Pat Kennedy - Your Washington, DC Real Estate Connection

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Caveat Emptor: Is It a License to Lie, Cheat and Steal?

Caveat Emptor: Is It a License to Lie, Cheat and Steal?

Last week, Lenn Harley did a great series, including one on Caveat Emptor vs. disclosure.  And if you haven't read it, I suggest that you do.  She makes some great points.

I sell homes in three different jurisdictions, the District of Columbia, Maryland and Virginia.  And each has different rules governing property condition disclosures.

In DC, you gotta disclose, unless it's an estate or other trustee sale.

In Maryland, you have a choice.  You can disclose or not - it's the seller's choice.  But if there are known problems, you need to fess up about what they are.

Then there is Virginia, a Caveat Emptor jurisdiction where the seller need not disclose a thing.  Buyers basically must understand that what they see is what they get - get a home inspection.

Whatever the ground rules where I happen to be selling, it's important (as Lenn says) to NOT rely solely on the seller disclosure for information about a home you plan to buy. 

  • Sellers, even if they have lived in the house for decades, may not be aware of problems with their homes.
  • Sellers may know about problems with their homes and go to great lengths to corneal those problems.

A home is a complicated conglomeration of appliances and systems.  Even if the seller is a handy person with a degree in engineering who is compulsive about maintaining the home, there may be plumbing or electrical issues that could create safety issues.  There could be an extended family of termites munching their way through the basement support beams.  The roof may be about to spring leaks that could ruin the plaster ceilings, and the hot water heater could be belching carbon monoxide into the chimney flue.  And even the most informed, conscientious sellers may be unaware of serious issues that are not readily apparent. 

Then there was the Virginia condo seller whose agent arranged and was present for the installation of new wall-to-wall carpet installation to cover up moldy, water damaged hardwood parquet floors.  And there was the guy who, just before listing his home, put drywall over termite damage in the basement. 

In Virginia, agents sometimes behave as though the Caveat Emptor state status goes as far as to protect sellers and agents who deliberately misrepresent their home's condition or conceal serious defects that they know about. 

Whatever the laws governing the jurisdictions where I work, I have Pat's law: 

  • If you are my seller client, and if there are problems with your house that you know about and don't want to fix, you disclose.  
  • If you are my buyer client, you will have a compulsive eagle-eyed home inspector, Jay Marchanich perhaps, go over the house with a fine toothed comb and perhaps his magic camera, so you will be able to make an intelligent buying choice.

During my three-decade career, I've heard about lots of post settlement lawsuits.  And most of them involved non-disclosure of known defects.  None of them involved my clients, because no seller has ever been sued (that I know of) for disclosing known defects.

Even if the home inspector misses problems that were well hidden, the buyer will find out about them sooner or later.  When they call a roofer who is already familiar with the leaks, or when the neighbors spill the beans at a block party about the shared termite farm, buyers will learn their seller's little secrets. 

And in this town, where something like one in five adults has a law degree, that is not the best strategy.  There is a line between selling a house without disclosures and committing acts of fraud, and I, for one, would like to see the Virginia law clarified.  While I'm sure it was not the intention of the legislature of this commonwealth, I've run into an awful lot of agents who believe they and their clients are totally protected, even against bad behavior.

Comment balloon 31 commentsPatricia Kennedy • April 24 2012 09:30AM

Comments

Great post - SUGGEST!  We share the same real estate practice strategy.  I have had sellers tell me that if they fix it, they don't have to disclose it.  I tell them, disclose everything because if they ask me and I know about it, I have to disclose it.  So if they don't put it in writing, and I have to spill the beans when asked, their cooked!  That usually prompts lots of pen action.  Have a great week! 

Posted by Jan Green, HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN (Value Added Service, 602-620-2699) over 8 years ago

I think Pat's law is a good law.  For those of us with construction backgrounds it's imperative that if we see something we say something.  I often preview homes before my clients see them.  I look at the house like a home inspector and like an investor.  If I wouldn't give it a clean bill of health I will make my clients aware of my reservations if they don't see them on their walk through.  

Posted by Mike Cooper, GRI, Your Neighborhood Real Estate Sales Pro (Cornerstone Business Group Inc) over 8 years ago

Jan, thanks!

And Mike, my only problem with the law is that (at least as agents interpret it) it does encourage sellers - and listing agents - to behave fraudulently.  I, too, can spot a lot of stuff and point it out to my clients.  Still, if a seller has gone to great lengths to conceal a problem, even an eagle eye like Jay could miss it.

Posted by Patricia Kennedy, Home in the Capital (RLAH Real Estate) over 8 years ago

You have captured the essence of caveat emptor. 

