First, all involved need to understand that I do not own the property. After 26 years, the advice from any legal department is that I do not fill out the Seller Disclosure Documents. I do review them and if I know something that is incorrect, I will point it out to the Seller. I have a legal obligation that if I know a material fact about the property, I MUST disclose it to the Buyer and/or Agent.
Let’s start with the Seller’s Side of the deal. When I list a property, I have the Seller fill out the appropriate Seller’s Disclosure Statement which is supplied by the Arizona Association of Realtors. There are five documents that we use. First the Residential Disclosure and this is used for houses and up to 4 units. A few years ago the Association asked me to come down and work on the Residential 1-4 Addendum. Surprisingly, I was the only Broker in the room with the Attorney. They laughed and said, we all know that you sell the most fourplexes. What many Agents and Investors do not understand is that even a single family house with a tenant this is Standard of Care to complete. Lasty, we have the Commercial Seller’s Disclosure Statement and this is used for 5 units or more as well as Office, Industrial etc. There is also a Vacant Land Disclosure and one for the Landlord to use.
In reality there are a few other add ons that we use for example: well, septic and a few more but the first three are the most commonly used.
One thing that many Sellers fear is that the negative items that may show on the disclosures will put the potential Buyers off of the deal. This is rarely true but if someone is buyer a used car, they would want to know if it has worn tires. They will still buy the car but they then know that tires are in the near future.
There is an amazing amount of protection in the Seller’s Disclosure for the Seller and the Buyer. For the Seller, if you told the Buyer that there was a roof leak. They inspected the roof and did not bring up the issue and after closing decided to challenge the Seller, probably they would have no recourse.
So my advice to the Seller is to disclose everything that they know. Even if the investor has never lived in the property they will know some items.
From the Buyer’s perspective, the Buyer during the Due Diligence period needs the Seller’s Disclosure Statement. During the Inspection period is the time to carefully review the Seller’s Disclosure Statements, This is not an inspection document but a disclosure document. IF the Buyer has questions about the Disclosure they should put these in writing to the Seller. Not the Agent, although it should still be sent through the Agent. Remember that if the Buyer reviews the Disclosure Statement and does not want the property after the review, they probably can cancel the contract during the inspection period based on the Disclosures.
When the Buyer signs the Disclosure Statement, this does not end the inspection period, it simply means that the Buyer has reviewed the Seller’s Disclosure Statement.
On a later blog I will discuss the BINSR and help the contractual parties understand this very useful part of the inspection process.
Remember that I answer my phone-602-688-9279.
Hope that you have a nice day!