This week, one of our buyer clients canceled an escrow after their inspections. The condition of the property was certainly part of the decision, but so was something else: information the sellers already knew but hadn’t disclosed.
The transaction started normally. Negotiations were straightforward, initial seller disclosures were delivered and our clients scheduled their inspections.
Then their home inspection began uncovering red flags.
Suddenly, we started receiving information that hadn’t appeared in the seller’s disclosures.
“Oh…we forgot to tell you about this.”
Then something else. And something else. The list grew in bits and pieces of “remembering.”
Among the surprises was a pest inspection the sellers had ordered approximately 11 months earlier showing more than $25,000 in Section 1 repairs. Then came a structural report indicating the house had moved approximately six inches and continued to experience movement.
Those weren’t conditions our client’s inspector discovered before anyone knew they existed. The sellers already had reports concerning them.
So, when is a seller supposed to disclose a known material fact? Before the buyer discovers it.
California sellers have an affirmative obligation to disclose known material facts affecting the value or desirability of a property. For most residential sales, the Transfer Disclosure Statement, commonly called the TDS, is one of the primary disclosure documents. In transactions using standard California Association of REALTORS® contracts, the Seller Property Questionnaire, or SPQ, typically provides considerably more detail.
The important word is “known.”
Sellers aren’t expected to be contractors, engineers or home inspectors, and generally aren’t required to investigate their property looking for problems they don’t know exist. But if they do know about something material, disclosure isn’t optional simply because they don’t believe it is important.
And repairing something doesn’t necessarily erase its history. A previous leak, structural problem, significant repair or other material condition may still need to be disclosed even if it was repaired. Prior inspection reports, estimates and other documents concerning the property’s condition can also be important disclosure information.
Timing matters, too.
Disclosure is intended to give buyers information they can consider while deciding whether to proceed with a purchase, how to conduct their investigations and whether the property remains acceptable to them. It loses much of that purpose when important information begins appearing only after the buyer’s inspector notices something suspicious.
In our transaction, our clients had already spent money inspecting a home before information began surfacing that could have affected their decision to proceed in the first place.
That’s precisely why I tell sellers not to think of disclosures as a place to make their house look good. They’re not marketing materials.
If you’re preparing to sell, slow down when completing them. Think back through repairs, insurance claims, leaks, pest work, structural concerns, permits, neighbor issues and previous inspections or reports. Pull out old paperwork if it helps refresh your memory.
Sometimes sellers worry that disclosing a problem will scare a buyer away. Maybe it will. But finding out later that the seller already knew about it can be far more damaging to the transaction.
When in doubt, disclose. Surprises are wonderful for birthdays. They’re terrible in escrow.
Theresa Grant is a real estate broker and columnist covering Lake Arrowhead, Crestline, Running Springs, and the surrounding mountain communities. Reach her at (909) 442-1345 visit www.HomesInLakeArrowhead.com, and follow her on social media @TheresaGrantRealtor. Theresa is a Broker Associate with REAL Broker Technologies. DRE#01202881.
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