Of course, not disclosing property condition and covering up defects are two quite different matters. 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) over 8 years ago

Pat -- your rules are outstanding.  One wonders about the ethics of the real estate agents who would try to help the seller to keep known defects from being disclosed.

Posted by Steven Cook (No Longer Processing Mortgages.) over 8 years ago

I see from your photo that you know how to blow hot air through a hollow tube, no wonder you got a real estate -license! OK, I had my fun, great post and most important of all it shows why Realtors should be pushing for good disclosure laws in their state. We are way to accepting of that is the way it is and are a major part of the problem. If we don't push for reform who will.

Posted by Brian Park over 8 years ago

CS Lewis gave it another easier to swallow name. "Situational ethics".

Posted by Andrew Mooers | 207.532.6573, Northern Maine Real Estate-Aroostook County Broker (MOOERS REALTY) over 8 years ago

Pat ..Pennsylvania you must disclose ..we even have a sellers disclosure form ..You as an agent better not fill it out or help fill it either  ...Disclose Disclose disclose in Pa

Posted by Hannah Williams, Expertise NE Philadelphia & Bucks 215-953-8818 (Re/Max Eastern inc.) over 8 years ago

Hi Pat, 

Life in California where lawsuits are king, the law requires the Seller to disclose all know defects even if repaired at time of acquisition and through the ownership including but not limited to upgrades, changes, general operation etc. Anything that is deemed a material fact about the property. Both the Listing and Selling agents are required to do a diligent visual inspection to define clearly what was observed. 

The Buyers have a right to inspect carefully and even lift carpets and look beyond with the requirement that they restore the property to condition it was prior to the inspection. The Buyer is usually encouraged to have more specific inspections if there is any question about wha the Home Inspector observed, for example, electrical, plumbing, soils, roof, landscaping, swimming pool, etc.

There is no duty of the agent to research  permits but the Buyer can research specifics about any known additions or conversions. This all done typically within 17 days, the average time to remove the contingencies.

The Buyer may request repairs or credits through the investigation process. The Seller has no duty to repair but the Buyer may cancel the contract and have earnest money returned. 

The real rub comes when Sellers too lightly dismiss details that would be considered a material fact. We have a lot case law about what was known, observed or could/should have been by the agents and the Sellers.

Caveat Emptor doesn't really exist here.

 

Posted by William Johnson, Retired Real Estate Professional (Retired) over 8 years ago

Pat- I think Pat's Law is the one for me.  It is so much easier and less expensive in the long run to disclose any problems with your home.  And buyers.... have an inspection!  Congrats on the Feature. 

Posted by Kathy Streib, Home Stager - Palm Beach County,FL -561-914-6224 (Room Service Home Staging) over 8 years ago

NY is a caveat emptor state and we sell all resale properties in Manhattan "AS IS" meaning:

A seller makes no representation as to the condition of the property. We don't have disclosure packets but buyers have lawyers that are supposed to do due diligence.

However if a seller takes affirmative action that prevents a buyer from determining the existence of an adverse condition (i.e., painting over a wall that is the subject of constant leaks) that is a big NO NO!

Posted by Mitchell J Hall, Lic Associate RE Broker - Manhattan & Brooklyn (Compass) over 8 years ago

Good post. I do actually know some sellers who were sued for disclosing: my parents. It was a house we had been in for just 2 years, and they disclosed that there had been some water seepage in the basement. The spring after they sold the house was the rainiest in recent history (in Indiana.) The basement had some flooding, and the buyers sued my parents, claiming that "seepage" was misleading. The buyers won. Seems pretty unfair to me, but I was just a kid and may not have the whole story. Anyway, now you've heard of it!

Posted by Marty & Jaclyn Reiswig, Specialty: First-timers (GoodFit Homes (with Keller Williams)) over 8 years ago

How interesting that three jurisdictions so close togther have very different rules in place, must keep you on your toes to be informed in all three.  I agree with you that if the sellers know anything they should disclose, but the point must be hammered home to the buyers that they have to do their inspection(s) and discovery themselves.

Posted by Kathy Stoltman, Ventura County Real Estate Consultant 805-746-1793 (Rockwood Realty) over 8 years ago

Pat

I'm glad to see this discussion, from several posts, about disclosures, since it's an important topic but handled in different ways. Whether you disclose or not, or are required to or not, buyers to do their own due diligence and not make assumptions.

I was going to comment further but pal William did a great job of summarizing the fun we have here on the Left Coast.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (eXp Realty of California) over 8 years ago

I can dig Pat's law.  It is interesting on how laws differ from area to area.  All the more reason to choose a Professional in the area in which you are looking.

