Not revealing known property defects to a buyer—a common problem in real estate, studies show—can land you in court. Follow these best practices to avoid liability.
When a home buyer discovers a property defect that wasn’t disclosed by the seller or listing agent, the buyer may sue, claiming the home was misrepresented. This has become a more urgent problem in real estate since buyers in last year’s frenzied market started waiving the home inspection contingency to win bidding wars. Sixty percent of sellers admit to not disclosing a known problem with their property to buyers, according to a July study from Cinch Home Services.
“Failure to properly disclose can lead to misrepresentation claims, ranging from fraud to negligence and, in some states, innocent misrepresentation,” Deanne Rymarowicz, associate counsel at the National Association of REALTORS®, warns in the latest “Window to the Law” video. She cites a court case in which an agent was ordered to pay $170,000 after being found to have shown a “reckless disregard for the truth” by not disclosing a listing’s prior water damage.
Rymarowicz offers best practices to help avoid a misrepresentation claim due to the failure of the seller to disclose:
- Do not complete a disclosure form on behalf of a seller.
- Encourage the seller to reveal all known facts and defects, and share them with the buyer.
- Review the seller’s disclosure form to make sure they answered all the questions.
- If the seller refuses to disclose a material fact or defect you’re aware of, you should disclose it to the buyer as soon as possible.
- Document any information the seller has provided to the buyer, such as answers to questions about the condition of the property. Keep any research you’ve done separately on the condition of the property as well.
Source: REALTOR® Magazine