While laws on this topic vary from state to state, good disclosure by the seller helps everyone involved in the real estate transaction. In this episode, guest Bruce Aydt joins Monica to talk all things disclosure. They discuss what should or should not be disclosed when it comes to current property status, past repairs, psychologically stigmatized properties, and work done without permit. This episode is full of risk management information that REALTORS® can use to help their clients.
The purpose of disclosure laws is to ensure that the buyer knows everything that the seller knows about the property. It is also a protection to sellers, as long as they are honest in their disclosure, because they will minimize their risk of legal ramifications later. As a seller, if you're wondering whether you should disclose something, then you should probably disclose it. A good general guideline for what to disclose is that if the issue or condition of the property affects the desirability or value of the property, then it is something that needs to be disclosed. The contract from state to state or area to area will help guide sellers.
When it comes to past repairs, Bruce's general rule for risk management is to disclose the history of all major repairs, including anything significant in terms of repairs or replacements. If it's not disclosed, this could put the seller in a position where they think something is fixed but it isn't really fixed. When preparing a seller disclosure statement, it is important to disclose in very specific terms. Just like any work done to our cars, try to keep track of any receipts or paperwork for any work done on the property.
Monica and Bruce discuss the concept of "should have known" — it exists in some states, but not in others. If the seller has evidence or information that would indicate to a reasonable person that the condition existed, that's the "should have known" standard. What the average person would know is an indication of a problem that should be disclosed.
When it comes to prior information that you may have gotten from the previous seller disclosure or something you learned from living in the house, relevant information should be shared. Anything that affects the current property should be shared. Neighbors, real estate agents, flippers, and heirs could all know information about a listing. Whether a seller is exempt will depend upon your state property disclosure law.
Another aspect of disclosure to consider goes beyond the physical appearance or integrity of the property. Many states have laws about psychologically stigmatized properties — these laws hold real estate agents not liable for the failure to disclose the psychological impact on the property (murder, suicide, or other felonies). While most real estate agents do not have an obligation to disclose these things, there are other factors to consider: determining whether the information is fact or fiction, checking state laws, determining relevance, and discussing disclosure with the seller.
Another element of disclosure is any work or additions done on the property without permits. This has been an evolutionary area, and the power of local governments is pretty strong in the enforcement of these laws. Even if your seller disclosure statement doesn't have this on it, it should be disclosed, especially for electrical and plumbing projects.
What happens when a buyer does an inspection and doesn't want to purchase the property? Your contractual documents should be your main reference for navigating these conversations, primarily on how much of the disclosure and inspection reports should be included. There can be legal consequences if prior inspection items aren't disclosed. As a real estate agent, you can't give legal advice to your clients, but you can decide if you want to continue forward with a listing.
The easiest, most practical risk management rules are two things: disclose any major defects in the property that exist currently, and also disclose the history of any major repairs. Remember if you're asking yourself whether you should disclose something, your answer is probably yes!
"The whole purpose is to give the buyer the opportunity to know everything that the seller knows about the property that's of any material nature." — Bruce
"When we talk about psychologically impacted properties, what we're talking about is things that don't affect the physical structure of the house." — Bruce
"It's better to disclose these events that occurred at some point in the process than to let the neighbors tell the buyer." — Bruce
About Bruce Aydt
Bruce Aydt is a REALTOR®, attorney, and educator from St. Louis, Missouri. As a second-generation REALTOR®, Bruce grew up in the real estate business and has worked in virtually every aspect of real estate companies. Bruce has been in management as well as in-house legal counsel to companies for over 30 years.
Bruce has been involved in REALTOR® association work throughout his career. He has served in leadership roles as president of both Missouri REALTORS® and the St. Louis REALTORS®. Bruce has been part of the National Association of REALTORS®' Enlarged Leadership Team three times, has chaired the NAR Professional Standards Committee, Legal Action Committee, and State Leadership Forum, and received NAR's Distinguished Service Award. He is a nationally recognized educator on real estate and association leadership issues and is one of the three co-trainers for the NAR Mediation Training Seminar. He lives in St. Louis, Missouri with his wife, Lisa, has two grown children and three fabulous grandchildren