If I Tell Them That, It Won’t Sell
Ohio Revised Code Section 5302.30 requires the seller of residential real estate to complete a form disclosing conditions and defects with their property and provide it to a potential buyer. This puts sellers in the proverbial catch-22 of trying to maximize the sale price on their property while trying to comply with the disclosure requirements.
Many of the items that require disclosure, such as existence of radon, water leaks, termites, and problems with water quality, stand to significantly impact the sale’s bottom line either through a reduction in the sales price or by having to chip in for repairs. In the current economic environment the temptation to “be creative” with the disclosure form is stronger than ever.
In completing the disclosure form it is important to note the acknowledgement the seller will sign. The acknowledgement states that the form was completed in good faith and based upon actual knowledge. R.C. 5302.03 defines “good faith” as “honesty in fact in a transaction involving the transfer of residential real property.” This is a high standard which will haunt the seller should a question of incomplete disclosure ever arise.
Many sellers may think that the existence of “as is” language in the purchase agreement relieves them of liability for defects that are not disclosed. However, Ohio courts have stated that an “as is” clause cannot be relied upon to bar a claim for fraudulent concealment. This is where sellers get into trouble by not being completely forthright on the disclosure form. Sometimes sellers compound the problem by arranging furniture or artwork to hide a water stain on the wall, or they pile junk in an area to block access to a crawl space. This type of action results in serious consequences and should be avoided.
Additionally, Ohio law imposes a duty to make a full disclosure in circumstances where such disclosure is necessary to dispel misleading impressions created by a partial revelation of the facts. Melenick v. McManamon, 2010 WL 973451. In this case the seller highlighted basement waterproofing work but failed to mention that one wall of the foundation had moved off of its footing. This condition was hidden to buyer because the basement was finished. Therefore, listing a repair should not be done to make a buyer think seller has fixed all problems when some related problems remain.
Another common pitfall is when a seller thinks a problem has been fixed. The defect or condition may have been completely remedied and the seller has not had an issue since the repair was made. However, for certain types of problems the prior problem and the repair need to be disclosed. If a prior problem is disclosed as fixed, the buyer will likely not make an issue out of it. However, if the fix is not disclosed and a problem does later occur the buyer would have grounds to question the adequacy of the disclosure.
The failure to completely disclose material problems with real estate can have significant consequences. It can involve termination of the sale or litigation involving claims of fraud and material misrepresentation. If fraud is proven by buyer, the seller may be responsible for the cost to remedy the problem, the buyer’s attorney’s fees and even punitive damages. Defending such an action can quickly become expensive. This likely will hurt the bottom line more than an accurate disclosure ever would.
From the buyer’s perspective it may seem like the disclosure requirement eliminates the age-old maxim, caveat emptor, buyer beware. However, the buyer must be careful not to take these real property disclosures for more than they really are. These disclosures do not act like a warranty. In fact, the first paragraph of the form admonishes a buyer from considering the disclosure as a warranty or a substitution for obtaining a professional inspection.
It is important to remember that the real property disclosures only require a seller to state what is in their personal knowledge. Therefore, a homeowner may have never gained access to an attic or crawl space and never discovered water intrusion, mold, or insect infestation. Buyers should undertake a diligent review of the property and hire a home inspector if they are not versed in these areas.
The homeowner can be unaware of a problem simply because of ignorance. In my own experience purchasing a house, the owners were not aware that the home's furnace had been recalled by the manufacturer because of a danger of explosion and fire. The home inspector I hired discovered this problem and the furnace manufacturer replaced the furnace at no cost. However, the prior homeowner lived in a house for years simply uninformed of this dangerous condition. Therefore, inspections can help a buyer find out problems that may be outside the owner’s knowledge or area of expertise.
Buyers must be aware that they are imputed with the knowledge that could have been discovered from an adequate inspection of the property or if the defect is open and observable. This can be true even if a buyer waives their right to an inspection. Therefore, buyers need to continue operating under the buyer beware principle.
Both buyers and sellers can gain a significant advantage by consulting with a real estate attorney when selling or buying a home. Parties often attempt to save money by relying on their real estate agent. However, legal advice can only be given by a licensed attorney. The old maxim that says an ounce of prevention is worth a pound of cure is especially true when it comes to real estate sales.
