Seller Disclosure requirements when an estate is selling

If your client is selling a property from an estate, what does (s)he need to disclose?

A recent hotline caller asked the following question: “I am the listing agent for a property that is part of an estate. As I was walking through the house before listing it, I noticed water stains on the cinder block foundation walls. I asked the executor if the basement routinely took on water. The executor said he really didn’t know much about that, but that he didn’t have to disclose anything because executors don’t have to complete the Sellers Property Disclosure Form. Is this right?”

There are two main aspects to this question: The administrator’s obligations under common law, and the administrator’s obligations under the Real Estate Seller Disclosure Law. In this case, the executor is partly correct because the obligations created by the Real Estate Seller Disclosure Law do not apply to sales performed as part of the administration of an estate. In layman’s terms, an executor does not have to complete a seller’s disclosure form. However, that is only the beginning of the analysis, especially for the Realtor®.

First, the fact that the executor or administrator of an estate is not obligated to comply with the disclosure requirements established in the Real Estate Seller Disclosure Law does not mean that the executor or administrator is relieved of all obligations to disclose certain conditions about the property. Once the executor or administrator has knowledge of a material defect, then the common law duty to disclose adverse conditions about a property may be triggered.

Second, under the Real Estate Seller Disclosure Law, a licensee is not liable for any violation of the law unless the licensee had actual knowledge of a material defect, or if the licensee had actual knowledge that a material defect was not accurately disclosed. There are a couple of important aspects that should be explored.

The protection from liability applies to both listing agents and selling agents. Frequently, the hotline caller is the listing agent asking whether s/he has an obligation to disclose something that the seller does not want to disclose. Not only do listing agents need to be aware of what and how sellers disclose (or fail to disclose) certain aspects of the property, selling agents need to pay attention as well.

Additionally, the protection offered to licensees is very straightforward. Licensees will not be liable for violations of the Real Estate Seller Disclosure Law unless the licensee had actual knowledge of a material defect that was not disclosed, or if the licensee had actual knowledge of a material defect that was not accurately disclosed.

Consider this in light of the question asked. The executor is excepted from the obligation of completing a Seller’s Property Disclosure Form; however, the listing agent does not enjoy the same exception. In other words, listing agents are not relieved of their obligations under the Real Estate Seller’s Disclosure Law even if the seller is excepted from those obligations. If the listing agent in this scenario determines that he has to disclose what he knows about water infiltrating the basement, is he obligated to use either the PAR Seller’s Property Disclosure Form or the seller disclosure form promulgated by the State Real Estate Commission? Probably not, since the Real Estate Sellers Disclosure Law obligates the seller (and not licensees) to use that form; however, there may be some instances when it makes sense to use one of those forms.

The seller disclosure form proscribed by the Real Estate Commission addresses the role of the executor differently than does the Seller’s Property Disclosure Form published by PAR, and it’s a difference worth noting. The Real Estate Commission directs executors and administrators to sign an acknowledgement that reads, “The undersigned has never occupied the property and lacks the personal knowledge necessary to complete this disclosure statement.” On the other hand, the PAR form reads, “According to the provisions of the Real Estate Seller Disclosure Law, the undersigned executor, administrator or trustee is not required to fill out a Seller’s Property Disclosure Statement. The executor, administrator or trustee, must, however, disclose any known material defect(s) of the property.” Each approach has its strengths.

Understanding the obligations to disclose defects affecting residential property can be daunting. At the end of the day, there are three words you need to remember: Disclose! Disclose! Disclose!