Point/Counterpoint with Harley E. Rouda and Patricia W. Neal

Property Disclosure Laws: Benefit or Burden?

January 1, 1996

POINT...Seller Disclosure: Great for Seller, Buyer, and Real Estate Professional

By Harley E. Rouda, CRS®

In 1990 only two states--California and Maine--had a seller disclosure law for all residential property. Ohio didn't have such a law. In July 1990, however, our company, HER Inc., REALTORS®, implemented mandatory seller disclosure.

The results were unbelievable! From July 1990 to July 1991, we listed more than 5,500 homes. Only three sellers refused to sign a disclosure form. We didn't take those listings. Two of the homes weren't put on the market; the third one became a for-sale-by-owner. It sold, the roof leaked, the buyers sued, and the sellers paid. It was a nasty lawsuit, but no real estate company was involved.

When we started this program, our biggest concern was the reaction of the public and our competitors. But the sellers bought into the program because they believed it would eliminate confrontation with the buying public. Buyers accepted the idea faster than anyone because, as one buyer told us, our listings brought "peace of mind." That quote became our marketing and competitive edge until Ohio adopted mandatory seller disclosure.

Every potential buyer at HER received a seller disclosure form. Eventually, buyers would ask their salesperson for the form. In many cases, if one was not available, they refused to look at the property. It didn't take long for our competitors to furnish seller disclosure forms.

Since 1990, many new homeowners have called our salespeople to say something didn't work. Our sales associates breathe a sigh of relief as they say, "Well, Mr. Buyer, if you'll remember, the seller disclosed that before you bought the home." Almost without exception the buyer will say, "Oh yes . . . now I remember."

Buyers want to know what they're buying, and sellers want to disclose what they know about their property to eliminate future confrontation and lawsuits. Our "peace of mind" marketing campaign encouraged sellers to feel they could disclose fully without the fear of repercussions at a later date. Our listings and sales went up, and our lawsuits went down. So long as you have the human element in a real estate transaction, someone, somehow, will say something that isn't quite right. However, seller disclosure in Ohio has given sellers, buyers, and real estate professionals "peace of mind."

Harley E. Rouda was 1991 president of the NATIONAL ASSOCIATION OF REALTORS® and is chief executive officer, HER Inc., REALTORS®, Columbus, Ohio.

...COUNTERPOINT: We're Becoming Insurers of Last Resort for People Who Make Bad Decisions

By Patricia W. Neal, CRS®

In the world of property disclosure, we've gone from "Let the buyer beware" to "Let the agent beware."

Real estate professionals have an obligation to disclose to a buyer all known material facts, but we shouldn't be expected to act as an insurance policy for a buyer or seller.

Sellers who are less than candid about defects in their house and problems in the neighborhood should bear more liability than their salesperson. A professional inspection won't disclose problems with a neighbor, unruly children, motorbikes racing down the street at midnight, or the suspicion of drug activity in the neighborhood.

Buyers need to investigate the neighborhood and talk to the neighbors. The real estate salesperson can do some investigating, but there's always the chance the information is hearsay, which creates another problem for the salesperson. An example: Under California law, a salesperson was advising a seller completing the required form to include any adverse knowledge of the neighborhood. The sales associate was taken aback when he was told the house on the corner was a "crack house." The salesperson asked the seller how he knew. The answer was, "Everyone knows."

The salesperson pursued the issue and found that there had been no police calls to the area and that the basis for the suspicion was a great deal of vehicle traffic at different times. After the salesperson shared this data, the seller responded, "Well, maybe it's a house of ill repute."

Now, then, does the salesperson have an obligation to disclose this response, and does the seller have an obligation to put his suspicion on the disclosure form?

As we become burdened with more disclosures, there's a risk we'll leave something out. The more disclosures that are made, the greater the risk of not disclosing something.

The CALIFORNIA ASSOCIATION OF REALTORS® has been quite successful in clarifying and limiting the scope of liability, through legislation and legal action. But just as one area is covered, another surfaces: Now there's a whole new set of disclosures to protect those engaging in exclusive buyer agency.

Shouldn't we try to limit the onerous multiplicity of disclosures by educating consumers about what they can expect when engaging a real estate professional? And by defining our limitations and responsibilities, we may possibly contribute also to a lessening of litigation.

Patricia W. Neal was 1994 president of the CALIFORNIA ASSOCIATION OF REALTORS® and is president of Pat Neal Associates, Garden Grove, Calif.

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