Property Representation Tool

Confirming Property Information with the Seller….

Posted by PRO Sun, 25 Jun 2006 02:19:00 GMT

The FAR Seller’s Property Disclosure Statement is an excellent tool to use in educating sellers on their legal obligation to disclose to the buyer all know facts that materially affect the value of the property that are not readily observable. The courts typically rely on one of two standards when considering property nondisclosure cases. The objective standard is applied when the seller knows of facts not readily observable, or known by the buyer, that materially affect the value of the property. These facts must always be disclosed regardless of whether or not the seller completes the disclosure statement. Also, the use of an "as is" contract does not relieve the seller of their obligation to disclose all known facts about the property. The subjective standard is applied in situations where a fact is material if a buyer would not have bought the house had they known the fact. Nondisclosure claims must be based upon defects or problems of which the seller has knowledge. Intent to defraud is not a prerequisite to a nondisclosure claim.

Benefits to Realtor®

The use of the FAR Seller’s Property Disclosure Statement facilitates the development and implementation of efficient and effective listing and disclosure processes within a brokerage firm. This form can be used as a positive tool in the listing presentation that not only educates the seller on the requirement to make full disclosure of the condition of the property but also reinforces to the seller their legal obligation to present a complete and accurate statement about the property. One of the most important services offered by real estate professionals is their expertise in protecting the consumer during the transaction. Review of this form with the seller also provides the Realtor® with the opportunity to educate the seller on the value of having a property inspection, conducted by a trained professional, and including the results in the marketing of the property. With both a complete and accurate property disclosure statement and an independently prepared property inspection report, potential buyers can make an informed purchasing decision and are less likely to be "surprised" after the closing. This will not eliminate the risk of litigation but it can reduce the potential for a lawsuit. It provides both the seller and the Realtor® with a legally defensible paper trail of the facts that were disclosed to the buyer.

 
Benefits to Seller

The greatest benefit of the FAR Seller’s Property Disclosure Statement to the seller is that it provides documentation of his or her disclosure of material defects, thereby limiting potential future litigation. The form, along with the property inspection, also helps the seller to identify home repairs or improvements that can be done to make the property sell more quickly and generate the highest possible price.

Benefit to Buyer

Consumer research indicates that buyers who have been provided with a property disclosure statement and a copy of the home inspection report prior to making an offer, are generally more satisfied with their purchase and are less likely to encounter surprises about the property’s condition. Buyers also reported that they were able to make faster and better informed purchasing decisions. They also acknowledged that this information was extremely beneficial in situations where the purchaser was relocating to a new area and was not familiar with geographical or environmental issues. While the property disclosure statement and home inspection report submitted by the seller can be useful in helping the buyer to make an informed purchasing decision, buyers should be strongly encouraged to obtain their own home inspection conducted by a trained professional that is selected by the buyer.

Posted in FAR Seller's Real Property Disclosure Statement

Disclosure

Posted by PRO Sun, 25 Jun 2006 00:58:00 GMT

The FAR Seller’s Real Property Disclosure Statement contains a statement in the Receipt and Acknowledgement of Buyer section that specifically addresses the importance of and need for a home inspection to be conducted by an independent professional. It is important to emphasize this point with the buyer as they acknowledge receipt of the disclosure statement.

Many brokerage firms have adopted the risk management best practice of having a separate home inspection disclosure form that is reviewed with all buyers and sellers. The purpose of the disclosure is to make buyers and sellers aware of the importance of the inspections and to reinforce the legal obligation of the seller to disclose all material facts about the property. The form also serves as "defense" documentation for the transaction file. By requiring the signature of seller or buyer as acknowledgement of the discussion on home inspections and property condition, the Realtor® has documentation showing that the discussion occurred. It does not prevent a claim against the Realtor® by the seller or buyer, but does put Realtors® in a better position to defend their actions.

