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Disclosure of Defects

Whenever I’m out teaching, the question of what to and not to disclose regarding property defects is always a hot topic.  I understand the tension surrounding the issue.  The seller that has repaired the defect does not want it disclosed to potential buyers, because it may turn them away.  Buyers of course want to know everything the seller knows concerning the condition of the property.  Knowing the rules of disclosure is critical when representing your client and can help avoid personal liability for failure to disclose.

Question:  A property falls out of contract because of a roof leak that is discovered during a home inspection.  The seller repairs the leak.  Does the listing agent have an obligation to disclose the leak and repair to subsequent buyers?  Answer: Yes.

I can hear the grumbling, but let me explain.

Ohio license law requires any agent (doesn’t matter who you represent) to disclose to a buyer those defects of which the agent has actual knowledge and which couldn’t be discovered by a reasonably diligent inspection.  The listing agent has actual knowledge of a roof leak and because it has been repaired it likely cannot be discovered by a reasonably diligent inspection.  The Division’s has advised that negative inspection results still must be disclosed to subsequent buyers, even if repaired.  The rationale is this.  What if the repair wasn’t done correctly? The buyer needs to know everything the listing agent knows concerning the condition of the property, and with that information the buyer can conduct whatever inspections and tests the buyer deems appropriate.  Question: Is the defect the seller’s confidential information? Answer: No.  Because Ohio law requires the agent to disclose the defect, it is not considered confidential information.

Ok, here is the good news.

Even though an agent is required to disclose that which the agent has actual knowledge, the agent is not required to verify the accuracy of a seller’s statements or discover defects.  If a matter is outside the scope of your knowledge as a real estate agent, you are not required to advise on those matters, rather recommend employment of the appropriate professional.  Now use caution.  An agent cannot act with reckless disregard for the truth.  I was involved in a case years ago where the agent (who I later proved had actual knowledge of mold in a house) opened the door for the inspector, threw her hands up and said “I don’t want to know what you find.”  That my friends is acting with reckless disregard for the truth.

More good news.

There is a safe harbor for an agent that discloses defects in accordance with Ohio license law.  The law provides that an agent cannot be sued for disclosing information material facts pertaining to the physical condition of the property.  Furthermore, an agent cannot be liable for a client’s falsehood (i.e seller never told you about the roof leak or repair so you had no idea) as long as the agent didn’t act with reckless disregard for the truth (i.e. you saw the roofer at the house but made no inquiry of the seller).

I appreciate why this issue is difficult for agents but remember this.  Is the decision you make worth being sued or professionally disciplined?  Certainly not.  Best business practice is when in doubt, disclose.

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