The internet is full of crazy real estate lawsuits, and a number of them center on real estate disclosure laws. One of the most famous examples occurred in the state of New York, where a seller failed to disclose her home’s reputation as a “haunted” house. It resulted in a lengthy legal battle that ultimately left both parties unsatisfied.
Most disclosure lawsuits involve far more obvious omissions, like failure to disclose a plumbing problem or a termite infestation. However, this spooky story underscores the vital importance of disclosure. Use the following talking points to help your clients understand what’s at stake and show them how they can reduce their risk of a lawsuit.
Explain the Risk – Make sure your clients understand the legal risks they face if they fail to disclose. Even if a lawsuit is ridiculous and your clients are poised to win, hearings and depositions can take an emotional and financial toll.
Discuss the Subjective Nature of Disclosures – Your sellers might love the rumble and the whistle of a train in the distance, but some buyers might find it incredibly annoying. Have your sellers think long and hard about anything that might irritate a buyer and affect the material value of the home.
Recommend a Home Warranty – A home warranty may reduce the odds of dealing with an after-sale dispute by repairing or replacing covered home system and appliance failures. Wouldn’t you rather the buyers call the warranty company—instead of their attorney—when their water heater stops working?
Request Additional Inspections in Writing – You have to protect yourself as well as your client. The National Association of REALTORS® suggests that real estate professionals request any necessary inspections in writing.
So… what happened in the New York case of the haunted house? Strangely enough, the buyer won the right to back out of the contract, losing only half of his deposit. Ordinarily, a New York buyer would be on the hook for the entire deposit because haunting is not a material fact (i.e., inspectors can discover material evidence for termites, but they can’t do the same for poltergeists). However, the seller had given multiple interviews in which she talked about her haunted Victorian home. Thus, the record was clear that she believed her house to be haunted… and that belief meant she should have disclosed the “haunting” during the transaction.
Ultimately, your clients need to understand how important it is to disclose anything that might materially affect the value of a home. Encourage your clients to err on the side of caution when it comes to disclosures—there’s a chance they could be responsible for what they don’t disclose (or try to hide) for up to 10 years. When in doubt, disclose! State and local laws vary, so be sure to consult an attorney in your state for any legal advice.