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Sunday, April 06, 2008

Selling a Home in AZ and Not Sure What to Disclose to the Buyer?

I recently received an email with this question about disclosure of sex offenders when selling a home in Arizona:

"Recently in USA Today 3/20/2008 in an article written by Matt Reed, he stated  " Arizona has one of the nation's toughest laws, requiring sellers and agents to disclose neighboring sex offenders to potential buyers."

Yet Arizona real estate law attorney Richard Keyt stated on his website the following: " The presence of a sex offender in the vicinity of the property is not a fact that is required to be disclosed by law."  His web page was last revised 3/23/2008.

Additionally, a form from the Arizona Association of Realtors, Residential Seller Advisory version 02/2008 stated: "By law, sellers are not obligated to disclose that the property is or has been: ( I'll skip to paragraph 3: located in the vicinity of a sex offender."

My question is has the governor or the legislation changed this provision of law recently? Who is correct?"

First, I have to say that I'm not an attorney so I can only address this question in the general sense and from a Realtor's perspective.  So do not consider my answer as legal advice, and ALWAYS consult an attorney for questions about your own specific situation.

Second, don't believe everything you read in the mainstream media!  Of course, you can't believe everything you read on the internet either.  But I do know bloggers who are much more thorough about checking facts than some of the major media outlets.

Arizona legislators are constantly updating our laws, and real estate disclosure is a hot topic.  However, I don't think a change to the law is the source of confusion in this case.  From my experience, I'd say all of the sources quoted are technically correct.  I think this is the USA Today article that was referenced in the question, here's the AZ real estate attorney who was mentioned, and here's the Arizona Association of Realtors (AAR) Residential Seller Advisory form.

The AAR Residential Seller Advisory does indeed state, "By law, sellers are not obligated to disclose that the property is or has been... located in the vicinity of a sex offender."  But if you keep reading, it goes on to say, "However, the law does not protect a seller who makes an intentional misrepresentation."  And then the top of the next page says, "Sellers are required by law to disclose all known material (important) facts about the Property to the Buyer".

So what is considered to be "material" or "important"?  Generally, anything that may affect a buyer's decision to buy is definitely material and should be disclosed.  To be safe, I tell sellers that EVERYTHING is material to the buyer.  At least, a seller has to assume that everything is material because they don't know what's material to the buyer.  Every buyer is different... what seems minor and unimportant to the seller may very well be minor and unimportant to one buyer.  However, that same item may be extremely important, and thus material, to another buyer.  If it ends up in front of a judge, I would guess that anything and everything the buyers find out later, that the seller knew and didn't disclose, will be considered material!

The AAR Residential Seller Advisory reinforces this idea with it's heading, "When in doubt, disclose!".  If the sellers know there's a sex offender living down the street and the buyers ask, I would tell the seller to disclose it, in writing, to protect both the sellers and the buyers.  Even if the buyers don't ask, I would still tell the sellers to disclose it, in writing.  It doesn't matter if the buyers are older or don't have kids.  You cannot assume they don't care about a sex offender living nearby.  They may have grandchildren who visit and play outside, or friends that come over and bring their kids.  My point is, you shouldn't try to get inside the buyer's head and figure out what is, or is not material.  Only the buyer can decide that.  Just disclose it and let the buyers make that call... whether it's a maintenance problem, or something you know about the neighbors, homeowners association, schools, etc.  Disclose whatever you know.

I know many people are reading this thinking, "Disclose it, even if it they don't ask? That would probably kill the deal."  Well, it's better to kill the deal now than end up in court later.  And actually, being honest from the beginning by making full disclosure reduces the risk of a last minute deal-breaker, 29 days into the transaction.  As a seller, if the deal isn't going to close, don't you want to know right away instead of AFTER your house has been off the market for a month?

Full disclosure isn't just for sellers either.  It's a two-way street.  Buyers should also disclose anything that might be material to the sellers, like if they know something which may affect their ability to qualify for a mortgage.  The "golden rule" can (and should) be applied to real estate transactions, just like anything else in life.  Every transaction is smoother, less stressful and turns out better in the end if both parties are honest and upfront with each other from the beginning. 

But buyers, don't be naive!  You should NOT rely on the sellers to disclose all material facts about the property you're buying.  Even if the sellers are honest people, they may not know all the material facts.  So buyers must also do their "due diligence" by investigating everything that's important to them.  The AZ Department of Real Estate advises buyers to read and investigate the items on this checklist for Arizona home buyers.  While the law may require certain disclosures, "Buyer Beware" is a reality!

Visit Shannon Hubbard's Home Page     Written By: Shannon Hubbard
Realtor®-Investor

Great American Realty, Inc.

Cell: (480) 695-6672
Email me

Posted by Shannon Hubbard, AZ Realtor & Computer Guru on April 6, 2008 | Permalink

Comments

Without a doubt, the presence of registered sex offenders is the one of the MOST important make-or-break deals in selling real estate today. Studies have shown that the presence of even one sex offender listed on the registry can drop the home value by at least 10% (SOURCE: National Bureau of Economic Research, http://www.nber.org/papers/w12253).

