Guest blog written by B. Blake Cox
B. Blake Cox | www.lawsnakard.com
Mr. Cox graduated from Texas Tech University in 1982 with a Bachelor of Arts Degree; and graduated from Texas Tech University School of Law in 1986 with a Doctorate of Jurisprudence. Mr. Cox’s practice centers primarily on civil litigation involving the defense of service providers such as real estate agents, appraisers, surveyors, title agents, home inspectors, pest inspectors, insurance agents, securities brokers/dealers, and anyone else who gets sued for providing a service.
The Texas Property Code (TPC) requires owners of single family residences to complete, at a minimum, the disclosure notice found in section 5.008 of the code. The Texas legislature first required the disclosure notice in 1994, and there have been only minor revisions to that form since it was originally promulgated. The disclosure form found in the Texas Property Code is available through the Texas Real Estate Commission‘s website as TREC Form OP-H. The Texas Association of Realtors has drafted its own disclosure form, which is found on TAR’s website as TAR Form TAR 1406. In addition, several local associations have drafted their own disclosure notices in an attempt to provide more information to a prospective buyer.
The TAR disclosure notice form is the most widely used across Texas. A common mistake made by agents is making a decision that a disclosure notice is not required in a particular transaction. For instance, a common misconception is the belief that a disclosure notice is not required on investment property or property that has never been occupied by the seller. The TPC contains a few specific exceptions which allow the seller not to provide a disclosure notice, and these concern situations where the seller acts as a trustee of a trust or in foreclosure, an administrator of an estate or guardianship, or a court appointed receivership. It is up to the seller to decide whether an exception to the disclosure notice law applies.
A real estate agent participating in the decision of whether an exception applies is entering into the area of practicing law, which is prohibited by the Real Estate License Act. Rather, it is the duty of the agent to give the disclosure form to the seller and request it be completed. If the seller refuses to complete the form, then document that refusal with at least an email to the seller indicating you had given the form to the seller who refused to complete it. If you are working with a buyer and a disclosure form is not provided by the seller, you must ask the seller to provide one. If the seller fails to provide a disclosure, be sure you document your file that you requested the disclosure and advised that you advised the buyer of the remedies provided in paragraph 7B(2) of the contract. Never tell a buyer a disclosure is not required unless you are absolutely certain the seller falls clearly within one of the exceptions in the Property Code.
The Texas Real Estate License Act (TRELA) requires an agent to disclose certain information the agent knows about the property. Specifically, the TRELA requires an agent to disclose any structural defect the agent knows about the property. Some Texas cases have gone so far as to require an agent to disclose any information about the property that would affect a buyer’s decision to purchase the home. For instance, the agent is required to disclose that a major highway is planned to be constructed near a property, that a large shopping center or store is about to be built very near, or that a municipal waste treatment facility is planned to be constructed near the home. Another problem can occur when an agent is aware of a prior inspection report concerning the property. This can happen several ways, but the most common is when a prior prospective buyer had the home inspected during the termination period allowed in that contract, then exercised that termination option. The agent representing the buyer who terminates the contract usually provides all or part of the inspection report to the listing agent either to try to negotiate repairs, get an concession on the sales price, or just for edification. Some listing agents have a policy to refuse to accept any part of the inspection report. This is a bad policy that can lead to a claim of failing to disclose, because the agent representing the buyer who terminated usually testifies they told the listing agent why the buyers terminated and were told not to send the report. To avoid this situation from happening to you, accept any report sent to you and make sure it gets listed on and attached to the disclosure notice. If you are not given any part of the inspection, then at the least disclose the fact that a previous potential buyer had an inspection conducted on a certain date with the name of that buyer’s agent. This may sound excessive, but this very scenario has resulted in several lawsuits.
Finally, the listing agent should make sure the seller discloses any condition of which the agent becomes aware during the listing. It is not the duty of the agent to inspect or research the condition of the property, but a listing agent should make sure any condition of which agent notices or is aware is disclosed. For instance, obvious wall cracks could be settlement issues which should be pointed out, standing water around the house could be a pooling issue, or sloping floors and doors that stick could be a foundation issue. It is much safer to disclose these issues before a contract is signed, and you should never assume an inspector will point out an issue. Similarly, the disclosure notice should be updated if anything happens to the property during the listing, like a leaking hot water heater, washing machine, ice maker, or faucet. Repairs to the roof or foundation should also be disclosed. Some argue repairs that remedy the problem do not need to be disclosed; however the goal is to avoid a claim and disclosing repairs is a good way to avoid a future claim. It is almost a guaranty that a neighbor will tell the new buyer of the repairs as soon as the last moving truck is unloaded. Remember that the answer to any question a seller has about whether to disclose something is always “Yes.”