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

Realtors in Oregon were also troubled because sellers often received conflicting advice from their real estate agents and attorneys about whether to disclaim or disclose. Attorneys tended to recommend disclaimers to narrow the seller's exposure to legal risk. Real estate agents tended to encourage disclosure as a marketing tool to instill buyer confidence in the property. Realtors also observed the strong negative reactions of some buyers who took a disclaimer as a signal of a seriously defective property or an entirely untrustworthy seller.181 So, Oregon Realtors persuaded the legislature to eliminate the disclaimer option.

The language of disclosure forms must take into account whether sellers have the choice of opting out. In North Carolina, for instance, the disclosure statute extends to sellers the right to make "no representations as to the characteristics and condition of the real property or any improvements . . . except as otherwise provided in the real estate contract."182 Tracking this provision, the form prepared by the North Carolina real estate commission allows sellers to answer each question "Yes," "No," or "No Representation."183

A few forms have been modified because earlier versions made the mistake of giving sellers what appeared to be a back door disclaimer by allowing them to answer "Yes," "No," or "Unknown." "Unknown" was deleted because some brokers were telling sellers they could not go wrong checking "unknown" as an answer to every question. This was bad advice because denial of knowledge the seller actually possesses is a misrepresentation. Unknown is not synonymous with no representation.

F. Should a Seller-Provided Inspection Be an Acceptable Substitute for the Seller Disclosure Form?

A few disclosure statutes, such as Minnesota's, purport to relieve sellers of completing the property condition form if they substitute a professional home inspection in its place.184 Two questions can be raised about statutory disclosure and home inspections: (1) Should sellers be relieved of their disclosure obligations if they pay for a professional home inspection? (2) Should the states impose an obligation on sellers to pay for a professional home inspection?

In response to the first question, the use of a professional home inspection does not replace the need for the seller's property condition disclosures. Without the seller's disclosures, many significant matters-from roof leaks to flawed foundations-could easily escape the attention of even the most astute inspector. According to one report, "Most inspections are based on visual observations only."185 Inspectors are not required to enter dangerous areas of the property, inspect for rodents or hazardous substances, disassemble components, or drill holes in the wall or foundation. An inspector would not be able to test the air conditioner on a chilly winter day, pull up the carpets, remove wall hangings, or drag heavy furniture out of the way to look for hidden dry rot, water stains, or other evidence of defects.186