PROPERTY CONDITION DISCLOSURE FORMS: HOW THE REAL ESTATE INDUSTRY EASED THE TRANSITION FROM CAVEAT EMPTOR TO "SELLER TELL ALL"

Real Property, Probate and Trust Journal, Summer 2004 by Lefcoe, George

[W]hen safety violations exist in electric panels, such as overfused circuits or a bonded neutral buss in a subpanel, if outlets are ungrounded, if the forced air furnace has a cracked heat exchanger, emitting carbon monoxide into the home, whether the drain pipes beneath their homes are leaking, not properly installed, corroded, damaged or have been improperly modified.124

The list of defects a trained building inspector would catch, but that most sellers and brokers would miss, could go on for pages.

Most buyers understand that a seller's account of property defects could be biased, even if a seller is making every attempt to tell all. A seller's desire to sell could skew the seller's perceptions of the property's shortcomings. Besides, sellers need only disclose what they know. Not being experts in construction, they may not discern all the home's defects. But when brokers are required to reveal their own observations about the condition of the property, some buyers may place too much confidence in the broker's disclosure and be lulled into believing they can do without a professional inspection.125 Seller disclosure forms eliminate this by explicitly alerting buyers of the need for professional home inspections.

Realtors have concluded that the best way of dealing with Easton-type exposure to liability is to shift the primary responsibility for property disclosures from brokers to sellers and to insist buyers hire professional home inspectors.126 Most Realtor-drafted forms make it abundantly clear that the property condition disclosure is no substitute for the buyer's due diligence. Forms insistently urge: "BUYER SHOULD OBTAIN PROFESSIONAL ADVICE AND INSPECTIONS OE THE PROPERTY TO MORE FULLY DETERMINE THE CONDITION OF THE PROPERTY."127 The Utah Association of Realtors goes well beyond this and presents buyers with a two page, single spaced property checklist containing sixteen numbered items, each pointing to an area of inquiry the buyer would be well advised to pursue, including building code or zoning compliance, surveying, geologic conditions, mold, water availability, property taxes, and income tax or legal consequences.128

Fortunately, as the use of property condition disclosure forms has become commonplace, more buyers than ever are yielding to the repeated entreaties of Realtors and are hiring home inspectors to check the items signaled for attention in the disclosures presented to them. In the years following the enactment of California's property condition disclosure law, the use of independent home inspectors tripled.129 According to a recent study, seventy-seven percent of home buyers had inspections done before buying.130

VI. A COMPARISON OF SELLER DISCLOSURE FORMS

A. Who Should Promulgate the Forms: State Legislatures, State Regulatory Agencies or Local Realtors?

The property condition disclosure form may be embedded in a disclosure statute, drafted by the state agency responsible for broker licensing, or written by state and local Realtors associations or brokerage firms. Often, lawyers prefer using statutory forms, relying upon them as safe harbors, an assured way of achieving full compliance with the law. But in this situation, no safe harbors can be found because the disclosure statutes do not purport to pre-empt the evolving common law. Sellers remain obligated to disclose all known material latent defects-whether mentioned in the form or not.