Navigating the Murky Waters of Seller Disclosure

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When you’re selling something big to someone — like a house — it’s understandable to feel hesitant to reveal problems (minor though they might be) which could discourage potential buyers. But not revealing them? Think of potential legal trouble.

Sellers often have a single question to ask their agents, however. How much? How much should I disclose? A broken doorknob? A leak that we fixed last year that no one would ever know about? Just how detailed do you need to be?

Realtor.com’s Warren Christopher Freiberg says, “We’d love to give you a concrete answer. But disclosure laws vary by state—and even by city.” So he offers some basic rules to govern how and when you disclose any problems.

In general, sellers should disclose any known facts about the physical condition of the property. This would be the existence of dangerous materials or conditions, such soil containing an inordinate amount of rock (gold mining in the area?), or a flume of jet fuel left behind when the land your house occupied was rezoned from a military base to a subdivision. If there are any lawsuits or pending matters that may affect the value of the property (now or in the future), and any other factors that may influence a buyer’s decision, disclose it.

Of course, no one has a crystal ball. How can you possibly know what might influence a buyer’s decision? Perhaps the basement floor simply gets a bit moist after a rain. Do you really need to disclose it? After all, if you’ve learned to live with those things, the buyer should be able to deal with them, too, right?

Wrong. Especially if you want to avoid a lawsuit down the line. What if the new owner is allergic to mold?

“Most sellers think it is in their best interest to disclose as little as possible,” says Kansas-based real estate attorney Rick Davis. “I completely disagree with this sentiment. In the vast majority of cases, disclosing the additional information will not cause a buyer to back out or ask for a price reduction.”

That also means disclosing issues that have recently been repaired, Davis says. Why? If the buyer later discovers that a repair job was botched, you could be on the hook for additional repairs.

Most real estate transactions include inspection reports, especially if lenders are part of the equation. But sometimes a seller will have one done to determine if any repairs should be done before putting their house on the market. It’s a wise practice. Don’t keep that report to yourself, however.

Freiburg puts it this way: “We already know that all sellers have a duty to disclose any ‘material defects.’ And while buyers and sellers may disagree on what a material defect is, one of the best ways to avoid a lengthy legal battle is to just give the buyer all copies of past inspection reports you have—no matter how old they are. That way, they can’t say they weren’t informed of a problem.”

In other words, sellers should disclose anything and everything they can think of. Ironically, the more disclosures you make, the less important they might become to the buyer. Kind of like those prescription medication TV commercials. How much heed do you pay to the laundry list of side effects rattled off?

While the threat of a lawsuit can be scary, there’s one thing you don’t have to worry about, according to Freiberg: The courts won’t hold you accountable for failing to disclose issues you’re unaware of.

“Let’s say your house is infested with termites. But you’ve never seen one, or they were missed by an inspection (or maybe there never was an inspection). You can’t be held responsible for not disclosing this defect if it’s discovered by the buyer a few months after closing.” There is a point at which the burden falls on buyers to do their due diligence to uncover any problems as well.

Buyers can ask for a lot of information about a home, including things you’ve never even thought about. Perhaps you assumed your house was 2700 square feet because that’s what you were told when you bought it. But when an appraiser comes through to do his or her thing, only 2450 square feet is the verdict. Measurements are a common disclosure red flag. “Even if you’ve had an appraiser check out your home, you may have no idea how many square feet it truly is because, as it turns out, there’s no single agreed-upon way to measure a home,” says Freiburg. “Yep, that’s right. Three different appraisers can come up with three different measurements.”

So resist the temptation to guess about the square footage or come up with an average. Otherwise, the buyers can come back later and say you lied or misled them about a material issue. Simply say you don’t know—and put it on them to find out the answer. If they push you for exact figures, make sure you properly attribute where those numbers came from (the original house brochure from when it was new? Or the figure you were told when you bought it?), and leave it at that.

Many Realtors recommend including a clause in the purchase contract that any square foot measurement quote is an approximation, and if this is a material issue for the buyers, it’s their responsibility to investigate it further. The important thing is to not be afraid of scaring them off with too much information.

It is, after all, better to lose a buyer by clearly disclosing all known issues than it is to spend two years and tens of thousands of dollars in litigation.

Realtor, TBWS


All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

Paramount Residential Mortgage Group
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Brian Voytko

Mortgage Advisor

NMLS: #437292

The Mortgage Whiz

Company NMLS: 338923

Cell: 215-407-3832

Email: BVoytko@PRMG.net

Web: http://www.mtgwhiz.com

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Brian Voytko

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Mortgage Advisor

NMLS: #437292

Cell: 215-407-3832


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