12 things you should know about seller’s disclosure
Must a death in a property be disclosed? What about the presence of nearby sex offenders? If a problem has been remedied, should it be listed on the form? Get answers to these questions and more.
There are several disclosure notice forms available. Which one should I use?
The TREC Seller's Disclosure of Property Condition form is essentially a copy of the statutory minimum information set out in the Texas Property Code. Texas Association of REALTORS® attorneys recommend that Texas REALTORS® use the TAR Seller's Disclosure Notice, which has additional provisions to increase the information provided to buyers. This additional information is designed as a risk-reduction tool for sellers and as an information source for buyers. Some local REALTOR® associations also offer a disclosure form.
Are there exceptions that exempt a seller from providing a disclosure notice to prospective buyers?
The seller's disclosure notice statute contains 11 narrow exemptions. You're not likely to come across these situations frequently. The most common of these exemptions apply to:
- A builder of a new home
- A trustee or executor of an estate
- The lender after foreclosing on a property.
Even though these types of sellers (and a few others) are not required to provide a disclosure notice, they still must disclose any known material defects. For example, if an inspection report reveals material defects, the seller and broker are obliged to disclose those defects. Therefore, a lender who knows about a cracked foundation in a property that the lender acquired through foreclosure must disclose the defect to any buyer who purchases the property from the lender. The means of disclosure is not mandated.
Is the owner of a duplex required to provide a seller's disclosure notice?
No. Although seller's disclosure-notice requirements only apply to sellers of residential property comprising “not more than one dwelling unit,” the owner of a duplex may decide to provide the notice for each side of the duplex. The seller's disclosure notice can be a significant risk-reduction tool.
I have a listing for the lease of a home. An agent representing a prospective tenant told me that since the proposed lease was for a year, the owner had to provide the tenant with a seller's disclosure notice. Is that correct?
No. The statutory requirement to provide the notice does not apply to any lease transaction, no matter the duration of the lease period.
Does a seller have to disclose a previous death in a property?
The statute does not require disclosure of deaths by natural causes, suicide, or accidents unrelated to the condition of the property.
Deaths caused by an accident related to a condition of the property are not covered by the “no duty” statute and most likely need to be disclosed. This is the case even if the condition has been remedied. For example, although it could be argued that a swimming-pool death may be related to the lack of a proper pool enclosure, a seller who installs a proper pool enclosure before the property is placed on the market should still consider disclosing the death, as it was related to a condition of the property.
Murder is not covered by this “no duty” statute either. Since a murder occurring on the property might be considered a material fact a buyer would want to know, it's prudent for sellers to disclose. The TAR Seller's Disclosure Notice contains a question that asks the seller about deaths not covered by the “no duty” rule. If a murder has occurred on the property, the seller should answer this question in the affirmative.
In explaining the yes answer, the seller is not required to explain in great detail the circumstances surrounding this death. The seller might include a statement that indicates more detailed information about the murder is available upon request.
Since neighbors will likely inform buyers about deaths on the property—even deaths that do not by law require disclosure—sellers may choose to voluntarily disclose information about all deaths. Doing so may prevent situations in which buyers concerned about deaths on the property want to terminate pending contracts.
If a seller receives a copy of an inspection report from a buyer but the contract with that buyer falls through, must the seller or broker provide copies of the previous inspection report to the subsequent purchaser?
Sellers and brokers should consider doing so. The seller and broker have a duty to disclose any known material defects. Possession of a prior inspection report may be evidence of the seller's or broker's knowledge of a known defect. There is no statute or other law that specifically states the prior inspection report must be provided. The question is whether the known material defect, which may be noted in the prior inspection report, has been disclosed. Most risk managers and defense attorneys suggest that the broker or seller provide the prior inspection report to avoid allegations of nondisclosure or mischaracterization of a purported defect.
The TAR Seller's Disclosure Notice asks the seller to list and attach copies of previous inspection reports performed in the last four years. The notice cautions the buyer against relying on previous reports as a reflection of the current condition of property and suggests that the buyer employ an inspector of the buyer's choice.
If a seller and broker believe a previous inspection report erroneously identifies an item as needing repair, must the seller provide a purchaser with a copy of the report?
Absent expert evidence, a broker is not qualified to determine that an inspector was in error. The same is true for most sellers. However, if a seller believes an inspector made a mistake, the seller could ask the inspector to re-examine the item or seek a second opinion from another inspector or expert. If the second opinion conflicts with the first, the seller and broker may provide all information to any subsequent purchaser (including the qualifications of both experts) and suggest that the subsequent purchaser employ his own inspector to determine the state of the item.
