Sellers: Why Full Disclosure is Critical

A Seller’s Worst Nightmare

Once a seller has closed escrow and possession has been provided to the buyer, the last thing the seller wants to do is  revisit the sale. This might come some time later through a claim for damages by the buyer. In order to reduce the chance of claims from a buyer, the single most important action a seller can take during escrow is to properly disclose any issues with the home. A significant majority of transaction-related lawsuits are filed by buyers against sellers alleging that the sellers failed to disclose. For example, a buyer might say, “You did not tell us about the leak that you had in the master bathroom that flooded the downstairs.” The ounce of prevention that will avoid this situation is extremely simple – use the disclosure forms provided by your real estate agent to fully and properly disclose anything that might reasonably affect the value or desirability of your property. That last statement, by the way, is the legal standard that governs disclosures.

Why Sellers Do Not Like To Disclose

Typically, a failure to disclose lawsuit occurs because the seller did not advise the buyer of some facts that turn up later as expensive repair items for the buyer. Why does a seller not tell a buyer of the defects in their property? Usually it is because they believe that if they tell, the buyers will not purchase their property. That belief is simply wrong most of the time. Experience shows that most buyers will come to terms with a “defect” issue disclosed during escrow, especially if the matter is disclosed up front when they are most excited about their purchase. In those cases where the buyers do elect to cancel, the sellers should be thankful, not upset, because the buyers absolutely would have found out eventually, when money that they would have invested in new carpet, for example, instead goes to fix the defect. At that point the buyers’ disappointment turns to resentment against the sellers and they have no other recourse but to make a claim against the sellers. Given the costs that are typically necessary to defend a claim, the sellers’ proceeds from the sale are quickly swallowed up by mediation, arbitration and/or litigation costs, which quickly turn into many thousands of dollars – the legal process is designed to be expensive!

Disclosure: The Best Insurance against Future Claims
Full disclosure is, in reality, the cheapest form of lawsuit insurance for a seller as it costs nothing. Under California law, sellers are required to disclose anything that might reasonably be an issue affecting the value or desirability of the home. Sellers should not try to decide what is and isn’t important, because the standard is not what is important to them. Instead, a seller should disclose everything that the seller knows about the property. Sellers should think of each individual bit of disclosed information like a lawsuit inoculation against stressful and expensive litigation related to that disclosed fact. It is one less thing for buyers to later complain about. Sellers should be especially careful to disclose a condition even though they might believe it has been “fixed.” It is amazing how many problems that have been “fixed” end up breaking again a month or so after the close of escrow. Disclosure of an old “fixed” problem typically has absolutely no effect on the sale as it is usually viewed by the buyers as one less problem to be concerned with. If an undisclosed “fixed” problem is discovered after the fact, however, when the “fix” breaks, the buyers often believe that the sellers were intentionally hiding things and hard feelings and a dispute almost always result.

A Simple Rule
Sellers, ask yourselves the question, “Do I want to disclose this?” If the answer is no, you should disclose it. Think about it: why would you not want to disclose unless you believe that disclosure of the information would hurt the chance of a sale? Follow this simple rule – disclose, disclose, disclose – and you will have done everything possible to eliminate the chance that you will ever be a defendant in a lawsuit over the sale of your property.

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