Sellers Disclosure Of Property Condition In Residential Transactions

By: R. Scott Alagood

With the economy beginning to pick up, new housing starts and sales of existing homes seem to be on the upswing as well. It is important to know what duties the seller has in disclosing the physical condition of a home, and to what extent a buyer may rely upon such disclosures in purchasing real property. Depending on the type of property being sold, commercial, residential, farm & ranch, unimproved, etc… the required disclosures vary to some extent. This article will solely focus on the required disclosures involved in the sale of residential real estate.

“Residential real estate” is defined as a single dwelling unit of residential real property located in Texas. Section 5.008 of the Texas Property Code governs a seller’s duty to disclose the condition of residential real estate. You may review the promulgated disclosure form on the Contract Forms tab of the Texas Real Estate Commissioner’s website found at http://www.trec.state.tx.us.

The disclosures required by Section 5.008, include (1) the presence and condition of equipment, fixtures and improvements; (2) the presence or absence of working smoke detectors; (3) defects in walls, foundations, plumbing, electrical, or other major components of the property, including “structural” components; (4) potential problems with termite damage, flooding, aluminum wiring, asbestos, or lead-based paint; (5) whether any item, equipment, or system is in need of repair; and (6) other items affecting the property such as alterations or repairs made without permits or non-compliance with codes, deed restrictions, common areas, and lawsuits.

For “lawsuits”, Section 5.008 only requires the disclosure of “pending” lawsuits at the time the disclosure is made, and does not require disclosure of previous suits which have been dismissed, settled, or completed through final judgment.

Disclosure of “structural” repairs includes any repairs performed to the load-bearing portion of a residence, and includes the foundation, walls, and roof. Repairs to cabinets, sinks, bathroom fixtures, and drywall not caused by a failure in the structural portion of the residence are not required to be disclosed as “structural” repairs. Other areas of Section 5.008 may require the disclosure of repairs for those items.

A seller is not required to disclose to a potential buyer any deaths on the property that are unrelated to a physical condition associated with the property, or AIDS or HIV-related health problems of previous occupants.

The seller’s disclosure notice must be completed to the best of the seller’s knowledge and belief as of the date of completion and signature. If there are items, components, or repairs which are not known by the seller on that date and time, the seller must indicate that fact. There is no legal obligation of a seller to conduct an investigation into matters of which the seller has no knowledge nor any continuing obligation to disclose matters that are later discovered. Also, a seller’s disclosure notice is not a warranty or guarantee by the seller of the physical condition of the property or dwelling.

However, particular attention should be paid to the form of the disclosure notice being used. Some residential real estate sales contracts promulgated by real estate trade associations may include disclosures which go beyond those required by Section 5.008. It is important to read each form of disclosure closely and make sure that each response is true and correct at the time and date such is being made. Although not required by law, supporting documentation of any disclosed defect or repair may assist the seller in later defending against allegations of misrepresentation or deceptive trade practices.

Also, unless the real estate agent or broker has actual knowledge of a misrepresentation contained in the seller’s disclosure notice and fails to bring such to the attention of the buyer or the buyer’s agent, a seller’s real estate agent or broker is not legally responsible for any misrepresentations made by the seller in its disclosure notice.

Certain types of residential real estate sales transactions are exempted from providing a disclosure notice. These include (1) court ordered sales; (2) transfers by a bankruptcy trustee; (3) deeds in lieu of foreclosure; (4) judicial and non-judicial foreclosure sales; (5) sales by a fiduciary or administrator of a decedent’s estate, guardianship, conservatorship, or trust; (6) transfers between co-owners; (7) transfers to a spouse or heir; (8) transfers incident to a divorce; (9) transfers to or from a governmental entity; (10) new residences which have not been previously occupied; and (11) where the value of the dwelling does not exceed five percent of the value of the property.

Finally, where a seller fails to provide a disclosure notice to a buyer, the buyer’s sole remedy is to terminate the contract for any reason within seven days from buyer’s receipt of the notice.

R. Scott Alagood is board certified by the Texas Board of Legal Specialization in both Commercial and Residential Real Estate Law and may be reached at [email protected].