend for themselves.
Around the country, state real estate commissions were called upon by the legislature to draft property disclosure statements that satisfied the requirements of the law in that state. The focus at that time, and still to this day, is to protect home buyers from material defects existing on the property, which are known to the seller. In most cases, “material defects” are problems with the property or any portion of the property that would have a significant adverse impact on its value or that involves an unreasonable safety risk to people on the property including the land.
In jurisdictions such as Pennsylvania, the Real Estate Seller Disclosure Law mandates that the seller “deliver” a signed and dated copy of the property disclosure form to the buyer prior to the execution of an agreement of sale. As the term is used in the statute, “deliver” means to give to the buyer by personal delivery, first-class mail, certified mail/return-receipt requested or facsimile to buyer or buyer’s agent. In practical application, a seller’s agent usually leaves several copies of the disclosure form at the property for potential buyers to take with them upon looking through the house for the first time.
Although each state typically utilizes a standard disclosure form for properties sold in that state, the disclosure laws vary from one state to another—so, buyers, sellers and agents should familiarize themselves with the disclosure requirements in their particular state.
Examples of the types of issues covered by disclosure forms include:
- When the property was last occupied by seller;
- Condition of the roof;
- Structural problems;
- Water and sewage systems or service;
- Electrical system;
- Heating and air conditioning;
- Plumbing system;
- Presence of hazardous substances;
- Municipal violations against the property;
- Presence of mold
What Should Sellers Do About these Disclosures?
It is imperative that both the seller and seller’s agent take a significant amount of time to go through each item on the disclosure form and provide as complete and accurate a response as possible based on the information at hand. Generally, a seller will not be held liable for an error or inaccuracy on the disclosure form, so long as the seller did not have knowledge of the error or inaccuracy. Further, most states do not require a seller to spend money to conduct various tests and investigate the current condition of the property. However, sellers (and possibly their agents) will be held liable for negligently or recklessly reporting/failing to report information or perpetrating a fraud by intentionally misrepresenting the condition of the property.
The judgments that have been awarded in cases involving violations of the seller disclosure laws include: 1.) Monetary damages to the buyer so that the misrepresented condition can be repaired; 2.) Payment of buyer’s attorney’s fees; 3.) Rescission of the contract (thereby allowing the buyer to void the transaction). I can assure you that cases involving alleged misrepresentations by sellers and overzealous agents who are trying to make a sale are on the rise. Attorneys representing buyers in these matters are becoming very aggressive in order to protect their clients’ investments. Many are seeking punitive damages against both the seller and the agent, and more and more agents are being held accountable for failing to instruct their client to disclose a known material defect of the property.
At one time we were a nation governed by the famous doctrine of “Caveat Emptor”. As times have changed, especially in the world of real estate, the consumer has become king. The laws have changed and the playing field in a lot more level—maybe, it’s time for the seller to beware.