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.