Sellers can find themselves in hot water for any number of reasons, but there are 5 most common seller errors that can lead to lawsuits. Here’s how to avoid them and help your sellers to stay out of trouble.
- Not Disclosing All Past Property Problems
- Not Thinking Through Fixtures
- Saying the Wrong Thing to the Buyer
- Covering Up Property Problems
- Not Disclosing Neighborhood Issues
In their enthusiasm to sell their property, sellers may not be as open as they should be about past property problems. This is usually driven by a desire to maximize the sale price and minimize anything negative that could result in a price drop. But, they must disclose any material defects or problems which could affect the desirability or value of the property.
It’s the seller’s responsibility to disclose — and sellers need to be the ones completing the disclosure forms for the buyer. As a real estate professional, you can advise your clients as they complete their disclosures. You should be sure they understand their disclosure responsibilities.
Disclosure requirements vary from state to state in the US. In California, disclosures are governed under the California Civil Code.
Typical defects to disclose include: mold/water damage, termite damage, lead-based paint, foundation issues, leaks, damage from fire, floods or earthquake (and also whether there is a risk that these hazards could occur where the property is located).
Confusion and conflict over what is considered a fixture of a property is common between buyer and seller. For this reason, the seller should think through whether something is a fixture or not and be clear what is going with the property and what is not.
California law uses a number of tests to determine what constitutes a fixture. The courts look at the method of attachment, if the item is an integral part of the home (for example, floor coverings), the intention of the party when the item was installed or attached, and what the contract says about existing fixtures and fittings.
As a guide, appliances — such as dishwashers, ovens, stovetops, and even microwaves when they are built-in — will almost always go with the property. If an appliance is freestanding, it can be taken by the seller, but this should be clear in the purchase contract to avoid confusion. Light fixtures, ceiling fans and garden sheds will also stay with the house.
Mounted flatscreen televisions are a common item of dispute. They are technically a fixture if attached to the wall. To be on the safe side, advise your sellers to add this as an exclusion to the contract if they plan to take the TV with them when they move.
Some sellers have found themselves facing a lawsuit for giving the buyers false information which they rely on when making their decision to purchase the property. Even the smallest offhand comment about the neighborhood, renovations,upgrades or the suitability of the home that is incorrect could lead to troubles in the future. That’s why it’s best for real estate professionals to deal with the buyers directly — there is no reason why sellers need to talk to the buyers at all.
Sellers may be tempted to cover up property problems, so they aren’t obvious when prospective buyers inspect the property. It might be paint to cover imperfections, furniture placement to cover damaged walls or flooring, or paneling to cover termite damage.
As a real estate professional, advise your sellers not to cover up defects, because this will most definitely land them in hot water when the new owner realizes post-sale they’ve have deceived. As the agent, you might even find yourself facing a lawsuit if you were aware of defects and didn’t disclose this knowledge to the purchaser.
Disclosures do not only pertain to defects within the property. In most states, it’s also necessary to disclose any other issue that can materially affect the value or desirability of a property and its intended use. This is certainly the case in California. This can include neighborhood issues, noise, school traffic, proximity to industrial activity and a whole range of things.
Advise your sellers to be upfront about property challenges in their disclosures. This includes information relating to environmental factors and the neighborhood. If it can affect a buyer’s decision to purchase, and it’s something the seller is aware of, then it needs to be disclosed to avoid lawsuits and issues in the future.
As a Real Estate Professional, Remember to Also Protect Yourself
While it’s an important part of your role to provide advice to your sellers and to help protect them from liability, it’s also necessary to protect yourself. If you don’t have protective measures in place to protect yourself and your business, you could suffer damage both to your reputation and financially.
With a CRES E&O + ClaimPrevent® policy, you’ll not only get superior coverage designed specifically for real estate, but you’ll also have access to expert advice from qualified attorneys 7 days a week at no extra cost. At CRES, we want to help you resolve problems before they become costly lawsuits. Contact the CRES team today at 800-880-2747 for a confidential discussion.