Real estate contracts in Washington have undergone an enormous change greatly impacting buyers'future rights against sellers.
On March 1, 2007, the Washington Supreme Court in Alejandre v. Bull applied the Economic Loss Rule for the first time in Washington real estate case law. But it was only until recently that this ruling affected the transactions of real estate agents in Washington state.
Negligence v. Intentional Misrepresentation
On October 15, 2007, the MLS implemented a forms change that forced the buyer and seller to negotiate the level of the seller's responsibility for misrepresentation after the transaction closed. The court determined that because the parties had not negotiated this issue in the contract, the seller could only be held liable for intentional misrepresentation and not negligent misrepresentation. In this particular case, which had to do with a failed septic system, in order to prevail, the buyer had to prove more than the seller SHOULD have known, but rather that the seller intentionally defrauded the buyer by failing to disclose known defects with the septic system's drain-field. The economic loss rule requires that remedies for any losses suffered by buyers be found in the contract between the parties. If it isn't in the contract, then the buyer will have to show intent, which as a practical matter,can be very difficult to prove, as we saw in Alejandre v. Bull.
Hence the change to the real estate contracts. Now the parties have the opportunity to negotiate the seller's culpability with respect to misrepresentation in their disclosures to the buyer. There are form changes all the time--why is this one such a big deal? Well it makes it more difficult for agents to put deals together. Right on the first page, the buyer must check a box, yes or no, whether the seller will be held responsible for negligent misrepresentations. It can likely frighten an unwary buyer as well as a seller once they see the offer. One would think that a seller would not want a buyer to be able to come back and seek recourse for mere negligence. It's even more likely that a buyer would not want to give up that option. If I'm representing a buyer I can't see any reason to give up that option--the seller owns the property, there is noone more knowledgeable about the property than the one that owns it. The effect? Seller's will just have to be careful about disclosure. It also raises the level of responsibility for home maintenance. Real estate agents will have to be able to explain in plain english to all parties of a contract how the clause affects each party and refer them to legal counsel if they are unsure of their rights.