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Disclosure and “as is” clauses

It seems that every week I am asked for advice about what a seller or real estate agent needs to disclose to a buyer, how to protect a buyer from sellers who do not disclose and to assist in preparing an “as is” clause for sellers who do not know anything about a property they are selling. Here are five lessons to remember.

1. Patent or visible defects do not need to be disclosed.

If you can see a defect during a typical home inspection, it does not need to be disclosed by a seller. This can include a crack in a window, mirror or kitchen counter, a stain under the bed or damage to a wall behind a picture. It can even include KITEC plumbing, which is typically visible. The lesson is to be more diligent when inspecting a property before signing any agreement in the first place and make sure to have the home inspected by a professional.

2. Material latent defects must be disclosed by the seller.

Latent defects are defects that a home inspector could not see during a typical home inspection. If a seller knows about a material latent defect and does not disclose it, a buyer can sue the seller even after closing. Examples include water damages that have not been properly repaired (whether from the roof or basement) smoke damages from a fire, mould behind the walls, underground fuel tanks or foundation problems. In all cases, the defect must make the home uninhabitable or dangerous.

If a buyer can demonstrate after closing that the seller must have known about the issue, they can be successful in taking legal action after closing. Buyers should be advised to conduct an insurance search against any property to see if a prior insurance claim was made by a previous owner.

3. Psychological stigmas do not have to be disclosed.

Sellers do not have to disclose whether there has been a murder or suicide on the property or adjoining property or whether a pedophile lives on the same street. As this will likely matter to most buyers, they should Google the property address to see if anything comes up, speak to the neighbours and consider putting a clause in the offer whereby the seller represents and warrants that there has been no murder, suicide, illegal grow operation, natural death or shooting on the property during their ownership. Sellers must respond truthfully to this statement.

4. What are a real estate agent’s duties about disclosure?

As a real estate agent, you are not obligated to disclose psychological issues, however, you are obligated to tell the truth. You must therefore ask your seller how you are to respond if you are asked the question by a buyer or buyer agent. If the seller tells you to lie, then you should strongly consider terminating the listing.

5. Will an “as is” clause protect my seller?

“As is” clauses are generally a warning to buyers that they must have a home inspection done, since the seller is giving no warranty about anything in the property. Often you see this when a property is being sold by a lender under a power of sale in their mortgage or by an estate, when the trustees have no actual knowledge about the property. However, this will still not protect a seller if they know about material hidden defects that make the home uninhabitable or dangerous.