Posted in FAR Seller's Real Property Disclosure Statement

FAR Seller’s Real Property Disclosure Statement Checklist

Posted by PRO Sun, 25 Jun 2006 02:24:00 GMT

• When providing the FAR Seller’s Real Property Disclosure Statement to sellers or buyers it is important that you review and discuss the following notice with them. This notice is presented on page one of the form.

• Does the information disclosed on the form correspond with your visual inspection of the property? Investigate any discrepancies.
• Does the information disclosed on the form correspond with the related information on the profile sheet? Examples:
  • Section 12 - Pools/Hot Tubs/Spas
  • Section 13 - Major Appliances
  • Section 15 - Heating and Air Conditioning
  • Section 16 - Other Equipment
• Does the information in the Deed/Homeowner’s Association Restrictions section correspond with the information you obtained from either the Homeowner’s Association or the property management company for the HOA?
• Does the seller have a copy of the survey that can be used to support their responses in the Property-Related Items section?
• In your research of the property did you locate any information that could be in conflict with the Land and Environment sections of the form?
• Does the research you prepared on the property’s zoning correspond with the seller’s responses in the Zoning section? Investigate any discrepancies.
• Does the research you prepared on the property’s flood zone correspond with the seller’s responses in the Flood section? Investigate any discrepancies.

Posted in FAR Seller's Real Property Disclosure Statement

Holding the Buyer Accountable

Posted by PRO Mon, 16 Oct 2006 12:47:00 GMT

There has recently been some fine-tuning of the Johnson vs. Davis decision as it pertains to disclosing facts known by the seller, but not known by a buyer or readily observable. Specifically, there have been several cases in which buyers have been held accountable for ascertaining material facts about a property where such information is readily accessible. Under these cases, courts have required sellers to disclose facts known only by or accessible to a seller, where such facts aren’t known by the buyer or within the diligent attention and observation of the buyer.

Simply put, the pendulum has swung back to buyers having some duty to ascertain material facts relating to a property and to discover them.

One of the first cases in which a seller was not found liable for nondisclosure was Nelson vs. Wiggs. The case involved the sale of a home in the East Everglades to the Nelsons. The seller had resided on the property for 22 years and sold the home herself.

During the rainy season this area often flooded, in varying depths up to knee-deep water, limiting access to the home. Water did not enter the home as it was constructed at raised elevations, but local animals (snakes, alligators) do gather at the property to escape high water. The buyers of the property had previously lived in South Dade County but said they had no knowledge of the seasonal flooding that takes place. Once they closed on the home and learned of the flooding, the buyers sought to rescind the contract, relying on Johnson vs. Davis, which they contended required the seller to disclose seasonal flooding. The trial court and appellate court found the seller had no duty to disclose since this information was available to the Nelsons through diligent attention. Specifically on appeal, the court determined that the Supreme Court in Johnson vs. Davis had a broader view in mind when it stated sellers have a duty to disclose facts which materially affect the value of property, if not known by the buyer or readily observable. The Third District Court of Appeal stated Florida’s Supreme Court intended a buyer take reasonable steps to ascertain the material facts relating to the property and to discover them, if they are reasonably ascertainable. The Court went on to analyze the specific facts in this case: That nothing concealed the fact that low-lying areas flood during rainy seasons, nothing is concealed that Dade County regulations required that homes in this area be built on elevation to avoid flooding. The regulations and availability in the public records to such information showed that the information was within the diligent attention of the buyer.

This article was written by FAR’s Law and Policy Group.

Reprint from Florida Realtor Magazine May 2001.

Posted in FAR Seller's Real Property Disclosure Statement

Johnson vs. Davis: A Disclosure Update

Posted by PRO Fri, 13 Oct 2006 19:27:00 GMT

In the 1985 case of Johnson vs. Davis, the Court ruled that when a seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them.

The Johnson vs. Davis Case

When Esther Davis inquired about damaged plaster around a window and apparent water stains on the family room and kitchen ceilings of the $310,000 home she’d agreed to buy with her husband, Morton, she had no idea she would have a significant and lasting impact on Florida real estate law.