If a seller repairs all the items an inspector noted as in need of repair, must the seller provide a purchaser with a copy of that inspector's report?
A prudent seller and broker would convey all information regarding previous inspections to a purchaser including the previous inspection report and any invoices showing that repairs were made. Once an item is repaired, it is no longer defective, and disclosure of repaired items is not required except as noted in the seller's disclosure notice (namely, previous fires, previous flooding, previous foundation repairs, previous structural repairs, and previous termite treatment and repairs).
An inspector hired by a prospective buyer who did not purchase the property contacted the seller and stated that neither the seller nor the seller's broker can provide a copy of the inspection report to a buyer who has not paid for the report. Is the seller or the seller's broker prohibited from providing a copy to a subsequent purchaser?
A seller or seller's broker is only prohibited from sharing a copy of an inspection report with a subsequent buyer if the seller or the seller's broker is the client of the inspector (i.e., the seller or the seller's broker ordered the inspection) and the seller or seller's broker signed an agreement prohibiting the seller or broker from sharing the report.
Most inspectors know that a client will use the inspection report to negotiate repairs in a transaction and that the client may need to provide a copy of the report to the other party. This is what provides demand for the inspector's business. Most inspectors do not require that their clients sign confidentiality agreements prohibiting the client from sharing the report with others. Even if an inspector has a client sign a confidentiality agreement that limits the client's right to copy and distribute the report, that agreement is binding only upon the client and not upon any other person who may receive a copy
of the report.
When representing buyers, you may want to advise your clients about the potential consequences of signing a confidentiality agreement pertaining to an inspection report. Signing such an agreement and then sharing the report with others during negotiations could expose your client to legal risk.
On behalf of my buyer, I attached the inspection report the buyer paid for to an amendment for repairs and submitted that to the seller's agent. The seller and the seller's agent refused to open the report or negotiate for any repairs. What can the buyer do in this situation?
A broker or seller who receives an inspection report is charged with knowledge of the information in the report even if the broker or seller does not open the report. While sellers and listing agents should review inspection reports they receive on the property, a buyer and/or buyer's representative can't force them to do that.
Additionally, there is no requirement that sellers agree to or even consider amendments requiring the seller to perform repairs to the property. Buyers should have inspections performed and negotiate any repairs during the buyer's option period. If the buyer is not satisfied with the information in the inspection report or cannot get the seller to agree to requested repairs, the buyer can exercise his right to terminate the contract.
Two of my listings involve homes that may have registered sex offenders living nearby. There is a sex-offender sign in the yard of a property about two blocks from one of these listings. The other homeowner's neighbor sent us a flier describing the sex offender and where he lived. What disclosures are we or our clients required to make about this information?
The Texas Code of Criminal Procedures provides that an owner of residential real property or any broker or salesperson in a residential real estate transaction shall have no duty to make a disclosure to a prospective buyer or tenant about a registered sex offender. Under this provision of the law, neither you nor the owners of the properties would have a duty to disclose any information that you know about registered sex offenders.
However, since it is quite likely that prospective buyers will find out about this information from neighbors or other sources, some listing agents provide an innocuous method of getting this information to agents for prospective buyers. The TAR Seller's Disclosure Notice includes a paragraph in the “Additional Notices to Buyer” section with information about how a buyer can search for sex offenders in specific areas.
My client's home has been on the market for several months. We now have a buyer who is interested in buying the property but refuses to sign the seller's disclosure notice until the seller updates the notice that was prepared and signed at the beginning of my listing period. Must the seller update the notice, and can the buyer refuse to sign the notice until the seller does update it?
The Property Code requires that the notice shall be completed to the best of the seller's belief and knowledge as of the date the notice signed by the seller. A seller who has acquired material information about the property's condition since filling out the original notice should update the notice or in some other manner provide that information to prospective buyers.
Though there is no statute mandating buyers to sign the notice, buyers should cooperate. Such a signature could be helpful should a question later arise concerning whether the buyer received this notice or maybe another seller's disclosure notice provided by a seller containing different information. If a buyer refuses to sign the receipt for the notice, the broker could note on a copy of the notice the date that the notice was provided to the buyer and that the buyer would not sign the receipt. That noted copy could be retained in the broker's file as evidence of compliance by the broker in furnishing a copy of the notice to the buyer.
Advice for REALTORS®
The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.
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