Don't You Dare Disclose That

So, your seller has an inspection report. It may be weeks, months or years old and was issued when your seller was a buyer, or perhaps by a more recent buyer who did not purchase the property. The seller gave it to you because you asked, or perhaps because the seller thought you should have it. When you read it (you will read it, right?) you find out about a suggested problem that is not visibly apparent. Maybe the inspector opined about a moisture problem behind a stucco exterior, or a foundation problem or something else that you cannot verify by a visual inspection of the property. When you read the report against the Seller’s Disclosure Statement, you realize that the seller didn’t go far enough in disclosing the potential issue noted by the inspector. When you suggest to the seller that she did not sufficiently disclose what the inspector “found” she adamantly disagrees. She tells you the inspector was wrong and that the property does not suffer the problem the inspector had “questioned.” She tells you that you are not to reveal the matter because it does not exist.

What to do? The Real Estate Seller’s Disclosure Law (RESDL) is clear. A real estate licensee has an obligation to disclose material defects not disclosed by the seller. “Material defect” is defined twice in the disclosure form (a problem that substantially impacts value or human habitation). Thus, if the prior inspection report is accurate, it has to be disclosed; if it is not, then no disclosure.

Based on the information I’ve provided, the answer is elusive though there are several ways to hone in on the right answer. You can get a second opinion. Hire an expert and give that expert a copy of the prior inspection report and ask him to verify its accuracy. If the expert also suggests the problem, then disclose. I would not advise shopping this matter with multiple experts until you get one who says what you want!

In all but the rarest exceptions, I would still disclose that portion of the prior inspection report that notes the problem, together with the newer report that eliminates it. If the new inspector completely, positively, absolutely finds that the previously reported problem never existed, you might consider omitting mention of that previous report. Then again, what’s the problem with providing an older report together with a new one that absolutely rules out the problem (the preferred course)?

Another option is for your seller to make the repairs. You will have to analyze whether selling the property without the defective condition will net more than discounting the price and not repairing the condition. What do you think?

The worse thing that could be done is to accept the seller at her word and not update the disclosure to reveal what the prior inspector found. When the new buyer discovers the problem, he or she will undoubtedly run across the fact that there had been a prior inspection, a prior repair estimate or a previous buyer who walked away after discovering the problem. It happens far more often than you would imagine. Then, you the listing agent are seen to be a co-conspirator with the seller in efforts to hide a known or at least highly suspected material defect. This is the kind of thing that leads to ethics complaints and civil actions and the threat of punitive damages or treble damages under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. The latter provides that fraud or even engaging in a course of conduct designed to confuse, can be met with an award of actual damages times three! Keep in mind, your E&O insurance coverage may not cover you for punitive or unfair trade practice damages.

When you take the position with your seller that the suspected defect must be disclosed (disclosed by you if she does not), you’re likely to encounter a tussle. Some sellers think they have the absolute authority to tell you what to reveal and what not. But as noted above, RESDL requires your disclosure of the material defect not revealed by the seller and why take chances based on the seller’s representation that the problem is not a defect? If the seller is unwilling to allow disclosure, then you have to make a decision that I think is easy: fire the seller.

Copyright © James L. Goldsmith, Esquire 2023

All Rights Reserved.

 Mr. Goldsmith is an attorney with Mette, Evans & Woodside. He serves as outside legal counsel to numerous Realtor Associations and was a staple on the PAR Legal Hotline for many years. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He defends real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He represents Realtors® in disciplinary cases conducted before the Real Estate Commission. Jim was one of the voices of the PAR Legal Hotline for the first 27 years following its inception in 1992.