Told that the stains were the result of a minor problem that had been corrected, the Davises were satisfied. They made an additional deposit, but when Esther Davis visited the home after a heavy rain, she found water leaking in around a window, glass door, light fixtures, kitchen stove and family-room ceiling. Three roofers who subsequently inspected the roof found it to be inherently defective.

The Davises sued for breach of contract, and the case was ultimately heard by the Florida Supreme Court, which rendered the landmark Johnson vs. Davis decision. It’s been 16 years since that famous case put sellers on notice that the era of caveat emptor, “buyer beware” had ended.

Until Johnson vs. Davis, the seller had little responsibility for disclosure. Rather, it was the buyers’ sole duty to inspect the property diligently and thoroughly before buying. In effect, the buyers’ right to inspect the property relieved the seller of the responsibility to disclose defects.

Even in the years preceding the Johnson vs. Davis decision, caveat emptor had begun to erode, with several different types of claims having succeeded against sellers who failed to disclose the true condition of the property. For example, some claims were based on the breach of an implied duty of honesty and fair dealing, implied warranty of fitness or intent and implied warranty of habitability. Many other claims were based on negligent misrepresentations.

It was the 1985 Johnson vs. Davis decision, however, that emphatically turned upside down caveat emptor. In the case, the Court found that the Johnson’s knew of and failed to disclose problems with the roof. This caused the Court to rule 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.

Two years after the Johnson vs. Davis decision, the First District Court of Appeal stated that the duty to disclose applies to residential real estate brokers as well.

Of course, the duty to disclose may sometimes lead to conflicts with sellers who are reluctant to do so. If a conflict occurs, the licensee should explain to the sellers that facts that materially affect the value of the property must be disclosed, unless known or otherwise readily observable. Where the sellers are adamantly against disclosing such a fact, the licensee should decide whether to withdraw as listing salesperson. Withdrawing may save a licensee from an expensive lawsuit in the future.

What is Clear?

There have been a number of cases decided since 1985 in which the courts have relied on Johnson vs. Davis. The cases offer some insight regarding disclosure but collectively provide no clear recipe on complying with law.

A review of the cases reveals that nondisclosure claims must be based upon defects or problems of which a seller has knowledge. Intent to defraud is not a prerequisite to this type of claim. Additionally, a seller does not need to disclose defects that are consistently visibly obvious or of which the buyer is aware.

Why is the subject of disclosure so confusing? Because, the courts are divided regarding what facts actually materially affect value and thus have to be disclosed, where not known by the buyer or are not readily observable. Some courts have literally interpreted the Johnson ruling and required disclosure of only those facts that materially affect the value of the property.

Outcome Still Unclear

The law is still evolving in the area of Johnson vs. Davis. We know sellers must disclose facts materially affecting the value of the property where such facts are only known to the seller. It is unclear whether or not a Court will apply the objective or subjective standard in determining whether the facts materially affect the value of a property. It is also unclear when material facts, if ascertainable by a buyer, must affirmatively be disclosed.

Therefore, a case-by-case analysis is still the best way to proceed in determining whether or not disclosure is required.

To lessen liability, sellers and real estate salespeople are choosing to complete seller disclosure forms. According to National Association of Realtors General Counsel Laurie Janik, “We monitor case decisions and, of the reported cases, I see a very clear trend that in instances where sellers and their agents make a good faith effort to disclose defects using these [seller disclosure] forms, the courts are holding them not libel for misrepresentation.”

Janik supports the use of a seller disclosure form, which is not required for use in real estate transactions. “These forms are making court decisions easier,” says Janik. “There was a case in Iowa that the seller, somewhat imperfectly, disclosed a problem in the house’s basement. The courts ruled that although the problem wasn’t described clearly, the seller had made a good faith effort to disclose the problem and the buyer had enough information to ask further questions,” she says. “I think these forms are wonderful.”

This article was written by FAR’s Law and Policy Group.

Reprint from Florida Realtor Magazine May 2001.

