The housing market is booming across the country, leading some to sell their houses earlier than initially planned. While selling your home can be an exciting new start for you or your family, it does come with some serious legal considerations, such as what conditions and defects must be disclosed to potential buyers.
The obligations of sellers are largely controlled by the Pennsylvania Real Estate Seller Disclosure Law (RESDL). The purpose of this law is to protect those buying property. It requires the seller to complete a disclosure statement so that the buyer is aware of defects in the property that are known to the seller at the time of sale. It protects buyers from being sold a property with undisclosed defects.
That being said, the seller is not obligated to disclose every single creaky floorboard or other minor defects. Section 7303 of the RESDL states that the seller “shall disclose to the buyer any material defects with the property known to the seller by completing all applicable items in a property disclosure statement which satisfies the [statutory] requirements.” The key words to consider in this duty are “known,” and “material defects.” A seller is not an insurer of the condition of their property and a buyer is still required to exercise due diligence in ascertaining the condition of the property being purchased. Subject to the seller disclosure requirements of the RESDL, the law still requires that the “buyer beware” in the purchase of a property. This requires that the buyer undertake the necessary inspections to determine the condition of the property. These include property, environmental, radon, and wood-destroying insect inspections, among others.
With regard to the “knowing” provision, the law provides that:
“The seller is not obligated by this chapter to make any specific investigation or inquiry in an effort to complete the property disclosure statement. In completing the property disclosure statement, the seller shall not make any representations that the seller or the agent for the seller knows or has reason to know are false, deceptive or misleading and shall not fail to disclose a known material defect.”
In other words, the seller need only disclose those defects of which they are already aware or of which they should be aware. A seller cannot turn a blind eye to obvious defects in the property and claim that they were unaware of the defect. The law provides that an intentional or negligent misrepresentation of the defect is enough to constitute a violation.
A seller is liable for negligent misrepresentation when they have made “a misrepresentation of a material fact; made under circumstances in which the misrepresenter ought to have known its falsity; with an intent to induce another to act on it; and which results in injury to a party acting in justifiable reliance on the misrepresentation.” For instance, if a seller did not disclose that there was a leak in the house because they believed it was minor despite it causing considerable damage to the ceiling or walls, this could be considered negligent misrepresentation.
A misrepresentation is not negligent if the seller reasonably believed the defect had been fixed or if they reasonably believed that the defect was not present. For example, if a professional like a home inspector or another licensed professional told the seller that the defect was not present or was fixed, and the seller reasonably relied on that information, the seller will likely not be held liable for negligent misrepresentation. However, the fact that a condition such as water or fire (smoke) damage is repaired does not absolve the seller of the duty to disclose the fact of the occurrence and any resulting damage.
Although sellers are not obligated to seek out every potential defect, it is in their best interest to make a good faith effort to identify any defects that could be material because innocent misrepresentation can also be actionable. Even if a seller genuinely had no knowledge of a defect and the defect was not one which they should have been aware of, if it is significant enough, the court can set aside a purchase if the buyer is able to establish that they relied upon their belief in the misrepresentation. It may be difficult for a seller to prove that they had no knowledge of a defect which is later determined to exist. Although the seller would not be liable for any extra costs, the sale would still not be completed. An important consideration is the fact that claims of purchasers for violations of the RESDL are generally not covered by the sellers’ liability insurance.
The final aspect that is crucial to understand is what kind of defect is considered “material.” The RESDL defines a material defect as a problem with a residential real property or any portion of it that would have a significant adverse impact on the value of the property or that involves an unreasonable risk of harm to people on the property.
Courts have considered in their analysis whether knowledge of such a defect would influence a person’s decision of whether or not to buy the property. It should be noted, however, that it is not enough for the court to find that the buyer subjectively would not have made the same decisions regarding their purchase of the property had they known about a defect. The court’s analysis is an objective one for physical defects. For instance, in Milliken v. Jacobsen, the court declined to extend the duty of the seller to disclose so-called “psychological defects,” which included a murder/suicide that had occurred at the property. The court held that requiring the seller to disclose such events would require “the seller to warn not only of the physically quantifiable but also of utterly subjective defects.”
As such, in determining whether a defect is material, the elements listed by the RESDL are those that must be considered, namely those that can significantly impact the value of a property or cause unreasonable risk of harm to the property’s occupants.
With extensive experience in transactions involving the purchase and sale of commercial and residential properties, Nauman Smith attorneys stand ready to assist you in your next real estate venture.