Sellers Who Hide Defects Could Face a Lawsuit

More states require disclosure of house faults

LET the buyer beware'' is the age-old rule of conduct for consumers.

But today, sellers must be wary -- especially in the real estate business.

''We've gone from buyer beware to seller be scared, and what we really need is a position more in the middle,'' says real estate author Peter Miller.

Property disclosure laws are playing a major role in tipping the scales. These laws require that home sellers fill out a form answering questions ranging from the condition of appliances, plumbing, and wiring to the presence of lead paint.

Currently 24 states have property disclosure laws, 10 of which passed laws last year, and seven in 1993. Hawaii will become the 25th state when its law goes into effect in July.

This, coupled with the rise in buyer brokers, the growing complexity of real estate law, and a jump in the number of home inspectors represent a shift in favor of buyers when it comes to real estate deals.

A recent court case in Vermont illustrates the growing litigious pressure the industry is under. In January, the state supreme court upheld a manslaughter conviction of a Vermont real estate broker who sold his home, which had a faulty heater. Three members of the family who bought the home later died from the heater's carbon-monoxide emissions.

This was the first time in the country that a real estate transaction led to a criminal conviction.

Though many real estate attorneys say an outbreak of criminal convictions against realtors is unlikely, Will Adams, government affairs director of the Vermont Association of Realtors says, ''This decision underscores the need for some kind of legislation that will allow for more information.''

In terms of how real estate buyers' and sellers' interests are balanced, Steven Sokol, assistant general counsel for the California Association of Realtors in Los Angeles, says each state ''must determine where they are going to be on the spectrum.''

California, which was the first state to pass property disclosure (effective in 1987), has opted to side with the buyer. California sellers must divulge such matters as whether there has ever been a death on the property, whether the home lies in an earthquake-prone area, and whether the property is located in an area with no fire fighting unit.

''Disclosure is a way that society has elected to deal with surprises,'' Mr. Sokol says.

But realtors' associations, not the general public, have been behind the movement to legislate property disclosure, in part because of increased lawsuits. Starting in 1991, Harley Rouda, then-president of the National Association of Realtors based in Chicago, undertook a national campaign to promote disclosure laws.

''Having a seller disclose what they know about the home gives a great peace of mind to both the buyers and sellers,'' says Mr. Rouda, now owner of HER Realtors in Columbus, Ohio.

''Having property disclosure laws has alleviated tons of fears and tons of lawsuits,'' he says. If sellers must put into writing what is wrong with their homes, he says, the broker is under less obligation to point out potential problems to buyers.

But Donald Berman, law professor at Northeastern University in Boston, warns that disclosure laws may not effectively guard against litigation for the seller or broker.

The point of contention, Professor Berman says, is where does the disclosure end? Can a homeowner point out every crack, termite, or potential trouble spot? What is a realtor's role in pointing out defects? Does a disclosure form make the realtor or seller liable for damage long after the house has been sold? ''The question is, does a disclosure law protect you or open you up,'' he asks.

Almost everyone in the industry agrees that the best scenario for buyers and sellers is for a buyer to commission an independent inspection before signing any transactions and to come into the deal with realistic expectations.

Both sides of the issue also concede that in addition to living in a more litigious society, consumers today live in a more complicated one.

Science has made it possible to determine where harmful substances are located; homes are more complex architecturally and electronically than in the past.

''Technology gives us more and more access to information about the property,'' Sokol says, ''and sellers are actually aware of things that they weren't in the past.''

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