Problems with Seller’s Disclosures Under PA Real Estate
May 21, 2023
Introduction
Since the sale or the purchase of a parcel of real estate tends to be the most significant asset and transaction the individuals will make, the risk of litigation can be the largest one that one will encounter. Historically, the risk of a bad purchase fell directly on the Buyer. Caveat Emptor - Buyer be Aware - was the standard in the law. However, the evolution of the law changed the risk to be one of a shared risk; where the Seller was given the duty to disclose to the Buyer certain matters, referred to as defects. The duty to disclose may be part of a commercial transaction, however, this type of transaction is less actionable because a commercial Buyer is viewed as being more sophisticated.
In Pennsylvania, home sellers are required by law to disclose the condition of their home. When selling a home, legal obligations exist when it comes to disclosure. In short, home sellers are required to inform potential buyers of all known defects with their property, including defects that may be hidden from the naked eye (like electrical or roof issues). Failure to do so can lead to expensive litigation, in addition the cost of fixing the problem.
What PA Seller’s Disclosures Covers
The Duty to disclose regarding Real Estate Transactions is quite comprehensive and states as follows: in Pennsylvania Stature § 35.284. Disclosures required by the Real Estate Seller Disclosure Law are, as follows:
(a) A licensee who represents sellers or a transaction licensee who has entered into an agreement with sellers shall:
(1) Advise sellers of their duty to disclose any known material defects with the property by completing a property disclosure statement that satisfies the requirements in 68 Pa.C.S. §7304 (relating to disclosure form).
(2) Provide sellers with a property disclosure statement that meets or exceeds the disclosures set forth in §35.335a (relating to seller property disclosure statement).
(3) Deliver the completed property disclosure statement or the property disclosure statement marked ‘‘refused’’ to the buyer, the licensee who represents the buyer or the transaction licensee who has entered into an agreement with the buyer prior to the execution of an agreement of sale.
(b) A licensee who represents buyers or a transaction licensee who has entered into an agreement with buyers shall:
(1) Advise buyers that the sellers have a duty to provide a completed property disclosure statement.
(2) Assure that the completed property disclosure statement or the property disclosure statement marked ‘‘refused’’ was delivered to the buyer prior to the execution of an agreement of sale.
(c) Licensees described in subsections (a) and (b) are required to disclose, to the buyer in writing, all material defects that are not otherwise disclosed and of which the licensee has actual knowledge.
(d) Licensees described in subsections (a) and (b) are not required to conduct an independent investigation to confirm seller’s disclosures on the property disclosure statement.
II. What is a Reportable Defect that Needs Disclosed
Under Pennsylvania law, the Disclosure Statement makes it clear that a “defect” is a problem that would have a sizable impact on a home’s value or creates unreasonable risk. In other words, something like a missing section of baseboard wouldn’t be included, but a rotting roof would be. In most cases, it’s a situation of better safe than sorry. If on the fence about disclosing something, then one should definitely disclose, because it can protect you from future liability. It’s always safer and better to disclose than to not disclose. This duty includes the risk to the Seller’s agent.
The following are the exact topics that the State Real Estate Commission includes in the seller's disclosure document:
Seller's expertise in contracting, engineering, architecture or other areas related to the construction and conditions of the property and its improvements.
When the property was last occupied by the seller.
Zoning.
Condominiums and planned communities/details
Home Owners” Associations (HOA) details
Roof and attic condition and considerations
Basements and crawl spaces
Termites/wood destroying insects, dry rot and pests
Structural items, Additions, remodeling and structural changes to the property
Water supply
Sewage systems or service
Plumbing system
Water heating
Heating
Air conditioning
Electrical system
Other equipment and appliances included in the sale
Land/soils
Flooding, drainage and boundaries
Hazardous substances
Miscellaneous threats to property
Mutual Duty to Inspect: Disclosures Are Not a Substitute for Inspections by the Seller or the Buyer
The seller’s disclosure only contends with issues that the seller is aware of, or reasonably should be aware. A home with a leak, for example, can reasonably be expected to have a bad roof. So a seller needs to act reasonably to inspect the property being sold. As a result sellers are frequently advised to get a pre-inspection for their home so that they know beforehand what is likely to come up as an issue. Why not just wait for the inspection, considering the buyer will be less likely to back out at that point? A listing agent can advise the best path forward, but this way, sellers have a chance to fix the problem at their own pace, rather than having to pay premium contracting prices while under contract. Buyers should do their due diligence when buying a home, considering it’s one of the largest investments of their life.
A seller’s disclosure is not a substitute for an inspection, and shouldn’t be treated as one. An inspection can often and typically will uncover problems the seller wasn’t aware. However, waiting for the inspection to reveal problems can lead to a hurried resolution and require the seller to drop the home’s price by more than they were hoping.
