How Property Disclosure Statements Work | 2-10 Blog

The home seller hid something major from your client. What happens now?

Every property has at least a few minor flaws. In some cases, however, sellers attempt to conceal major defects that might make a sale fall through. If one of your clients has discovered a hidden problem with a new home, learn the best way to help them remedy the situation.

How Does Disclosure Work?

While most states require some type of property disclosure statement, the specifics of what must be revealed varies from county to county and, sometimes, even city to city. Federal law demands that sellers disclose any known safety or health hazards, such as lead-based paint or asbestos; however, enforcement of these laws is determined by local ordinance or law.

A standard disclosure form asks sellers to disclose any and all known defects of a property. This can include problems with appliances, water, sewer, heating, electrical and other mechanical systems. Foundation, roof and other structural issues will also be included in the report, along with any other hidden or latent defects, such as past flooding, foundation cracks or mold. Unfortunately, if the seller is unaware of these problems, they are not required to hire an independent investigator to assess the home unless this is stipulated in the purchasing contract.

How Detailed Must Sellers Be?

In many states, a seller is only required to disclose known issues. They cannot be held responsible if they answer “unknown” or “no” to any of the disclosure questions, unless the buyer can find reports, witnesses or documentation revealing inaccuracies in the seller’s answers. Without these, there can be no liability for termites, cracked foundations, leaky roofs or other issues.

Certain states also allow sellers to sign disclaimer statements or waivers instead of full disclosures. In Maryland, for instance, sellers are given the opportunity to sign Residential Disclaimer Statements, so they can sell a home in “as is” condition. In this case, the seller is only required to report latent defects undetectable by visual inspection.

Right now, only about two dozen states have property disclosure laws. In some states, buyers are left with “caveat emptor” or “buyer-beware” standards, which leave little remedy for undisclosed defects.

What to Tell Your Clients

Even when sellers are required to fill out disclosure agreements, many are tempted to conveniently “forget” facts or tell a few white lies. According to Realtor.com®, the most common defects sellers tend to hide include water damage, contaminated backyards and bad foundations. Buyers may also attempt to hide pests or the condition or aging appliances. With this in mind, it’s always best to get a thorough inspection before purchasing a home. You can also ask for a Comprehensive Loss Underwriting Exchange (C.L.U.E.) Report from the seller’s insurance agent.

If your client ultimately discovers a few hidden issues after a sale, the first step is to contact the seller and explain the situation to look for an equitable solution. If you face opposition, your client will need to weigh the potential costs of a lawsuit against simply paying to fix the issues on their own. If the defects are major, encourage your client to meet with an attorney to evaluate the chances of a successful lawsuit. A very large number of real estate lawsuits stem from owners misrepresenting their properties. That said, not all are successful. In the end, the most effective way to avoid unpleasant surprises is to thoroughly investigate a property before making an offer.

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