How much background should be part of seller’s disclosure?
A friend of mine refurbishes properties in his spare time. His goal is to find one property a year, buy it, fix it up and rent it out.
One of his latest projects involved a short sale in a neighborhood he long desired. The place was a disaster with all sorts of drug paraphernalia that had to be cleaned up and hauled away.
When I asked him if he thought the stigma of the place reduced its value, he replied, “I’m sure it did. At least for somebody.”
The seller of the short sale did not disclose that a felony had been committed on the mandatory Seller Disclosure Statement for Improved Property (commonly known as Form 17 in my area) [In Ohio, the form is called the Residential Property Disclosure Form]. The form did not ask the question.
It was not always that way. Stigma — in some rare cases positive — used to play a bigger role in disclosing components of value.
For example, when Form 17 was first introduced as a voluntary form by the local multiple listing service (MLS), it included questions about any known “crimes of violence” on the property, suicide or death from other than natural causes. It was amended in 1993 to “Are you aware of anyone having died of suicide or homicide on the property?”
Form 17 was a move to help protect sellers and agents from lawsuits resulting from sellers not disclosing a home’s defects and shortcomings. Questions on the form are about basic sewage, heating, repairs, termites, boundaries and neighborhood conditions. Problems found and then repaired do not need to be listed.
The main question in most real estate fraud and misrepresentation cases is whether the omission of information, or a statement made, is a material fact. A “material fact” is loosely defined as something that could affect the price somebody would pay for a service or product.
The federal Fair Housing Amendments Act of 1988 prohibits discrimination in the sale, rental and financing of housing based on race, color, sex, handicap, family status or national origin.
Armed with that information and more, many states went back to basics, crafting seller disclosure forms to reflect the condition of the structure and its systems.
But should all known “nonstructure” history be eliminated from disclosure? Would you want to know if your potential getaway in the country was once a well-known clearinghouse for street drugs?
Tom Kelly, former real estate editor for The Seattle Times, is a syndicated columnist and talk-show host.
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