What Real Estate Agents Should Know about Sellers’ Disclosures
By: Marshall C. Deason, Jr., Board Certified Real Estate Lawyer, Older Lundy & Alvarez, Tampa, FL
In 1998, the Florida Supreme Court decided the case of Johnson v. Davis, which created a new duty for sellers of residential real estate. In this case, the Court ruled that sellers must disclose any material defects in the property which are known to the seller and which are not open and obvious. In the line of cases which followed over the next several years, courts ruled that the duty to disclose applies to real estate brokers and agents and that making a sale “AS IS” does not eliminate or limit the duty to disclose. In addition, a buyer cannot waive the right to receive disclosure.
The duty to disclose, however, does not exist in sales of commercial real estate. In commercial real estate, the rule remains caveat emptor (let the buyer beware).
What Must Be Disclosed?
Material defects must be disclosed. A “material defect” is a defect which would affect the purchase price of the property. Examples of material defects include, but are not limited to, sinkhole activity on the property or surrounding properties, appliances which are not in working condition, roofs or windows which leak, and work done on the property by unlicensed contractors.
Defects like ugly paint on the walls or bullet holes in the picture window may cause the house to sell for a lower price. However, such defects do not have to be disclosed because they are obvious to anyone looking at the property.
In addition, the seller must have actual knowledge of the defect. For example, an older house may have knob and tube wiring which must be replaced to bring the house up to code. However, unless the seller is, or has hired, an electrician who has removed plaster or sheet rock to examine the wiring, it is unlikely the seller will know anything about the electrical wiring in the house.
Neither the seller nor the real estate agent has any duty to investigate or inspect the property. The seller and the agent must have actual knowledge of the defect. Unless a real estate agent has actual knowledge to the contrary, the agent may rely on representations made by the seller.
In addition to the disclosures required by Johnson v. Davis, several other items must be disclosed to buyers. These include the possibility that lead paint was used in houses built prior to 1978, the possibility presence of radon gas, and the “R-value” of insulation in new construction.
What Does Not Have to Be Disclosed?
Required disclosures have been limited in certain circumstances. In Florida, it is not necessary to disclose any of the following items:
- The fact that someone died or was murdered in the house.
- The fact that someone who lived in the house had AIDS.
- The belief that the house is haunted.
What Form Should the Disclosure Take?
There is no required form for seller disclosure. The seller’s disclosures may be oral rather than written. However, so it will be clear which disclosures were made, it is better practice for the seller to disclose the defects in writing.
Most lawyers who draft residential real estate contracts make the seller disclosures part of the contract. Most real estate agents use the Florida Realtors® Seller’s Property Disclosure. The Florida Realtors® form does require the seller to provide comprehensive information about the property. However, its primary purpose is to protect the real estate broker and agent from liability rather than providing accurate seller disclosure of material defects.
Use of the Florida Realtors®’ Seller’s Property Disclosure form does not provide a broker or agent absolute protection from liability for failure to make disclosures to the seller. For example, if the broker knows the houses in a neighborhood are on septic tanks and no county sewer hookups are available, the broker has a duty to disclose this to the buyer if the seller indicates on the disclosure form that the property has county water and sewer. Similarly, if the agent knows that the street on which the property is located is being widened and, because of the widening, the owner of the property will no longer be able to park cars in the driveway, the agent must disclose this to the buyer, even if it is not known to the seller.
What Happens If Defects Aren’t Disclosed?
Generally, buyers who discover defects in the property after closing are not happy. When the septic tank that isn’t supposed to be there overflows during their daughter’s backyard wedding, their first call is to their lawyer. Real estate brokers and agents are the first target of lawyers who handle this type of suit.
Lawyers look to brokers and agents instead of sellers for several reasons:
- Real estate brokerages are easy to find; sellers frequently leave town after closing.
- Sellers frequently spend most of the proceeds from the sale paying off mortgages on the property and are not left with enough money to pay a judgment.
- Real estate brokers usually have errors and omissions insurance coverage to pay for their mistakes.
- Judges and juries look less favorably on real estate brokers and agents than they do on ordinary homeowners.
Cases about disclosure are fact-dependent. A plaintiff will have to prove the real estate agent had actual knowledge of the defect. Because of this, the broker’s first line of defense is the seller’s disclosure form. The broker’s first response will be: “All we know about the septic tank/sewer situation is what we were told in the seller disclosure statement.”
If there is no evidence to the contrary, the disclosure statement will protect the broker and agent. However, if the agent lives in the neighborhood or has sold multiple properties in the area, it is likely the agent knew the houses in the neighborhood had septic tanks. This knowledge may result in liability for the agent. If there is video of the agent speaking at a County Commission meeting asking the county to expand sewer service to the neighborhood, the agent will have no chance of winning the suit.
Conclusion
Courts require sellers of residential real estate to disclose defects to prevent buyers from being cheated. Real estate agents who do not disclose defects can be sued for cheating the buyer. To protect themselves, real estate agents should use the Florida Realtors’ Seller’s Property Disclosure. They should review this form carefully with the seller to make sure there are no mistakes. If there are material defects in the property that are not mentioned in the form, the agent must inform potential buyers of these defects. If an agent is unsure about what to disclose, the agent should discuss the situation with his or her broker or with an experienced real estate lawyer.