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Just Disclose It

by Carter, Brian on

“The seller says they don’t have to fill out a seller disclosure form because….”

That’s the start to a fair number of PAR Legal Hotline questions, even though there are limited exceptions in the seller disclosure law. The broker or agent can rebut the client’s comment by using what we sometimes call the “index finger rule” – asking the client if they can actually point to the part of the law (with their index finger!) that backs up their claim. And to help you out, the 10 exceptions are summarized on the first page of the PAR Seller’s Property Disclosure Statement (Form SPD,) so everyone involved in the transaction can see what they are – and are not – from the start. If the client can’t point to one of those exceptions, then they need to fill out a disclosure form.

For example:

  • There is no exception for sellers who use the property as a rental and have never lived there. Landlords should have a fair amount of knowledge about the property based on things like maintenance history and move in/out inspections.
  • There is no exception for sellers who are flipping a property. Someone rehabbing a property will likely discover a fair amount about the property during that process. Even someone reselling with minimal work will have some information from the seller disclosure form that they should have received as part of their purchase transaction.
  • There is no exception for a mixed-use property. If there’s a building with commercial space, plus one to four residential apartments, the disclosure is required (at least as it relates to the residential units). And a disclosure is required even if the owner runs a business out of their home.
  • There is no exclusion for someone selling with a power of attorney. If the property owner is available and competent, they will likely have to fill out the form. (If not… call the hotline for that one because it can get complicated – but it’s still not an exclusion.)

There are two legitimate scenarios that come often. The first is estates. The seller disclosure law says that the executor or administrator of an estate does not have to fill out a seller disclosure form. That said, though, there may still be a duty to disclose outside of the seller disclosure law. Pennsylvania courts have routinely held that sellers must disclose known material defects to avoid deceit, fraud or misrepresentation, even when the seller disclosure law provides an exception.

For example, let’s say that the executor of an estate is aware that the home regularly gets water in the basement. Even though they’re not required to fill out a full seller disclosure form, they may still have that general responsibility to disclose the known defect to avoid a more general claim of fraud by a buyer who is caught unaware.

This scenario can also snag brokers and agents, since the seller disclosure law says that licensees are potentially responsible for undisclosed defects that they are actually aware of and Article 2 of the Code of Ethics says that Realtors® cannot conceal “pertinent facts” about the condition of the property. So, if you’re calling the hotline to ask if the seller needs to disclose a water problem, this means you now have some knowledge that you might need to disclose if the seller doesn’t.

A second common scenario is when the seller is aware of something about that property that isn’t technically considered to be a material defect. The most obvious would be some sort of “stigma,” such as deaths in the property. Pennsylvania courts are clear that these sorts of non-physical and subjective issues are not subject to the disclosure law… and yet they are exactly the sort of thing that could upset buyers enough to file a lawsuit.

Even where disclosure is not required, our general test is to ask listing agents to discuss with sellers how they think a buyer might react to purchasing a property without knowing about the issue – or for that matter, how the seller would react if they were the one purchasing the house without that knowledge (which they sometimes did). If there is a concern that buyers might be upset, it’s often better to make a disclosure, even if it’s not required, than to keep that information to themselves and risk having to pay an attorney to justify the decision after the fact. This doesn’t necessarily have to be done on the disclosure form itself, so if you’re in that position, you can call the hotline to discuss further.

Finally, always remember that you are the real estate professional in the relationship. Listing agents are required to inform sellers of their responsibilities and to look out for the sellers’ best interests – which generally includes complying with the law. When a potential or existing client refuses to fill out the form when you know it’s required, or refused to disclose known material defects, you should talk with your broker about whether it is worth having that seller as a client.

Topics

Seller’s Property Disclosure Statement Form SPD
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Hamberg, William

Pretty sure we are doing it wrong – some of us!

The (Seller’s) Property Disclosure PROTECTS the Seller not the Buyer, correct?!? Why isn’t it presented, to both parties, that way? More importantly, why would a client hold-back something knowing that this document is their “best defense.”

If I tell you my basement flooded during a storm “x” number of years ago, you buy the home, and at the next storm the basement gets water; it’s a, I told you so! Not saying you won’t be dragged into litigation, (and maybe the attorneys could comment), but I would think you start off in a better position than if you did not say anything.

As an added bonus, this also means Buyer Agents need to walk their clients through the SPD and just not DocuSign it over.