Happy September! We hope you had a great Labor Day weekend, and will enjoy the remainder of the summer as we look forward to the transition into autumn later this month.
This month, we’ll talk about the background history and practical use of the seller disclosure statement. The seller disclosure statement is common in residential real estate transactions and often taken for granted. However, it did not exist before 1985. Prior to that, buying a house was like buying a second-hand car, in that the seller didn’t always tell the buyer if there were hidden defects.
Q: What is the seller disclosure statement? Must I fill one out before I can sell my home?
In the landmark 1985 legal case (Johnson v. Davis, 480 So.2d 625, Fla. 1985), the Florida Supreme Court ruling changed the long-held tradition of “caveat emptor” or “buyer beware” when it comes to residential real estate transactions.
The Davises (buyer) had signed a purchase contract with the Johnsons (seller) to buy their house. The Davises had asked about some plaster damage around a window frame and some stains on the ceilings in a couple of rooms they noticed. The Johnsons replied that the window had a “minor problem that had long since been corrected”, and that the ceiling stains were wallpaper glue. They assured the Davises that there was “no problem with the roof”.
Later in the transaction but before closing, in the wake of heavy rainfall, the Davises discovered significant roof leaks that would require a roof replacement.
The Davises subsequently sued the Johnsons, alleging that the house had a defective roof which the Johnsons failed to disclose. The Florida Supreme Court’s ultimate ruling in favor of the Davises established a new standard that the seller of a home has a duty to disclose to the buyer all known facts that materially affect the value of the property that are not readily observable or known by the buyer.
The law doesn’t actually require this disclosure to be in writing. However, putting things in writing is the best way to document what’s said. Florida Association of Realtors created a Seller’s Property Disclosure form to help sellers comply with the disclosure requirement. I’ve seen different versions of the seller disclosure created by different companies. They are all intended to help with the process, while none is a “required” standard form.
When we help homeowners prepare for the home selling process, we give them a blank copy of the disclosure form. This form is in a question-and-answer format, intended to help the sellers to follow and think in an organized manner. Otherwise, it’s not easy to remember everything, especially if they have owned the home for a long time. It’s best to think of this form as “a way to come clean” on past history and potential issues of the home. Once the sellers disclose something, and the buyers acknowledge and sign off on it, the buyers are not likely to call after closing. Otherwise, “failure to disclose” is an unfortunate reason that sometimes comes back to haunt the sellers after a successful closing. Remember “when in doubt, disclose, disclose, disclose!” If a seller does not know something, it’s perfectly okay to answer “Don’t Know”. Sellers are only responsible to the extent of their knowledge and awareness.
Some examples of clear and concise statements are below. Although, they do not have to be short. I’ve seen sellers attach extra pages and wrote in paragraph form.
“Roof leaked around the chimney in 2015, repaired by roofer, no problem since”
“Termites were found in the guest bedroom in 2014. Treated by Terminix with full termite bond and no problem since. The termite bond is transferrable to new owners”
We have managed many transactions where the home had significant negative past issues, such as flooding, water damage, and mold. When buyers have the proper disclosure, combined with their home inspection to assess the current home condition, they can make educated decisions. It is ill-advised to attempt to hide problems and force a sale. The important thing for the sellers is to have the peace of mind that they’ve sold their home properly. The important thing for the buyers is to have the information so they can make the most informed decision about their purchase.
For buyers, we advise that it’s crucial to understand the seller disclosure is not a guaranty or warranty of any kind. It is not a substitute for any inspections, warranties, or professional advice. It is also not a substitute for buyers’ own judgment and common sense. The information is based only upon the sellers’ actual knowledge and they may not know about all material or significant items or hidden defects. A professional home inspection is a must. The original Johnson vs. Davis case may not have occurred if the Davises simply had a professional home inspection. From what I remember, it was a for-sale-by-owner situation where neither party was represented by a real estate professional. We real estate professionals are well versed in the details and nuances of a transaction. Even though real estate agents are not required in a transaction, we do help transactions progress properly and as smoothly as possible, for both parties.
We will stop here. Please send in your own real estate related questions. Let us know how we can help. Also let us know who we can help. We love referrals!