Seller Disclosure vs. Buyer Discovery

A question we’re frequently asked by both buyers and sellers alike is what must be disclosed regarding the condition of the property. The simple answer is any information the seller is aware of that would adversely affect the condition of the property must be disclosed, but it hasn’t always been that way. For the longest time, the prevailing theory was “Caveat Emptor” or “Buyer Beware” and the duty to discover any potential problems with the property was squarely on the shoulders of the buyer. Over time the law shifted, and the seller is now required to disclose any known material facts and defects affecting the of the condition of the property, but the duty to inspect still remains on the buyer. Here are the key points to remember.

• The buyer is responsible for conducting reasonable inspections.
• The seller is responsible for disclosing known defects with the property.

Let’s look at a couple examples to explore the intersection of these points. Betty has fallen in love with a cute little two-bedroom bungalow on a corner lot with a picturesque white picket fence. She asked the seller, Barney, if there is anything wrong with the place and was assured that the property was in great condition. Betty being a reasonably prudent buyer, however, had the house inspected and there were no visible signs of damage. It didn’t rain once the entire time the sale was pending, but as soon as the deal closed there was a torrential downpour. As it turns out the roof was far from being in great condition and leaks like a sieve. Obviously in this case the defect with the roof did not develop during the time the property was under contract and Barney would be hard-pressed to claim that he was unaware of the leaky roof.

Now compare that to the following example. Alice and Sam were finally ready to downsize and sell the home that just the two of them have lived in for the last ten years. They were excited when the Brady family agreed to buy the house and liked to imagine the excitement the walls would see with a bustling family occupying its space. When asked, Alice and Sam indicated that there were not aware of anything wrong with the water heater and in fact they had always loved the “endless” hot showers at the house. They were completely blown away when the Brady family accused them of lying a few months later because the hot water was always running out before the family could all shower in the morning. Now in this case, the Sellers were in no position to know that the hot water would be an issue for the family and their bunch of teenagers.

The two examples above demonstrate the interplay between these two points. On one hand we have what a seller knows or should have known. Clearly in the first example the seller was aware of the defect and failed to disclose the information to the buyer. On the other hand, we have what a reasonable prudent buyer should discover. In the second example the seller was not aware of any issues and the buyer failed to conduct a reasonably prudent inspection. Hopefully these examples illustrate the basic rule of thumb that “the seller must disclose, and the buyer must discover.”

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