Realtor - January/February 2015

top of mind
Property Defects and You

Disclosure problems are the single biggest source of
negligence actions against practitioners.

Three years ago, I was buying a small investment property and my real estate agent marched into my office unannounced. She tossed onto my desk a stack of property disclosure forms that the seller and [listing] agent had filled out and asked if I had read them. I told her I hadn’t yet had a chance to look at them as carefully as they required. This was an inexcusable omission on my part since, as an attorney who has worked with property buyers, sellers, and agents on hundreds of matters, I know how important it is to review such disclosures carefully.

As it turns out, the disclosures made it clear the property needed to be tented, which is a procedure exterminators use to encapsulate and fumigate a property that has signs of termites. I ended up buying the property despite the termite situation, but the story illustrates the key role my agent played in making sure I had read and understood the disclosures before I made my decision. In my several decades of practicing real estate law and serving on several legal committees for the California Association of REALTORS®, the single biggest legal liability I continue to see facing real estate professionals is negligence on property condition disclosures.

Look for Inconsistencies

Disclosure requirements differ by state,
but most states today have some form
of property disclosure form that sellers
are required to complete. In California we
have a state-mandated disclosure form
as well as additional forms that are more
detailed, including a buyer’s advisory.
This gives buyers several opportunities
to understand potentially troubling
issues with a property. As a real estate
professional, you can help your client by
pointing out any inconsistencies between
the reports.

A problem might be described differently on two separate forms, or there might be a mismatch between the written description of a problem on one form and its visual depiction on another. These inconsistencies are a red flag that the property needs a thorough going-over by a property inspector.

If your state doesn’t have a multiple disclosure requirement, it’s no less important for you to understand what the disclosures you do have are saying so that you can point potential problems out to your clients, like my agent did for me.

If you just pass the disclosure form along to your client, then you could become a target if your client finds an issue such as an insect infestation after purchase and sues you. You could be cited for negligence for failing to point out problems or not making an effort to explain them.

Whether you’re found to be negli-
gent, either in a lawsuit or an arbitration
proceeding, will depend on the facts of
the case. But you can do more to protect
yourself by not only pointing out issues
to your clients but also documenting that
you actually did so. It’s important to send
your concerns in an e-mail so you both
have a record of it.

Be Sure to Communicate

Written communication is always a good practice, but it’s especially important if you’re working in a hot market in which properties are seeing multiple offers and buyers are paying more than the listing price. After spending top dollar for the property, the last thing they want to see is a property condition they weren’t aware of but that was in fact disclosed.

If you approach property condition disclosures with skill, care, and diligence, and you’re equally careful about documenting what you tell buyers about the findings, you’ve done what you can to protect yourself should something turn up after purchase, and you’re less likely to be part of the next negligence case to come across a lawyer’s desk.