Therefore, this is a significant and economic liability that goes beyond the laws of disclosure. Indeed, such a hit per house would indicate a more proactive legal course taken by real estate agents AGAINST THE PROPERTY OWNERS who are listed on the registry.

I'm in the process of compiling several legal statutes and strategies for real estate professionals to use in conjunction with initiating legal action against the property owners to ensure the livelihood of the industry. As such, I am also the progenitor of the process to actually create an amendment to the United States Constitution that inters sex offenders into colonies, away from communities, so the registries themselves can be elimiated. Until that time, though, we can ensure that lawsuits can be filed.

I look forward to any response.

Peter Del Valle
Progenitor, "The Sex Offender Residency, Employment, and Technology Restriction Amendment (SORETRA)"
http://soretra.50webs.com
soretra@gmail.com

No more registered sex offenders in society today!

Posted by: Peter Del Valle | Apr 6, 2008 6:02:53 PM

Hi Peter,
I visited your website and you make some interesting points. I have to admit, the idea of "colonies" seems a little extreme to me, but I agree that keeping sex offenders "away from communities" is the only way to stop these sickos from hurting our kids. I guess I'm kind of old school... I think jails should be the "colonies" and we should lock them up and throw away the key. As a parent, I'm constantly disgusted by the way our legal system lets these people out to re-offend again and again. Either way, the current solution sure isn't working. More power to you! Thanks for stopping by.

Posted by: Shannon Hubbard | Apr 6, 2008 7:14:28 PM

your right, most sellers try to hide problems because they think it will kill the deal if they tell the buyer to much about the house. but when i bought my house the sellers told me all kinds of stuff i didn't even care about. some things they dislcosed concerned me from a maintenance standpoint, but i was still comfortable with the purchase because i could tell they were honest people and i wasn't worried about what they were not telling me.

Posted by: Michael | Apr 8, 2008 10:03:08 AM

Hi Michael,

Buyers always feel better about sellers who openly disclose information about the house. Buyers have more trust for someone they feel is telling them everything, as they should. And that 'feeling' of confidence can be the difference between a buyer closing the deal or getting scared and backing out. Besides, it's always better to error on the side of caution when it comes to disclosure. Thanks for stopping by.

Posted by: Shannon Hubbard | Apr 8, 2008 1:25:58 PM

I'm with Shannon. Peter, your website might just be a little over the top. I'd hate to think we're reverting back to the days of leper colonies. As for what to disclose, I think you risk more than just the sale in hand when you're not completely honest. You also risk future referrals, and in the hyper-local business of real estate , your reputation is always on the line.

Posted by: Arizona Home Buyer | Apr 9, 2008 6:58:08 PM

Arizona Home Buyer -
I couldn't agree more. How you handle yourself in one transaction doesn't just affect that transaction. Your reputation will be with you long after the deal is closed. Very good point!

Posted by: Shannon Hubbard | Apr 10, 2008 9:29:44 AM

The best advice I ever got about disclosure is that if you have to ask, you should disclose it.
One thing everyone should remember is that of all the sex offenders out there, only a small number have been convicted and are registered. There are sex offenders in every single neighborhood in America and everyone should be cautious.

Posted by: Curtis Reddehase | May 12, 2008 9:55:21 AM

That's true Curtis. Very good point. You should not get a false sense of security just because the county website doesn't list any offenders near your house. You still need to worry about unregistered offenders, as well as those who have never been caught. Thanks for stopping by BlogArizona!

Posted by: Shannon Hubbard | May 14, 2008 9:17:43 AM

The seller presented a house as a completely remodelled with new roof. I signed an inspection advisory disclosure. The new roof leaks, there was a prior fire on the attic, rot inside walls. I went after the seller but the attorney says that there is nothing I can do as I initialled the inspection advisory statement. I did not do the inspection as i had no reason to suspect this defects in beutiful shiny home. Any advise/ Can the seller get away with murder by giving me an advisory to sign? The seller did not disclose any of the defects. if I try to sell it I have to disclose. I feel trapped.
Thank you,
Irina
incalifornia@hotmail.com

Posted by: Irina | Jul 31, 2008 3:54:02 PM

Hi Irina,

Sorry to hear of your bad experience. I don't know about California, but in Arizona the seller would have an obligation to disclose such defects (assuming the seller was aware of the defects). I'm not an attorney, and it sounds like you've already spoken with one. However, you might want to get a second legal opinion if you're not satisfied with the first one. I agree that it seems wrong for the seller to be off the hook just because you signed an inspection advisory, especially since he claimed it was 'remodelled with a new roof'. New roofs aren't supposed to leak - did you get any kind of paperwork/receipts showing when the roof was done and who did it, or perhaps a warranty? Did the seller give you any kind of disclosure statement which might help you establish he did not disclose known defects? In Arizona, we have what's called a SPDS (Seller's Property Disclosure Statement) which asks the sellers to disclose just about everything they know (or should know) about the property.

The seller could claim he didn't know about the roof leak and rot in the walls, making it your obligation/due diligence to discover it (through an inspection). But it would be hard to claim he didn't know about an attic fire.

I guess the moral of your story is "get it inspected, no matter how good it looks!" Sorry to hear you had to learn the hard way. Best wishes.

Posted by: Shannon Hubbard | Aug 1, 2008 5:26:31 AM

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