When your grandparents bought their first home, they did so at their own risk. Back then, real estate was governed by the ancient Roman dictum of caveat emptor.
Today, however, "let the buyer beware" has gone the way of gladiators and chariots. The operational phrase in real estate now is let the seller beware.
More than two-thirds of all states require that home sellers present home buyers with a property disclosure form listing known legal hindrances, physical defects and even paranormal activity relating to the property. Failure to do so could result in civil and criminal action, and in some cases even recision of the sale.
Marley's ghost and meth labs
Some states have minimal disclosure requirements. Does the seller have legal authority to sell the property? Are there any boundary disputes, boundary agreements or encroachments? Is the house connected to public sewers? Does the roof leak? Has there been an addition, remodel or other major work, and was it completed to code? Are there structural cracks or defects?
In more stringent states, the list can run to 10 pages,
reflecting a variety of consumer or regional concerns, including
earthquake damage, mold, radon, insect infestations -- even ghosts
and paranormal activity.
"The hottest new trend is methamphetamine labs because some residue from that process is toxic," says Craig Cheatham, chief executive officer of the The Realty Alliance. "Some states like South Dakota have a specific mention in their requirements that if there has ever been a meth lab on that property, it must be disclosed."
Another disclosure hot button is home insurance, according to Sandy Taraszki, executive director of the Worldwide ERC's Coalition - Center for Governmental Issues.
"Arizona has passed an insurance disclosure, where the seller has to provide a report that covers the last five years, because new homeowners are increasingly having difficulty getting insurance," she says. "At least two dozen states have introduced insurance legislation because of the problem."
Cheatham says disclosure can even reach beyond the property lines.
"Now you're getting into things like water rights because people are struggling to get the resources that are vanishing as we try to share the same things. That creek in the backyard used to be all yours. Now you've got to make sure you've got rights to the water in case somebody upstream takes it."
Similarly, some once-touchy issues, such as whether the house contains ghosts or was the scene of a murder, suicide or AIDS-related death, have largely gone by the wayside, in part to uphold the seller's right of privacy.
"It usually comes down to an interpretation of what actually impacts the value of the house," says Taraszki. "Some things are protected that you can't disclose. For instance, in Pennsylvania, you do not have to disclose a haunted house."
In other words, let the buyer be scared.
"We're getting very, very specific these days," says Cheatham. "The pendulum swings various ways, from rights of privacy to consumer rights. Just how bad does it have to be to be significant? People are still trying to find their way on disclosure."
Buyer rights, seller wrongs
The move toward seller disclosure is a fairly recent one. Until the late 1960s, the vast majority of real estate agents represented the interests of home sellers exclusively. Buyers basically were left to kick the tires and take their chances.
But with the rise of the consumer rights movement
and buyer's agents came a growing body of case law that overturned
caveat emptor and held both sellers and their agents liable for
failing to disclose major known defects to a buyer.
The state Realtor organizations that license and self-govern
real estate practices within their jurisdictions began to develop
disclosure forms and encourage their use among their members.
By the late 1980s, state legislatures began to codify property disclosure as a natural extension of consumer-protection laws. As a result, any home seller, whether represented by a real estate agent or selling "by owner," can be legally liable if a state's disclosure requirements aren't met.