Recently, there has been an uptick in lawsuits over seller disclosure requirements. While many of these claims are empty, most of them center around misunderstanding seller disclosure requirements. Let’s save time, money, and headache and dispel some common seller disclosure myths!
Here in Pennsylvania, there is a legal requirement for sellers to disclose all known material defects of the property to prospective buyers. This requirement to disclose comes from the Department of State as part of the Residential Real Estate Transfers Law. While the state has its requirements, REALTOR®s adhere to a higher standard and bring a robust disclosure form for their clients. In both cases, a material defect is defined as:
A material defect is a problem with the property or any portion of it that would have a significant adverse impact on the value of the residential real property or that involves an unreasonable risk to the people on the land. The fact that a structural element, system or subsystem is near at or beyond the end of the normal useful life of such a structural element system or subsystem is not by itself a material defect.
In my time as a real estate agent, I’ve encountered all sorts of people with all sorts of expectations. When it comes to a seller’s requirements to disclose, the top 9 myths I’ve encountered are:
I. If I don’t have a real estate agent, I am not required to disclose.
Everyone is required to disclose, regardless of professional affiliations.
When it comes to your legal requirements to disclose as a seller, professional representation has no impact on your responsibilities. The Department of State sets out these requirements, and they only care that you do it the right way. Ignorance and lack of training are not valid defenses when it comes to these things. As agents licensed by the state, my peers and I are likewise required to disclose material defects we are aware of.
II. If I am the executor of an estate and have never even been to the property, I am not required to disclose.
Even executors are required to disclose known material defects. This can be as simple as “I am the executor and have no knowledge of the property,” as long as that is the truth.
Just like the first myth, who the responsible party is does not effect disclosure requirements. As the executor, you are required to disclose anything you remember from the last time you were at the property, any expert reports you've received, and anything else you've learned about the property along the way. If you, as the executor, have never been to the property, you’re still required to disclose that information.
III. If I’m exempt from the disclosure paperwork, I do not have to disclose known issues.
Even if your property is excepted from filing a disclosure statement, you still have a common law duty to disclose known issues.
There are 10 specific cases where a seller’s disclosure form is not required by the Department of State. Most of these exceptions are administrative changes with little to no actual changing hands, though the details are not important here. Even these 10 specific situations that are excepted from filling out the disclosure form are required to disclose known material defects – there’s just not mandated paperwork.
IV. If it’s not on the form, I don’t have to disclose it.
The form is not exhaustive, and states as much on page 1.
This one is very cut and dry. The first page of the disclosure form clearly states that nothing about the form limits disclosure requirements. That is, the form is not the limit of what you need to disclosed. Furthermore, the last question is about any other material defects you know about. It’s a catch-all for anything not already covered on the form.
> These first 4 myths can all be headed off by remembering to disclose everything you know, even if that is not a lot. If something comes to mind when you think about problems with the property, you should disclose it. Having a professional real estate agent on your side through this process helps, as we are here to guide you through all the requirements.
V. It’s better not to get a prelisting inspection.
Knowing the issues ahead of time and preparing for them usually leads to a better overall transaction experience.
Knowledge is our best friend as we prepare to go to market. Yes, getting a professional home inspection leads to you knowing more about your home, and potentially more to disclose. Getting ahead of known problems lets us come up with a plan. Do we fix those issues before listing, go forward and hope to find a buyer that will accept the problems, or anywhere in between? Regardless, it’s better than having a deal fall through at the 11th hour thanks to an unexpected issue found in a buyer's inspector's report.
VI. If I don’t read an inspection report that has been delivered to me, I am not responsible for the contents of that report.
If an inspection report is delivered to you, you become responsible for the contents of that report whether you read it or not.
This one is a little bit tricky. Recently, there has been a wave of lawsuits from buyers who move in and learn their home is less pristine than they were lead to believe during the transaction and negotiation. While some of these suits come from buyers who waved their rights to an inspection, others center around seller disclosure requirements.
Some sellers believe that if they don’t read an inspection report, they aren’t responsible for any bad news it contains. However, the Residential Real Estate Transfers Law deems information that is available to you as your responsibility. Once that inspection report is marked as delivered, whatever it says becomes your responsibility to disclose. That includes filing an update to the disclosure form, if needed.
VII. Any inspection reports received need to be included in the disclosure.
Relevant material defects noted in inspection reports need to be disclosed, but the entire inspection report is not required to be included.
One of the biggest fears that go along with not wanting a prelisting inspection, many sellers are concerned to include wordy or slanted inspection reports with their disclosure statements. Inspections are opinions, even when they’re coming from state licensed professionals. The disclosure requirement is to include known material defects – not a word-for-word recount of an inspector’s thoughts on your home's decorating.
Be sure to still disclose everything included in the report, complete with all the technical details. You’ll never be in legal hot water for over disclosing with these, but it’s very easy to get in trouble for underreporting.
VIII. Only physical problems can qualify as “material defects.”
There could be legal or financial actions that impact the value of your property.
There are a few legal and financial situations that could qualify as material defects to your property. When we sit down and go through this form together, I’ll work through the details with you to figure out your situation. Chances are, none of these situations will apply to you, but it’s always best to be sure.
IX. Compliant disclosures completely protect me from problems that could arise.
Enhanced Title Insurance covers issues that may still arise and are not covered by compliant disclosure.
Unfortunately, no matter how well intentioned and comprehensive your disclosure is, there are situations where you could still be on the hook. The good news is that enhanced title insurance covers all of these, as well as many of the legal and financial material defects from myth #8. Check out my article on real estate title insurance to learn more.
That’s it! Those are the 9 seller disclosure myths I’ve encountered in my experience. While some of these myths come from questions around what needs to be disclosed and how, there are some situations where a professional’s expertise goes a long way. At the end of the day, remember to disclose everything you’re aware of, keep up with professional reports, and update your disclosures along the way.
While this covers what I’ve encountered, there are bound to be more myths out there. If you’ve heard any interesting interpretations of seller disclosure rights, or have any questions yourself, please reach out – I want to hear your stories!
Thank you for reading! I hope you found this article helpful. The next time you encounter someone who could use my help, just take your phone out and call me and we can talk about the best way for you to introduce them to me.