Posted in FAR Seller's Real Property Disclosure Statement

The Objective Standard

Posted by PRO Fri, 13 Oct 2006 19:29:00 GMT

This application of Johnson sets an objective standard by which to measure the necessity of disclosure. You simply focus on the relationship between the undisclosed fact and the value of the property.

Under this standard, where the seller knows of facts not readily observable or known by the buyer which materially affects the value of the property, such facts should be disclosed.

In Revitz vs. Terrell, the Third District Court of Appeal applied this objective standard.

In this case, Revitz purchased a house in the Florida Keys in 1986. The house was built in 1979. The builder/original owner fraudulently obtained a building permit for the house by stating that the ground floor was to be used only for parking and storage.

In violation of the building permit and local ordinance, a finished bedroom, bathroom and fireplace was constructed on the ground floor, only four feet above sea level. The original owner falsified an application with FEMA for flood insurance. The falsified application for flood insurance indicated the first habitable floor was over 14 feet above sea level.

Flood insurance was issued for $350 per year. The original owners sold the house to the Terrells, who assumed the existing flood insurance policy. The Terrells continued the fraud with the insurer by informing the insurance agent that the ground floor was used only for storage and parking. In 1985, the Terrells listed their property for sale.

The listing salesperson misinformed the buyer that the house was built prior to regulations controlling elevation and that flood insurance was approximately $350 per year, when answering the buyer’s inquiry as to why other houses on the streets were on stilts. The buyer was not advised that the house was in a special flood-hazard area, or that it was in violation of local ordinances.

After the Revitzs purchased the home, they found out that the flood insurance policy was issued based upon false information and flood insurance would actually run $36,000. As a result, they sued.

The Court found in favor of the Revitzs’ that the material and undisputed facts of the case were that the house was located in a flood zone, that it was built in violation of local ordinances regarding elevation, and that flood insurance would cost $36,000. As such, the Court concluded the house was worth less than a house identically constructed outside a flood zone, which would be insured for $400 per year. The ruling was based upon the nondisclosure actually materially affecting the value of the property.

This article was written by FAR’s Law and Policy Group.

Reprint from Florida Realtor Magazine May 2001.

Posted in FAR Seller's Real Property Disclosure Statement

The Subjective Standard

Posted by PRO Fri, 13 Oct 2006 19:31:00 GMT

Other cases decided under Johnson vs. Davis have created a subjective standard regarding disclosure.

Specifically, there are cases in which courts have ruled a fact is material if a buyer would not have bought the house had they known that fact.

The case of Dorton vs. Jensen is an example. In 1993, the Dortons purchased a home from the Jensens for $69,500. The Dortons gave the Jensens a down payment and a $62,550 mortgage. The Jensens owned the home for four years before selling it.

While the Jensens lived in the home, water came under the back door during heavy rainfalls on three or four occasions.

In 1992, Mr. Jensen corrected the problem by caulking the bottom of the doorsill with silicone, and they never experienced further rain intrusion. The Dortons were not advised of the flooding problems, and before closing when they told the Jensens their insurance agent couldn’t provide flood insurance on the home, Mrs. Jensen advised that flood insurance from FEMA was not necessary because they had never experienced high water at their home. After the Dortons moved in, they experienced flooding on several occasions. Eventually they ceased making their mortgage payments and sought recission of the contract with the Jensens based upon the Jensens failure to disclose that the property had a latent flooding problem.

The Dortons testified they would not have bought the home had they been aware of the problem.

Initially, the trial court found that the Jensens’ duty of disclosure was based upon damages experienced by high water. Since the Jensens had not experienced high water, the trial court concluded there was no disclosure duty. On appeal, the Second District Court of Appeal reversed the trial court’s interpretation of Johnson vs. Davis.

The Court stated that, under Florida law, a fact is material if the aggrieved party would not have entered into the contract. Here, because the Dortons testified they would not have purchased the home had they known of these problems, the decision was reversed.

This article was written by FAR’s Law and Policy Group.

Reprint from Florida Realtor Magazine May 2001.

Posted in FAR Seller's Real Property Disclosure Statement