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

While contracting parties are never required to disclose everything they know about the subject property, scholars of law and economics distinguish between information casually acquired and information obtained through deliberate and costly research.28 To learn of latent defects, most buyers would need to pay for professional assistance. Sellers learn of such defects in the normal course of homeownership without any special investment in the acquisition of the information. Requiring sellers to share this information with prospective buyers saves buyers money.

Although courts recognize that the price buyers are willing to pay often depends on their assumptions about the condition of the property,29 courts do not determine whether a condition is patent or latent based on evidence of whether the purchase price or other deal terms accounted for the condition.30 Instead, the courts draw distinctions rooted in their common sense assumptions of what buyers would observe or overlook. For instance, the purchaser of a four-plex with no on-site parking was presumed to have noticed the lack of parking when he visited the site.31

In practice, courts differ on whether certain types of defects are patent or latent. For example, courts are divided on issues of whether buyers should notice termite infestation outside of the normal termite swarming season32 or water intrusion into crawl spaces located beneath the house.33

4. Reliance

Whether a reasonable purchaser would rely on any particular statement made by the seller or the seller's agent may become a contested question of fact.34 Courts have forgiven some sellers and brokers for some sales puffing (the kind of promotional chatter most buyers would ignore).35 Buyers can rely on statements of fact made by sellers or brokers, but not on statements of opinion.36

Even with proof that a seller lied about a material fact, a buyer is not assured of prevailing if the lie was transparent. If a buyer sees clues sufficient to indicate potential sources of trouble, a homebuyer's exercise of due diligence may require hiring professional inspectors37 and making inquiries to local officials regarding zoning, building code compliance, and environmental conditions.38 Lackadaisical buyers risk being burdened with seriously defective houses or parcels of land on which they cannot build.39

Buyers who learn about defects from their own inspectors cannot claim to have justifiably relied on the seller's misleading statements or failure to disclose.40 Courts instruct juries that a buyer who hires a professional inspector is presumed to depend upon the inspector's conclusions and not upon contradictory, casual statements made by the seller.41 Even when a buyer's professional inspector negligently overlooks a serious property defect, some courts have denied buyers recourse against the sellers or brokers.42 Other courts do not allow the negligence of the buyer's inspector to excuse the seller's dishonesty.43 An intermediate position would allow a finding of contributory negligence for the buyer's failure to make an adequate inspection.