III. Disclosure Helps the Seller Protect Themselves
It’s not uncommon for homeowners to push back against their agent’s advice for disclosure. Naturally, the Seller should not want to jeopardize their home’s ability to sell especially if it’s in regard to an issue they’ve already solved. So the disclosure is ultimately there to protect the seller, as well. Some sellers are hesitant because they think it will harm the potential salability of their home. Yet, it may or it may at the suggested selling price. However, the risk of the cost of litigation needs to be considered in the balance. Even brand new homes have problems. You’re just protecting yourself by disclosing. Therefore, noting something in the disclosure is unlikely to dissuade serious buyers, because every single house they look at has existing issues. They may not even care at all. But by informing them, a Seller is actively protecting yourself from future litigation.
Lying on the PA Disclosure Statement
Many homeowners may be wondering what happens if they fail to disclose. Because the stakes are so high in real estate, litigation is fairly common for failing in the duty to disclose. Failing to disclose something important about the property, is very likely that the Seller will either need to settle (which means paying to fix the problem), or hire a lawyer.
Misrepresentation and fraud are the two legal actions sought for failing to adequately disclose on a Seller’s Disclosure Statement. That misrepresentation can be either an omission which is failure to disclose, or, a commission which is trying to hide some material defect. Whether or not found to be at fault will depend on whether the new homeowner can prove the Seller reasonably knew there was an issue with the property. For example, if there was water damage to a wall and the Seller attempted to paint over it to hide it can be used as evidence against the Seller. A claim can also be made using information gathered from neighbors, insurance claims, and even utility bills.
f the court agrees that the Seller is at fault, one can be held liable not only for the cost of repair, but for other damages the owner experienced as well. PA does not allow punitive damages for disclosure, which means that you won’t be asked to pay additional money as a way to “send a message” to other home sellers. Of course, the representations that are not truthful can give way to a separate action of Fraud, which may allow for punitive damages.
In some of the more extreme cases, courts have allowed the reversal of a sale. PA does not require the seller, to pay the lawyer’s fees for the buyer if you lose, which helps to reduce frivolous claims.
Under section 7311 of the law, a buyer has two years to bring legal action for a disclosure issue.
Are Disclosures Still Required for Homes Selling As-Is or That Have Never Been Lived In?
Many sellers opt to sell a home “as is” to reduce the amount of time it takes to close the deal. These sellers are still responsible for disclosure. After all, disclosure doesn’t require the seller to fix the problem - one just need to inform the buyer it exists, so that they can make an informed decision about how much your home is worth. The same goes for homes that the seller has never lived in: a disclosure is still required as part of the sale. Even if never living in the home, such as if the one inherited or if you’ve invested in it, there needs to be a property disclosure on file. Even if the answer to these questions is ‘I don’t know,’ it is still needed.
Can the Inspector or Agent be Held Liable Instead of the Seller?
Although it's their job to inspect the home for the sort of structural, electrical, and plumbing problems that would lead a buyer to sue, inspectors are rarely held liable for not uncovering something. Even in cases where it might be obvious that they didn’t do the due diligence, home buyers often sign a contract with inspectors that limits the buyer’s ability to sue later.
Similarly, real estate agents cannot be held responsible unless they were informed of a major defect and chose to ignore it, or advised their client not to disclose it. Unfortunately home inspectors can and do miss things; sometimes from simple oversight, other times because problems are deep within the home’s structure and extremely difficult to observe.
What Will Not be Covered in a Pennsylvania Disclosure
Every state has a unique set of disclosure obligations. In PA, you are not required to disclose the presence of unsavory neighbors, deaths that took place in the home, crimes that occurred in the house, or paranormal activity. Disclosure also distinguishes between defects which is required, as opposed to normal wear and tear, which is not required. An appliance or feature nearing the end of its usable life isn’t considered a defect. If you’ve had your HVAC system for 17 years, one knows it’s probably going to need to be replaced soon. While this is useful information for the buyer and helps determine the home’s overall value, this is not regulated by disclosure laws. In other words, the disclosure statement is not a warranty.
IV. Detailed Explanation of the PA Disclosure Form
A copy of the Pennsylvania Disclosure is enclosed (as a link). The main areas are af follows:
1. Seller's expertise in contracting, engineering, architecture or other areas related to the construction and conditions of the property and its improvements.
In most cases, the Seller would answer “no” to this section. The exception would be if you are actually an experienced architect, engineer, etc.
2. When the property was last occupied by the seller.
If the Seller is not currently occupying the property, that will require a disclosure of why not. This can mean the home has been empty, rented out, or if the property is an inheritance. Even if y the Seller has not lived in the home, the Seller still needs to fill out the form to the best of your knowledge and may mean further that there is an accessing of any existing repair/maintenance records.
