If You Know It, Disclose It!

TASA ID: 26215

There  are so many factors related to disclosure of material and latent facts when it comes to real estate.  The more the buyer knows about the property they are buying in the beginning, the easier the transaction can happen. Opposed to finding out later, which a closing may not come to fruition.

Many states require or recommend that a seller complete a property disclosure when a Realtor is handling a real estate listing.  This disclosure covers everything from the physical attributes of the property, HOA disclosures, environmental, deed restrictions, financial well-being of the property (i.e. short sale or foreclosure information) and other important items.  However, it usually does not cover psychological or social characteristics (murder, suicide, death, etc).

There are many reasons sellers may not disclose issues with the home; to cover it up, forgetfulness, or they did not know. Failure to disclose, have put real estate agents in a bind when the items are discovered either during attorney review or by the buyer after they close and are ready to put the home on the market themselves. 

Do they have any reprisals against those who were involved in the original sale?

Several years ago, I worked with an attorney as an expert witness, who represented a real estate agent in South Jersey, being sued by one of her former clients who was ready to place the home on the market.  (Unfortunately or fortunately, hired another agent to list the home)  The buyer of the home did their due diligence in having a home inspection performed, as well as reviewed the OPRA (Open Permit Registration Act). The results of the aforementioned showed that there was evidence of mold and other items, as well as a room that was added by the previous owner (the one who sold the home to the current owner) was never permitted. Therefore, the buyer backed out. 

The current owner of the property decided to hire an attorney and sue everyone: the home inspector the seller hired when he bought; the agent who listed the home when he bought; the town inspector and the town; and the agent that sold him the house, my client. 

After an extensive review of the factors, it was my expert opinion that the buyer’s agent was not responsible for knowing issues that were out of her expertise and not disclosed by the previous seller.  The court’s agreed and therefore the agent was not held liable. 

Was it a win for the agent?  Yes and no. 

Yes because she was not held liable and did not lose the lawsuit; and no, because, it still cost her quite a bit of money for the fees involved to fight her innocence and it may have put a damper on her reputation as well. 

The importance of disclosure to a client is one of the basic fiduciary responsibilities in the law of agency. It is a necessity for buyers and sellers right to know.  It creates trust between all parties and the transparency from the beginning; creates an easier transaction. 

How does an agent (buyer & seller) protect themselves for incidents such as this: 

1. The real estate company’s Errors and Omissions Insurance MAY cover some or all of the issues.  An agent should be prepared to pay the deductible, or a percentage thereof. (usually equal to their commission compensation split)
2. Home Warranty.  Sometimes offered by the agent’s company paid for by either the seller or the buyer.  There is usually a time limit of one or two years, but extensions are an option.  However, you must look at the fine print for the coverage, the deductible, and/or prior conditions of the items covered.  Be aware that most real estate companies have access to Home Warranty providers. If the company is offering it, every buyer and seller that walks through that door must have the same access to the Warranty or the agent may be liable to paying for the work or possibly be subject to a fair housing violation, if the Warranty was not offered.  (Declination is allowed; however, best that it is in writing)
3. Property Disclosure to be completed by the seller at time of listing.  Agents should review and ask questions if there are any discrepancies before they sign as they may be liable as well.  In turn; this disclosure is given to a buyer for review and signature while making an offer on the home.  Another advantage to giving the buyer the disclosure is the buyer can base their offer or see why the price is where it is, based on the disclosure.  For the seller, it gives the seller a negotiating stance after the home inspection.
4. Requesting a CLUE (Comprehensive Loss Underwriting Exchange) report from the seller to report any insurance claims within the past seven (7) years.
5. OPRA (Open Public Records Act).  Request the report (or similar) from the community, to see if there are any open permits that need to be closed.
6. Look at the listing history and compare it to the OPRA.  I had a personal experience with a home I was selling in which my buyer client requested an OPRA and discovered that there was no permit for a full bathroom in the basement.  Upon further review, it was discovered that the listing specs for the home when the seller purchased did not include that basement; therefore, indicating that the bathroom was “illegal”.  Sadly, the seller was married to a Realtor, who should have known better.  To make matters worse for the seller, my buyer backed out of the purchase and the town ended up pro-rating the owner’s real estate taxes for the time he had the bathroom in, even if he were to get a permit and having it pass.
7. The buyer should do their due diligence and inspect the home, as well as all documentation related to the home.  (Deeds, liens, etc.)
8. Seller may want to do their own pre-inspection of their home so they know what a home inspector may find. These findings would have to be disclosed as well.
9. Agent should know their business and what to look for while asking questions of the seller.  They are not experts but should get the services of an expert in the field in question.
10. As mentioned before, some states do not require sociological or psychological facts to be disclosed.  An attorney I work with frequently who has been a guest speaker at the Broker’s pre-licensing class I teach, discusses whether or not murders, attempted murders and suicides should be disclosed. The buyer will find out at some point and although cannot go after the agent (check state laws first) will find disdain towards that agent because of non-disclosure.  Nonetheless, those fitting under Megan’s Law, group homes, and those with AIDS can never be disclosed.  

In conclusion, disclosure plays a crucial role in a real estate transaction.  Surprises are only good for birthdays and the more both the buyer and seller know, the better for all parties involved.

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This article discusses issues of general interest and does not give any specific legal or business advice pertaining to any specific circumstances.  Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.

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