If you are a Realtor® who invests, or a Wholesaler, you are naturally beginning to notice that the amount of paperwork we do in our profession is not going down! By no means! If anything, it is on a spiraling path upwards as the threat of lawsuits and legal action pose a very real threat. Even if you are guilty of nothing, the cost to defend yourself in a court of law can be in the thousands of dollars and hundreds of lost hours of productive activity.
Therefore, it makes sense for us as a industry to be aware of the various disclosures that we must have in our files to remain compliant with even the basest, lowest common denominator laws across the country. What would the disclosures that a Wholesaling Investor or Realtor® want to have in their Investor file? Follow along!
It begins with understanding what a “Material Defect” is. A material defect is defined as “Any fact that may have a significant and reasonable impact on the market value of the property is material.” With that being said, it seems that practically ANY factor that a buyer could find has a significant and reasonable impact on the value is something that would fall into this category. As a Seller (when you purchase it to sell IF YOU DOUBLE CLOSE) then you now assume certain mantles of responsibility to disclose to your potential end use buyer of any fact that may affect their decision to purchase.
On homes constructed prior to 1978, Federal law gives purchasers a ten day period to inspect for lead based paint.
The biggest of all is Lead Based Paint. On homes constructed prior to 1978, Federal law requires that all purchasers of those properties be allowed a ten day inspection period to test for Lead Based Paint in the home. No amount of “I’m just assigning the contract” will relieve the parties of their obligation to disclose of any known lead based paint hazards in the house. Be sure to include the Housing and Urban Development’s Disclosure of Information on Lead Based Paint and/or Lead Based Paint Hazards in your file paperwork.
The next category is with regards to needed repairs. Although a home may be purchased “as-is, where is” it does not relieve the Seller nor their agents from the responsibility to disclose any facts that the buyer may deem material to their decision making process. For example, repairs done to a roof 4 years ago that now need repair or replacement would be a disclosure item. An air conditioning unit that is in good working order, but is 15 years old, simply must be disclosed the age to the best knowledge of the seller. The idea of disclosure with regards to repairs or anticipated repairs, is the ability to tell the prospective purchaser of any known factors that could affect their decision. The idea of being totally “upfront and honest” about the property condition. As Brokers, we advise our clients to fill out a property disclosure form. For a sample of the questions you could use, you could always use this Seller Property Disclosure Statement to begin to discover what areas you need to inspect further for additional information. It is not a deposition of the property’s actual condition, but the owners best knowledge to help discern problem areas.
Of course, we would be remiss if I didn’t mention damage. Damage caused by Termites, or other pests (scorpions, spiders, etc) as well as water, fire, or mold. Damage that is immediately apparent, should nonetheless be disclosed. Water damage in the past that has been resolved, particularly as it relates to mold is something that must be disclosed to any potential purchaser.
And of course, finally, Stigma. Stigmatized properties can sometimes have a requirement to disclose. Check your State requirement for any of the following
- Criminal Activity
- Haunting/Various Phenomena
Unbelievably, these issues can play an enormous role in the sale price, desirability as well as resalabilty of the homes in question. For example, Nicole Brown Simpson’s California home sold for quite a bit less than hoped for. Therefore, if it can affect the pricing of what a home is worth, then it is clear that it is important for you and I to ensure we know what the rules are for our areas.
The rule “Caveat Emptor” (Let the buyer beware) is only as strong as the Seller’s ability to truthfully reply to questions asked about the home. In some cases, Sellers do not have to tell prospective buyers about Sex Offenders, or if previous Owners had AIDS/HIV, and the States leave that upon the Buyer. That without a doubt places the ball firmly in our court to do our due diligence about what we are selling.
Why this is important to us is clear. If we are to get treated and paid like the professionals we aim to be, then is it not incumbent upon us to do the very best we can to ensure the products we sell are good? Tell me what you think!