Disclosure vs. Discovery – There is a difference.

By
Real Estate Agent with HomeSmart SA541769000

Discovery Disclosure

When should a seller disclose material facts that could affect the marketable value of a home? That, of course, is a trick question. The answer is always.

However, does the receipt of a home inspection report immediately require an update of the Seller Disclosure documents? Well, not always.

Let’s start by explaining the disclosure and inspection processes in AZ:

Whenever a house is placed on the market the Seller is required by law to disclose known facts (including history) of the property. We use a Sellers Disclosure form for that purpose. Upon receipt, the Buyer has 5 days to examine the Sellers Disclosure and decide if they wish to proceed with the purchase.

In addition to the Seller’s Disclosure, a buyer is afforded an inspection period (typically 10 days) in which to discover any additional facts about a home that could affect their purchase that was not disclosed. Any items that the buyer disapproves of are then reported to the Seller. The Buyer has the option to cancel the contract or request the items to be corrected. This is done through a Buyer’s Inspection Notice. The Seller then has 5 days to respond to the Buyer’s request(s). If the Seller agrees to perform ALL corrections, the sale proceeds.

Occasionally, major items are discovered such as property line disputes, a leaking roof or a crumbling foundation. Discovery of these items could affect the value and marketability of the property. When these items are discovered, even if the Seller was unaware, the Seller should update their Sellers Disclosure.

However, often minor items such as general maintenance items are discovered during a home inspection. These items normally will not affect the value of the property, but the buyer may still want them corrected. The negotiation begins.

But let’s clarify. There is a difference between disclosure and discovery. Let’s review some examples from a previous home inspection report where I represented the Seller.

  • Inspection item #10 – Inoperative self-closing hinges on service door (need adjustment),- hazard;
  • Inspection item #12 - Inoperative single-hung window (detached spring/balancer), at Dining area. Recommend review/repair as needed.
  • Inspection item #22 – Anti-tip Device: (For Range). Not present (or not functioning), - hazard.

Even though two of the items were flagged as "hazard", all of the above items are general maintenance. The Seller agreed to correct ALL the items, so in AZ the Buyer must proceed with the sale, pending the repairs.

But in addition to requesting the repairs, the Buyer’s Agent requested that the Seller update the Seller’s Disclosure to indicate the findings of the inspection report. In AZ an update of the Seller’s Disclosure triggers a new 5-day waiting period and provides the Buyer an additional opportunity to cancel the contract. So naturally, I refused. None of the repairs would affect the marketability of the house. If a Seller had to disclose everytime a fuse blew or everytime a drain clogged they would have to write a book. The Buyer’s Agent complained to my broker, who agreed with me there was no need to update the Disclosure.

While we were bickering over the process, the Seller hired a handyman that found that not only were the corrections minor, in several cases, the inspector was wrong. Items #10 & #22 were in fact fully operational according to manufacturer specs. Item #12 was a simple re-attachment of a spring.

Had we updated the Sellers Disclosure the Buyer could have canceled with full return of their Earnest Money. The Seller would have to place the property back on the market. The Escrow Company would have been out all the time and effort they placed into the transaction. It would have been a mess.

I do not believe the Buyer ever wanted to cancel the contract, I believe it was merely a Buyer’s Agent overstepping his bounds in an attempt to over-protect his client or a ploy to renegotiate after the fact. More importantly, he found he could not bully his way to get what he wanted.

In the end, the Buyer completed their purchase and they got a nice house. But it was a lesson learned. Unfortunately, we see this type of action often. Far too many agents do not understand the due diligence process and what constitutes disclosure.

 

Joe Domino is a Realtor® serving the Phoenix & Scottsdale metro area. You can find more great information by visiting his website at www.Scottsdale-AZHomes.com.

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Joseph Domino

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Rainmaker
5,303,720
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

This is very important advice to share with home sellers.

Have a most productive summer.

Jul 02, 2019 07:15 AM #1
Rainer
506,809
Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH
CRS

True, the buyers don't have to depend on seller's disclosure!

In addition to the Seller’s Disclosure, a buyer is afforded an inspection period (typically 10 days) in which to discover any additional facts about a home that could affect their purchase that was not disclosed

Jul 02, 2019 07:44 AM #2
Rainmaker
3,097,015
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Joseph, I just had a inspection on a townhown that was a fix and flip and looks like lots of the work was done my a handyman, it okay but the electrical has a lot to be desire.

 

Jul 02, 2019 07:56 AM #3
Ambassador
2,810,338
Anna Banana Kruchten CRB, CRS 602-380-4886
Phoenix Property Shoppe - Phoenix, AZ
Arizona's Top Banana!

Hi Joseph Domino 480-390-6011 how crazy that a buyer would even think about 'walking away' for those tiny TINY issues!!!

