When does a seller’s obligation to disclose hidden defects kick in? That might be the wrong question. Here’s why that approach seems to miss the mark – and why many people correctly embrace the mantra disclose, disclose, disclose.

ORLANDO, Fla. – I was giving a talk to a wonderful and engaged group of Realtors® recently, and one of the topics touched on was the seller’s disclosure. This spawned all sorts of follow-up questions about when disclosures are mandatory vs. optional.

What if the seller had someone remediate a mold problem a few months ago? What if the seller heard a rumor about a flooding issue but doesn’t think the source is reliable? What if the seller and I disagree about whether an issue is “material,” and the seller says I must keep that information confidential?

It would be nice to have a simple yes/no answer for all of these. However, the questions miss the mark for two reasons.

First, some rules are measurable, such as the obligation to have a brokerage firm’s name on all advertising. It’s either there or it’s not. This disclosure rule, on the other hand, is a general concept that springs from a Florida Supreme Court Case Johnson v. Davis. In that case, the Florida Supreme Court held that “Where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer.” These material facts are sometimes referred to as latent defects.

How do we know precisely what the seller knew, when they knew it, or whether a fact is material or not? Those questions must be hashed out in court. It’s also why the correct answer to all the questions above is maybe … but maybe not.

The second reason has more to do with an extremely common buyer reaction. Let’s say a buyer discovers a problem after closing that will cost $15,000 to repair. How often do you think their response is, “Well, I’ll ask if the seller knew anything, and will give them the benefit of the doubt if they say no … after all the contract is fairly unforgiving if my inspector(s) and I missed something, so I should have caught this issue during my inspection period.”

We have over 76,000 conversations with members every year on the Florida Realtors Legal Hotline, and I can assure you, I’ve never heard about a buyer who voiced that perspective.

Instead, here’s how the buyer’s conversation goes almost every time: “I KNOW they knew about this … there’s no doubt in my mind.” Sometimes I’ll ask if the confidence is because there’s an email where the seller admits knowledge or an oral confession or even the testimony of a contractor who says they clearly explained the defect to the seller. The answer is almost always no, followed by a quick doubling down on the initial statement: “But how could they not know? I’m 100% confident they did.”

You can imagine what happens when these two elements combine. The buyer discovered a significant problem after closing and is (despite the lack of tangible evidence) angrily confident that the seller had full knowledge of the latent defect.

They will often pursue every angle seeking relief. They may sue the seller and will often include the licensee and brokerage firm that assisted the seller as co-defendants.

I’ve heard from a fair share of incredulous Realtors over the years who ask how they could get pulled into a legal dispute when they had no knowledge. The unfortunate answer is that having a legal defense is a good thing … but you still must go through the (often lengthy) court process to present that defense, which typically requires the help of a lawyer. Additionally, angry buyers can always file a FREC or local board ethics complaints at no cost, which can likewise be cumbersome, even if the defense is sound.

With all this in mind, we wholeheartedly support the mantra of disclose, disclose, disclose. I might even add “early and often” to drive home how important it is to stay on the conservative side of this issue.

Joel Maxson is Associate General Counsel for Florida Realtors
Note: Information deemed accurate on date of publication

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