You may have heard the phrase caveat emptor or “let the buyer beware”. Much like purchasing property “as is”, it means that when you buy something you do so at your own risk. It’s yours forever, it cannot be returned, and you will have no recourse even if it is defective or fails to meet your expectations. Under this doctrine, a purchaser is held to be aware of open and obvious conditions. Although this ancient rule may still be in force when commercial or undeveloped property is involved, these days that is not the case in many states, particularly for residential home sales and new constructions. Disclosures play a significant role in real estate transactions.
What Must a Seller Disclose to a Potential Buyer?
In a real estate deal, the seller’s duty to disclose is often spelled out in the contract or imposed by statute. A seller of residential property must disclose known facts materially affecting the value of the property, such as major latent defects or conditions that pose a threat to health or safety, which are not readily observable and are not known to the buyer. A duty to disclose may also arise when the seller’s silence rises to the level of active concealment.
The types of problems mandated by law to be listed on a disclosure statement vary by state. Here are some common things you may find in a disclosure statement:
- Water damage impacting the structural integrity of the property or causing mold
- Pests and termite infestation
- Nearby nuisances such as eyesores or odors
- Toxic substances like asbestos or lead paint
- Weather-related hazards like flood zones
- Prior renovations or repairs
- Deaths that occurred on the property
- Boundary line disputes
- Liens on the property
What Happens if a Seller Fails to Disclose or Lies about a Material Issue?
A seller’s failure to disclose a material fact may give rise to a fraud claim or other cause of action. The buyer may be entitled to rescind the contract or compensatory damages caused by the seller’s false representation or nondisclosure. Sometimes, punitive damages may be awarded if the seller acted willfully. In cases where the disclosure was not required by contract or statute, the seller may try to defend such claims by downplaying the nondisclosure as involving a trivial issue. Materiality is decided objectively on a case-by-case basis, and so these lawsuits can get messy.
What About Inspections?
A seller who discloses certain details about the property does not mean that a prospective buyer should rely on the seller’s every word. Nor should a prospective buyer be satisfied that the seller’s silence means that there are no problems with the property. Prospective buyers are entitled to do their due diligence before closing and should not forego the opportunity to conduct a thorough inspection. The inspection not only gives the prospective buyer peace of mind but also benefits the seller because a buyer’s failure to inspect can give the seller a defense in subsequent litigation.
Contact Our New York City Real Estate Litigation Attorney Today
Whether you are a seller or potential buyer pursuing a commercial or residential real estate transaction, knowing about your rights, obligations, and best practices will not only allow the deal close more smoothly but can also prevent disputes down the road. A real estate litigation attorney can help you navigate the muddy waters surrounding disclosures and other issues that may arise in any transaction. With any luck, muddy waters will also stay out of your newly bought property. Contact Levy Goldenberg LLP today for an initial consultation.