In a real estate market where home prices are rising, many have begun to reexamine the idea of buying a home, choosing instead, to rent for a while. But often, there is a dilemma: should you keep
Property Defects & Disclosure
Property Defects & Disclosure
What is a defect?
It is some irregularity in a surface or a structure of the property that mars its appearance or causes some aspect of the property to weaken or fail. It involves tangible aspects of the property, whether its physical appearance or its physical structure. When we call something defective, we mean it is blemished, broken, deficient or imperfect in some physical sense (Coldwell Banker Whiteside v. Ryan Equity, 181 S.W. 3d 879).
A seller of real property in Texas and a real estate broker must disclose to a prospective buyer any known defect in the property. The broker’s duty to disclose known defects is the same regardless of whom the broker represents. This duty applies to all types of property (residential and commercial) [TRELA 1101.652(b)(4)].
The Texas Property Code (§5.008) provides that a seller of residential property consisting of not more than one dwelling unit is to complete a seller’s disclosure notice and deliver it to the buyer on or before the effective date of a contract.
Defect Disclosure FAQ
What if, as a licensee, I learn that there is a defect, but the seller does not want it disclosed?
Inform the seller that you are obligated by statute to make the disclosure and that an attorney should be consulted if the seller chooses not to disclose the defect.
Exceptions to the Seller’s Disclosure Form
The requirement to provide the Seller’s Disclosure Form does not apply to any transfers:
pursuant to a court order;
by a trustee in bankruptcy;
to a mortgagee by a mortgagor or successor in interest;
by a mortgagee or beneficiary under a deed of trust who has acquired the real property by sale conducted to a power of sale under a deed of trust or a sale pursuant to a court-ordered foreclosure or has acquired the real property by deed in lieu of foreclosure;
by a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust;
from one co-owner to one or more co-owners;
made to a spouse or a person or persons in the initial line of consanguinity of one or more of the transferors;
between spouses resulting from a decree of dissolution of marriage or a decree of legal separation or from a property settlement agreement incident to such a decree;
to or from a governmental entity;
of new residences of not more than one dwelling unit that have not previously been occupied for essential purposes; or
of real property where the value of any dwelling does not exceed 5 percent of the value of the property.
Why do multiple variations of the seller’s disclosure notice exist?
The seller’s disclosure notice statute requires that the seller use the form set out in the statute or a form that is substantially similar containing all of the items in the statutory form. The TREC Seller’s Disclosure of Property Condition form is identical to the statutory form. TREC publishes the form as a convenience for brokers, sellers and buyers. Some professional associations also publish seller’s disclosure notice forms that comply with the statute and contain additional disclosures that those groups have determined are relevant. Whichever form the seller uses, it must contain all items in and be substantially similar to the statutory form.
Must every seller deliver the seller’s disclosure notice to a prospective buyer?
The seller’s disclosure notice statute contains 11 narrow exemptions that most real estate brokers typically will not encounter on a regular basis. The most common exemption is the new home exemption or builder exemption. The next two most common exemptions are the trustee or executor exemption and the foreclosure exemption. Under these exemptions, the following are not required to complete the seller’s disclosure notice: a builder of a new home, a trustee or executor of an estate, and a lender after it has foreclosed on a property. Keep in mind, however, that even though these sellers are exempt under Texas Property Code §5.008, they are still required under common law and other statutes to disclose any known defect. It is the mechanism of disclosure, namely the seller’s disclosure notice, which is not mandated.
Is a relocation company required to deliver a seller’s disclosure notice?
If the relocation company is the seller, it must deliver the seller’s disclosure notice.
Must a seller disclose a previous death at a property?
The statute provides that neither a seller nor a broker must disclose deaths that occurred by natural causes, suicide, or accidents unrelated to the condition of the property [Texas Property Code §5.008(c)].
Must a seller disclose prior water penetration in a property?
If the prior water penetration has been cured and any ensuing damage from the prior water penetration has been cured, there is no longer a defect and the seller would not be obligated to disclose the prior water penetration. However, if the prior water penetration has not been cured or the ensuing damage has not been cured, then such items would be considered defects.
Must a seller or broker disclose to a prospective buyer the fact that a registered sex offender resides in the neighborhood?
The Code of Criminal Procedures §62.056 provides that neither the owner of a single-family residential property nor real estate agents have a duty to disclose that a nearby resident is a registered sex offender. Texas Government Code §411.088 requires that DPS information about sex offender registrants be made.
Herbert (Allen) Anderson is a Houston, Texas-based REALTOR® I Trusted Adviser with an immensity of experience and core understanding of how to deliver first-class client service.
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