Seller's Duty to Disclose in a Residential Real Estate Transaction
Until 1985, sellers of residential property retained little responsibility regarding disclosures. Rather, caveat emptor, or “buyer beware" reigned. Buyers maintained sole duty to inspect the property diligently before purchasing. This duty of the buyer to inspect the property, in effect, relieved the seller of the responsibility to disclose any known defects to the property.
Yet, the 1985 Johnson v. Davis decision entirely eliminated the former era of caveat emptor. The Court ruled that where the seller knows of facts materially affecting the value of the property, which are not readily observable and are not known to the buyer, the seller has the duty to disclose them to the buyer. Therefore, sellers now have an affirmative duty to disclose known material defects. Buyers do not have a duty to find latent, or not readily observable, defects. However, buyers are required to take reasonable steps to discover ascertainable facts relating to the property, as there is no requirement for sellers to disclose defects that are readily visible or known to the buyer. This duty to disclose extends to residential real estate brokers as well.
The Four Elements of a Non-Disclosure Claim: (1) The seller of a home must have knowledge of a defect in the property, (2) The defect must materially affect the value of the property, (3) The defect must be not readily observable and must be unknown to the buyer, and (4) The buyer must establish that the seller failed to disclose the defect to the buyer.
Attention Sellers! It is important to remember that adding an “as-is" provision or addendum to a contract does not relieve you of the duty to disclose material facts affecting the value of the property. The disclosure requirements cannot be contracted away in this manner. Also, the duty to disclose is not satisfied by partial disclosure. If you as a seller undertake to disclose some facts, but not all of the facts, you still may be found liable under Johnson v. Davis. If those undisclosed facts are both not readily observable and materially affect the value of the property, then the buyer may have a claim against you for non-disclosure. A non-disclosing seller may not defend based on the fact that a reasonably diligent inspection would have disclosed the material defect. To lessen the risk of liability, sellers can opt to complete seller disclosure forms.
Attention Buyers! Remember that despite the sellers’ duty to disclose, you still have an obligation to take reasonable steps to ascertain material facts relating to the property. If the defects were either known to you or readily ascertainable you may not be able to assert a claim against the seller for non-disclosure or misrepresentation. However, when a seller fails to disclose material facts affecting the value of the property that are not readily apparent or known to you as the buyer, the seller will be held liable for the damages you sustain.