Jul 02, 2019 10:33 AM #4
Ambassador
3,674,552
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Joe, this is a terrific explaination.  Here in the DC area, many agents do not disclose even serious flaws that turn up on an inspection report - not a great idea since we have such a huge nunber of lawyers living here!  Not a good idea in any case. 

Jul 02, 2019 10:59 AM #5
Rainer
44,410
Kris Collis
Smart Way America Realty - East Stroudsburg, PA
Buy & Sell with Professional Results you Expect

Joe, excellent article on disclosue vs. discovery.  Wow, that buyer and everyone involved is so-o fortunate you stood your ground so the transaction could proceed smoothly.  Thanks for this post.

Jul 02, 2019 01:03 PM #6
Rainmaker
1,977,599
Patricia Feager, MBA, CRS, GRI,MRP
DFW FINE PROPERTIES - Southlake, TX
Selling Homes Changing Lives

Congratulations on the FEATURE! Disclose! Disclose! Disclose! An agent can't say it enough!

Jul 02, 2019 06:26 PM #7
Anonymous
Joe Nernberg

Hey Joe. This is Joe the home inspector. The window issue was indeed a hazard, but little cost to repair. Let the window drop suddenly on your fingers and you may agree. In California, the inspection report becomes part of the seller disclosures in the next transaction if the current deals bomb's. Good article. Thanks.

Jul 02, 2019 07:37 PM #8
Rainmaker
698,735
Richard Bazinet /MBA, CRS, ABR
West USA Realty - Scottsdale, AZ
Phoenix Scottsdale. Sellers, Buyers & Relocations

Good post my friend. I think you touched upon some important issues. The inspection reports and the BINSR claims are always a 'it depends" type situations. It gets more complicated when a transaction is buyer-canceled based on findings and the listed property goes back active on the market. And the potential new disclosures of not only the seller, but of... the listing agent. That's what makes our business interesting. A savvy buyer-agent will start to ask questions.

Jul 03, 2019 06:30 AM #9
Rainmaker
2,434,058
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Go with Joe...that's all I know

Jul 03, 2019 11:56 AM #11
Rainmaker
2,492,870
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

It's best to over disclose rather than under disclose.  Otherwise an "F" word comes to mind.  It is sometimes called, "FRAUD."

Jul 03, 2019 04:41 PM #12
Rainer
135,157
Robin Wells
RAW Chimney Sweep and Inspections - Penetanguishene, ON
Giving Peace Of Mind One Chimney At A Time

Thanks for post and very interesting.  Disclosure is an interesting item.  Having said that many homeinspectors are providing opinions on areas in need of repair as they are not experts in any particular area.  Example being I did a repair two weeks ago on a wood stove installation where home inspector had identifed eleven items being wrong - most of these were errors ( double wall stove pipe being misidentified as signle walll stove pipe as an example ).  In the end there were two items on the list that needed repairs which were completed as well as a full inspeciton report.  So it might be wise in many cases to consult with an expert if in doubt before disclosing.

Jul 04, 2019 03:50 AM #13
Rainmaker
285,173
Shirley Coomer
Keller Williams Realty Sonoran Living - Phoenix, AZ
Realtor, Keller Williams Realty, Phoenix Az

Nice post!  It isn't unusual for an inspection report to identify something as a defect, when in fact is it not. I often see outdoor lights on sensors called out when they are fully operational.  Pool equipment is another area in Phoenix where a home inspector may not understand how specific equipment works. Sellers do need to disclose and buyer's agents need to be reasonable!  

Jul 04, 2019 09:27 AM #14
Rainmaker
3,266,454
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello Joe - disclose/discover/divulge.  I like your post and the comments it has attracted. The beginning of a good dialog and discussion. 

Jul 04, 2019 12:45 PM #15
Rainmaker
370,861
M.C. Dwyer
Century 21 Showcase REALTORs - Felton, CA
Santa Cruz Mountains Property Specialist

Hi Joseph Domino 480-390-6011 - Congratulations on getting your post featured!   It was an interesting read to see how you and the buyers' agent handled things...and a few things are somewhat different than here in California.

Jul 05, 2019 04:10 PM #18
Rainmaker
252,718
Susan McCall, Independent Listing and Buyer Agent
Compass Realty Solutions - Portland, OR
Bringing buyers and sellers together!

Another item to disclose would be an occurance that the new owners might discover after they move in, from the neighbors.  I am a BIG BELIEVER in disclosing EVERYTHING!  That way you can't get sued (and/or your cients) down the road.  With the current state of "everything" it seems like there are some people who just want to jump in and go for it!  Something as simple as an area rug covering damage in hardwood floors, or a fire that happened in the attic many years before.

Jul 05, 2019 04:47 PM #19
Rainmaker
970,924
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Nice post Joseph.  I've never heard of adding anything to the SPDS to start another 5 day waiting period?  

Jul 09, 2019 05:30 PM #20
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