And who is this Brian Park's chap?  I like his sense of humor:)

Posted by Jason Sardi, Your Agent for Life (Auto & Home & Life Insurance throughout North Carolina) over 8 years ago

Hi Pat,  Great reminder of our role in the disclosure process.  Just cl;osed on the cleanest, neatest, best maijntained, blah, blah, blah home on the planet.  Still, the seller lost sleep over any inadvertant issues which may arise in the future !!!

Posted by Bill Gillhespy, Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos (16 Sunview Blvd) over 8 years ago

Excellent post and a very important topic for sellers, buyers and their agents.

Thanks for sharing your experience.

Posted by Roy Kelley (Realty Group Referrals) over 8 years ago

Here in Florida in my neck of the woods we request sellers to fill out a disclosure.  If they don't it is a red flag, however we have several areas of disclosures alerting buyers to beware.  I always tell people to get a home inspection even on new homes, you just never know.   

Posted by Sara Homan, Realtor, Homes, Farms & 55+ (Coldwell Banker Ellison Realty 352-209-4044) over 8 years ago

Pat...

Georgia is weird because it is a caveat emptor state that requires disclosure of adverse material facts. How is that possible? I don't know, bit it's true!

Posted by Richard Weisser, Richard Weisser Retired Real Estate Professional (Richard Weisser Realty) over 8 years ago

~ Great information and insight, there are so many important details of buying a home! California has disclosures alerting the buyer of any problems. Agent aren't required to know lots of material facts, led paint etc,,,,Professional inspectors really help with providing this information as well,,

Posted by Jon Kolsky, Licensed California Real Estate Broker (Kolsky Realty & Management) over 8 years ago

We have both too.  We have sellers' disclosure but in our real estat sales agreement wa have the "As Is" clause.  Our disclosure are based on sellers' knowledge and if they lie about everything, it's hard to prove they had knowledge.  Unless . . . and you say . . . the neighbors come up to the new owners and say, "Hey, did you get those windows fixed?  They were put in backwards and always leak in the rain.  We know because the former owner told us."  Hmmmmm . . . the property disclosure has the box checked 'No' 

Posted by Carla Muss-Jacobs, RETIRED (RETIRED / State License is Inactive) over 8 years ago

Good information.  I will look at Lenn's post - disclosure is so important.  Thank yoU!

Posted by Joy Daniels (Joy Daniels Real Estate Group, Ltd.) over 8 years ago

This has been an intersting discussion .. I like Pat's law.. and I think a good home inspector is they key.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 8 years ago

Pat

You can't wrong when you disclose, you can up with big times when the sellers don't disclose. Great post.

Good luck and success.

Lou Ludwig

Posted by Lou Ludwig, Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC (Ludwig & Associates) over 8 years ago

Well reasoned, well written and worthy also of the Washington Post.  Can you put something there that you have already put here?  And thanks for the mention!    ;>)

Posted by Jay Markanich, Home Inspector - servicing all Northern Virginia (Jay Markanich Real Estate Inspections, LLC) over 8 years ago

Pat:

William Johnson covered what is required in California very thoroughly.  I can't imagine selling real estate in a state that doesn't require disclosure by the seller.  Disclose, disclose, disclose is our mantra in California.

Posted by Evelyn Kennedy, Alameda, Real Estate, Alameda, CA (Alain Pinel Realtors) over 8 years ago

Pat, isn't it interesting how disclosure changes from state to state? Even forms of representation change.In Florida, we must disclose anything that materially affects the value of the property.

Sharon

Posted by Sharon Alters, Realtor - Homes for Sale Fleming Island FL (Coldwell Banker Vanguard Realty - 904-673-2308) over 8 years ago

Pat - This makes me glad that California requires disclosure.  It just seems like a bad idea not to do so.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 8 years ago

Pat's law is also Don's law, and should be anyone's law who wants to keep their license.  Well done!

Posted by Don Sabinske, Sabinske & Associates Inc. (Don Sabinske, Sabinske & Associates Inc.) over 8 years ago

I think that lawsuits are somewhat out of control, but if you can avoid them by disclosing, why wouldn't you?  Perhaps the fear of being involved with something as time-consuming and expensive would make people think beforehand.

Posted by Ron Marshall, Birdhouse Builder Extraordinaire (Marshall Enterprises) over 8 years ago

If you have even the faintest question about whether or not to disclose something to potential buyers, avoid the potential for liability and tell all.

Posted by Inna Ivchenko, Realtor® • Green • GRI • HAFA • PSC Calabasas CA (Barcode Properties) almost 6 years ago

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