If you ever decide to sell your house, you’ll be required to disclose information to potential buyers about anything that could influence their decision to buy the property or the price they would be willing to pay for it. This disclosure rule is the law and the right thing to do.
When agents ask me whether their client should disclose something, the answer is always yes. If it dissuades the potential buyer, so be it. If the information is not disclosed and is discovered later, the seller will end up buying the house back or paying for remediation of whatever was not disclosed. So, better to have everything out in the open from the start.
Recently, there was a transaction where the seller disclosed a problem about the house but downplayed it. After the buyers moved in, they discovered the damage described as “minor” was actually major. Whether seller knew the extent of the problem is debatable, but the buyer cried foul and the seller ended up returning the money and taking back ownership of the house. Now, the seller needs to repair the problem or update the disclosure. All the while, the red-hot housing market cools.
So, what should you disclose? Anything that cannot be identified during a casual walkthrough that you think might impact a buyer’s decision to buy or the price they’d pay. Roof leaks? Disclose it. Crack in foundation? Disclose it. Those are easy. What isn’t so easy is remembering all the repairs you completed over the years. This is why I recommend creating a file when you first purchase your home for receipts and notes that document the work being done.
Although some sellers are not completely forthright, many people simply don’t remember all the repairs or they don’t realize exactly what should be disclosed. For example, let’s say you repair your chimney with the help of your neighbor. Two years later, you decide to sell your house. Do you need to tell the buyer about the repair? The chimney has been working perfectly since the repair, so there is no issue, nothing to disclose, right? Not so fast.
Let’s say the buyer ends up with a chimney fire. If you do not disclose the repair when you sell and the buyer later notices evidence of the repair, and suspects it was not done to code, questions may arise. When the buyer chats with the neighbor who helped with the repair (which always seems to happen), the neighbor may volunteer that the work was done without a permit.
So, now the buyer believes you actively concealed information and that you may have done shoddy work. Even if there is no way to know whether your repair contributed to the chimney fire, a buyer who feels swindled is a lot more likely to take legal action, not only for the cost of the post-fire repair but also for intentional fraud. It doesn’t matter that you weren’t trying to conceal a problem. The fact is, a disclosure was required and not made, so as the seller, you are liable.
This is why I recommend documenting all work—keeping receipts, permits and notes of who did what. It’s a pain in posterior, I get it, but it is far less painful than a claim for damages or a lawsuit. Just make it a habit – put stuff in the folder and forget about it. Rest assured, when you give a copy of that folder to a prospective buyer, you’ll have taken a huge step forward in required disclosures.
Unfortunately, the disclosures regarding repairs and additions are just the beginning. There are state and county disclosures, natural hazard disclosures, and many others. By the time you’re done, you’ll be measuring the disclosure files in pounds, not pages. Still, the weight of that file is about a third of the weight of the lawsuit you just avoided.
If you are a buyer reviewing disclosures, read them carefully. Make sure you understand what’s being disclosed. If something doesn’t look right, question it. Although you can always take legal action after close of escrow, that can be time consuming and expensive, especially if the seller moves out of state and declares bankruptcy. Life is too short to buy problems. Slow down and take the time to address potential issues before the transaction is complete.
If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. Dick Selzer is a real estate broker who has been in the business for more than 45 years.