REAL ESTATE: Understanding Disclosures

By John Kokish, Kokish & Goldmanis, P.C. - Castle Rock
Posted

Anyone purchasing a home needs to have it inspected, not only by a general home inspector, but in many cases by a professional engineer, mold inspector, radon tester, or any other specialists trained to evaluate any other potential problem.

Sellers, whether using a real estate agent to list their homes, or whether they are handling the sale themselves, are wise to protect themselves by filling out in detail the Seller’s Property Disclosures for residential properties sanctioned by the Colorado Division of Real Estate. This form, which can be downloaded from the division’s website, has become more detailed every year. For the most part it protects both the buyer and the seller from any surprises.

Even so, certain rules regarding disclosures need to be followed if the seller wants to avoid being sued for failure to disclose known problems with the property. As a general rule, the buyer and the inspector the buyer hires are expected to note problems that are obvious, known as patent defects, such as obvious cracks on the basement floor. The problem comes in when there are latent defects, or defects that are not obvious that the seller failed to disclose, such as past water problems, leaks, hidden mold, or basement cracks which are covered up by carpeting.

Problems can arise when the seller discloses, or fails to disclose, something that may or may not effect a potential buyer’s decision on whether to purchase the property. For example, if one of the parties that lived in the home committed suicide, or died of cancer, or was murdered, or abused their children. These and similar issues will effect some purchasers decision to buy, but not others, and because they are subjective, and really have nothing to do with the condition of the house, probably do not need to be disclosed. Nevertheless, disclosing these matters might be prudent to avoid problems down the line with

buyers sensitive to those situations.

Another tricky area is when a home inspector claims the home has a structural problem and the buyer terminates the contract based on that finding. Assume that the seller then hires a professional engineer who finds there are no structural problems and that the house is structurally sound. Should the home inspector’s opinion be conveyed to subsequent potential buyers or not? One of the items on the Colorado Division of Real Estate’s website questionnaire is “Written reports of any building, site, roofing, soils, or engineering investigations or studies of the property”. This suggests that any such condition needs to be reported, even if overridden by a more competent professional, since a professional engineer is in a better position than a home inspector to determine the structural soundness of a home. Tricky, but probably the first report should be disclosed and then followed up by the report of the professional engineer.

Bear in mind that the only matters that need to be disclosed are those within the knowledge of the seller at the time he or she is preparing the disclosure statement. The latest version of the disclosure statement is extremely detailed and covers most areas that could present problems for a potential buyer. To be safe, as a general rule, when in doubt, disclose, even if it hurts. Specific problems, such as mold, termites, radon, and lead-based paint will be discussed in later columns.

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