Telling all about
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.
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.
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
"The hottest new trend is methamphetamine labs
because some residue from that process is toxic," says Craig
Cheatham, chief executive officer of the Association of Real Estate
License Law Officials. "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."
says disclosure can even reach beyond the property lines.
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."
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.
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
In other words, let the buyer be scared.
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
Buyer rights, seller
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
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
"by owner," can be legally liable if a state's disclosure requirements
Today, most brokers use some form of seller
disclosure to protect their sellers and themselves, even in states where it isn't
required by law.
"The state doesn't necessarily cover
some of the areas that the industry feels are problematic, so what you're seeing
is state Realtor organizations developing forms that go further than the state-mandated
forms," says Taraszki. "Some states require that you use only their
forms; in other states, such as Pennsylvania, the state form is considered the
The federal government also chipped
in a nationwide disclosure requirement under the 1992 Real Estate Disclosure and
Notification Rule that requires all sellers of homes built before 1978 to disclose
the presence of lead-based paint.
you in court
So what does it all mean if your buyer drags you
"It depends," says Ralph Holmen, National
Association of Realtors associate general counsel. "If the seller completes
the form and outright lies, that clearly is going to be a problem; that's just
flat-out fraud. Similarly, if the broker knew that a misrepresentation was being
made, he or she could be held liable.
"If, on the other
hand, the seller simply made a mistake, there may or may not be culpability."
Some successful civil actions result in a monetary
award to correct the problem, and some states allow the buyer to
collect legal fees, says Holmen. In extreme cases, courts have given
the buyer the option to rescind the transaction and even recover
sale-related costs such as lender's fees.
NAR is so bullish
on disclosure that it has included it in its code of ethics, regardless of state
law. Not all real estate professionals are Realtors, however.
it helps equip sellers and brokers who represent sellers to defend themselves
when the buyer claims he was not told something or was told something incorrectly;
there is a record of what the buyer was told," says Holmen.
when you provide that information fully and early, you avoid (legal) problems
completely. The buyer knows what he's getting so there isn't any litigation at
Buyer (still) beware
Sounds great in theory. But buyer-broker Tom Wemett, former president of the National
Association of Exclusive Buyer Agents, says practical application is less than
Oftentimes, agents adopt a don't-ask, don't-tell
attitude just to secure a listing.
"What happens is that
listing agents go into the property with blinders on; they don't want to know
about that stuff. They hand the seller the property condition disclosure form
and say, 'Get this back to me so we can provide it to the buyer.' The problem
is, sellers never fill out the form correctly," he says.
also are those within the industry who feel that mandatory disclosure is simply
a big waste of time. Sellers are asked questions they are unqualified to answer
(Underground storage tank? Infestation?). Mandatory disclosure also gives agents
and brokers only the illusion of legal protection. Buyers would be better served,
they say, by a thorough
property inspection and an extended home warranty.
MacDonald is a contributing editor based in Mississippi.