Seller's Duty to Disclose Known Defects to Home Buyers
You’ve hired the best real estate broker, so you thought, now your home is sold. You go on and soon forget about the old and bring in the new. But then, when you least expect it, you are served with a Demand for Mediation and Arbitration (or Lawsuit) for hundreds of thousands of dollars. Why you ask.
You are accused of concealing (known) defective conditions. But recall that Seller is required to disclose 'known' problems or defects with the property even though Seller is not warrantying the improvements. After all, Buyer has an affirmative duty to inspect. So why am I being sued you ask? We loved that home. It wasn’t defective.
The Buyer’s Inspection Advisory generally puts the burden on Buyer, not Seller, to inspect and find defects. Buyer's Inspection Advisory states that Seller is not warrantying the improvements and that Buyer has an affirmative duty to inspect. Seller is required to disclose 'known' problems or defects with the property.
The Seller’s Advisory generally warns the Seller of the duty to affirmatively disclose to the Buyer (whether asked or not) in writing, any and all known facts or defects, that materially affect the value or desirability of the property, even if the property is taken in its present condition. The Broker cannot advise Seller of the legal sufficiency of any disclosures. The Broker’s inspection is limited to obvious visual defects or conditions. When in doubt put it on the list.
Solution: You need to work with smart brokers and agents – who are in touch with smart lawyers. You need to document the state of disrepair or – “undesirables” - and maybe accept a reduction in purchase price through escrow instead of making repairs or corrections. You should disclose defects known or expected and put the burden on Buyer to waive his/her rights. You should only hire licensed, bonded and insured contractors for all repairs and construction. Sellers should also restrict the sale to as is without warranty or representation and with waiver of lawsuits against Seller for defective or dangerous conditions.
Moreover, maybe the Seller should hire a licensed inspector to find “known” conditions of disrepair, defects or undesirables. Certainly, the Seller should either offer a compromised credit through escrow to the Buyer while acknowledging the Buyer’s inspection list, and or have Buyer accept the “known” conditions of disrepair, defects or undesirables and expressly waive same.
Owner’s Other Protections: In addition to the above items, Seller’s might consider holding such property in other protective devices such as select trusts (not mere living trusts) to contain the liability exposure.
ABOUT THE AUTHOR: Richard Rydstrom, Esq.
Richard Rydstrom, Esq. is a California lawyer with over 26 years’ experience in litigation and business, real estate and contract transactions.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.