In the old days, the principle of caveat emptor (let the buyer beware) applied to most real estate transactions. It was the buyer’s responsibility to thoroughly inspect a building or piece of land before purchasing. The trend over the past few decades has been to require sellers to disclose significant defects and material facts about the property.
Most states now have fairly rigorous disclosure laws for real estate sales and require sellers to fill out one or more disclosure forms listing known problems. Some states exclude from disclosure requirements patent defects – obvious problems that a conscientious buyer can plainly see or uncover without digging too deep. For example, a seller may not be required to list peeling paint on a house, or a wet area in a swamp.
Disclosure laws generally apply to real estate agents as well. If you ask them a factual question about a property, you can expect a factual answer, to the best of their knowledge. While laws vary considerably from state to state (California requires sellers to disclose recent deaths on the property and neighbors’ barking dogs), and may differ for buildings and vacant land, nearly all states require some level of disclosure by the seller.
It’s important to ask your lawyer about the specific rules in your state. Issues not mandated by disclosure laws may be areas you choose to investigate further or add as contingencies to your offer. Directly asking the sellers or their agent is a good place to start. If they knowingly mislead you, they may be committing fraud. For important issues, ask for additional information in writing, and request answers in writing. Keep good notes. Document everything.
In general, the buyer has the right to walk away from a deal based on seller’s disclosures. Sometimes these disclosures are delayed for various reasons until after you’ve signed a purchase agreement. In most states, you still have the legal right to back out and and get your earnest money returned whenever the mandatory disclosures are made. You can cancel the contract at this point with our without an inspection contingency.
Failure by sellers to disclose known defects is a leading cause of lawsuits in real estate transactions. After all, nobody likes to tell you that the horse they are selling you has rotten teeth and a bad leg. But many types of disclosure are the law — at least in real estate — so pay close attention to this process and proceed with caution.
Most states now have laws requiring sellers of real estate to disclose any “material defects” that they are aware of. Material defects are nay that may substantially affect the value of the property. However, the burden is still on you, the buyer, to verify what you are told – and to determine if there are additional problems the seller is not aware of. There is also the possibility that the seller is aware of a defect, but is remaining silent. Maybe you can sue later based on the seller’s failure to disclose that the lot was formerly used as an auto dump and needs an expensive cleanup of toxic soil, but you probably have better things to do with your time and money.
The law distinguishes between patent defects, which could be discovered by the buyer through a reasonably thorough investigation, and latent defects which are hidden. Buyers are generally expected to discover patent defects on their own – another reason why you need to conduct a thorough investigation of a piece of land before making a bid.
Hidden environmental problems can carry high costs for cleanup, as well as potential liabilities. If you buy a piece of land with toxic waste, it becomes your responsibility to deal with it. If you have reason to believe that other structures existed on the land in the past, or that it was used for farming or industrial purposes, ask the seller to provide a signed statement certifying that the land is free from toxic materials, buried tanks, or other buried items or materials.
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