3. Condominiums and other homeowners associations.
The Seller need to state whether your property is a condominium, cooperative or home owner association HOA and note the annual or monthly fee amount
4. Roof and attic.
The Seller needs to note when the current roof was installed, whether or not documented, and whether or not there are any issues with leaking. Not surprisingly, this is important to buyers since roof problems can be expensive to fix or replace. Similarly any issues with downspouts and gutters need to be disclosed, as well.
5. Basements and crawl spaces.
When it comes to basements, the main concern is flooding and further, the issue of mold. The Seller needs to note whether there is a sump pump, whether there is any dampness, and whether you’ve ever done anything to control issues of flooding or dampness. Flooding and plumbing issues are among the most common disclosures.
6. Termites/wood destroying insects, dry rot and pests.
Termites cause $5 billion in damages every year to homes in the US. The Seller needs to note not only damages you’re aware of, but also note if you’ve had any pest treatments during the past five years.
7. Structural items.
Structural problems cover everything from a shifting foundation to wall deterioration. Past damage from a house fire or ice counts as a structural item. The Seller needs to note any external problems, like issues with driveways or patios.
8. Additions, remodeling and structural changes to the property.
Did you remodel or make an addition? It’s important to note that DIY updates that turn out to have been improperly done often turns up as issues in disclosure, and work done without permits can raise red flags.
9. Water supply.
Whether water is from a well, a community system or the public supply, Seller needs to note it. For non-public water, the Seller needs need to disclose the most recent testing results.
10. Sewage systems.
The property served by a sewage system; whether public, private or community, disclosure is required as to when it was installed or connected. Any tanks, cesspools, or sewage pumps on the property need to be noted.
11. Plumbing system.
If there have been any issues with plumbing including things like your hot water heater and bathroom fixtures.
12. Water heating.
The Seller needs to check off how your water is heated, whether that’s electric, natural gas, geothermal, etc., as well as record the number of water heaters and any existing problems.
13. Heating.
This section concerns the heating system - covering everything from fuel types such as electric, geothermal, wood, solar, etc. to system types as forced hot air, steam, radiant heat, and now solar. Also, disclosure is needed is whether you have any chimneys and the condition and whether they have been maintained.
14. Air Conditioning.
In this section, the Seller needs to note what type of systems exists -- whether central electric or central gas AC. Also, the Seller needs also to note which rooms of the property have no AC or heating. This section also covers water heating and cooling.
15. Electrical system.
Improper wiring or wiring not up to code are things that he Seller needs to note. Lawn sprinklers, smoke detectors, and security alarm systems also fall under this category, as well as all of the typical kitchen and washing appliances. You also need to note whether any appliances in the home are in need of repair or replacement.
16. Other Equipment and Appliances.
Every item that’s included with the property needs to be checked off. Items range from washers and dryers to pool covers and smoke detectors. Any issues or repairs with listed equipment also need to be noted
17. Land/Soils.
If you know your home has something like expansive soil - which can create foundational issues for homes, even if it hasn’t yet - you’ll need to note it here. This section also concerns property rights, specifically when it comes to natural resources. If there’s ever been a transfer or lease of oil or timber on the property, for example, the Seller needs need to note it.
18. Flooding, Drainage and Boundaries.
If the Seller needs lives within a flood zone or wetland area, then this needs to be disclosed. The seller’s disclosure extends to other uses of property that would impact a homeowner’s experience. The Seller needs to note any boundary disputes such as your neighbor claiming that your fence is on their land, etc. If there’s a shared common area, like a driveway or a dock, you’ll need to both note the area as well as indicate any existing maintenance agreement you have with other homeowners.
19. Presence of hazardous substances.
This section pertains to hazardous substances like (but not limited to) lead paint, radon, and asbestos. If you’ve tested for these substances and the tests were negative, you’ll need to circle “yes.” If the home was built before 1978, both the seller and buyer need to sign a lead paint disclosure that says lead paint could have been used on the property. This is a federal law and true for every state.
20. Miscellaneous threats to property.
This is a catch all for everything else, and encompasses both liens and issues with the property’s title. In other words, if for some reason you’re not fully, legally entitled to sell the property, then the Seller needs need to note it. This section also requires you to note any material defects with the property that were not covered by the rest of the form. The legal test is whether or not the item can have a significant impact on the property’s worth, or presents an unreasonable risk to people living there. If the answer is “yes”, then disclose.
The Seller’s Disclosure is a Normal and Expected Part of Selling a Home
Home sellers shouldn’t worry about having to disclose. It’s a completely normal part of the home selling process, and buyers expect to encounter issues and are ready to deal with it. Better to disclose it because while disclosure protects the buyer, it also protects the seller. Ultimately, seller disclosure laws help reassure homebuyers that they understand what they’re buying into, while protecting sellers against unwarranted litigation. It is better to be honest that sorry.
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