Yesterday, I attended a training class for new state-wide forms that will be introduced on Monday. There are many changes on these forms. One of the most significant changes is an area where the buyer and seller determine if the Buyer has the right to sue Seller for negligent disclosure.
Earlier in the year, the Washington Supreme Court held that in the case of Seller negligence (not fraud), that it's Buyer beware. The Buyer has the duty to do their due diligence.
The legal community seems to feel that this gives the Seller to much power in the contract, and is attempting to balance that power in a selection that both parties can agree on. Here's the new line in our contract:
Disclosures in Form 17: Buyer will ; will not have a remedy for Seller’s negligent errors, inaccuracies, or omissions in Form 17
Our Windermere attorneys have given us the following hand-out for our clients:
Important Information Concerning Your Disclosure Rights and Obligations
Seller disclosure is one of the most important parts of a real estate transaction. Sellers need to know what information they are obligated to disclose, and Buyers need to understand their own duty of diligence and investigation. This Memo is provided by Windermere’s attorneys as legal information. Real estate agents are not attorneys, and you should consult an attorney if you have any specific disclosure questions.
Information for Buyers
Most buyers expect far more disclosure from the seller than the law requires. Sellers have no duty to inspect their property or look for defects and may not even consider a condition a defect after living with it for years. Instead, Sellers have a limited duty to disclose material defects that substantially affect the physical condition of or title to the property.
Sellers have no duty to disclose neighborhood conditions or past events at the property. For instance, sellers have no legal duty to disclose the following conditions either at the property or in the neighborhood
• Murders, suicides, rapes or other crimes
• Ongoing criminal or gang activity in the neighborhood
• Registered sex offenders in the neighborhood
• Future development in the area
• Political or religious activities in the area
If these or similar matters are of concern to a buyer, then the buyer must include an inspection contingency in any agreement and follow through with the inspection. In most areas, a "Neighborhood Review" addendum is available for this purpose.
Washington law imposes a duty of diligence on the buyer to fully investigate the property and any information provided by the seller. The buyer is charged with the knowledge that the buyer would have obtained with a diligent investigation. For example, a buyer who receives an inspection report identifying a possible defect has a duty to investigate further and may be barred from seeking compensation from the seller if the defect could have been discovered through further inspection.
Even in cases where a seller fails to disclose a material defect and the buyer exercises diligence, recent changes in the law may prevent any claim against the seller. The law now requires the parties to expressly provide in their contracts any remedies for negligent performance, including the negligent failure to disclose the condition of the property. The failure to provide a remedy for negligence is treated the same as agreeing to have none. The form purchase and sale agreement now requires the parties to agree whether the buyer will have a remedy for seller negligence. This change is discussed below.
Information for Sellers
Aside from driving a car, selling a house is probably your greatest risk of being sued. Buyers all too often overlook possible problems and are often overwhelmed when they discover a problem with their new home. Although the law provides sellers with many protections, it does not prevent unhappy buyers from starting a lawsuit, and most buyer lawsuits are not covered by insurance. 2
Sellers should consider disclosure to be a form of insurance. By disclosing a condition, the seller shifts the burden of investigation to the buyer. By remaining silent, a seller risks the appearance of concealment and a lawsuit.
To prove fraudulent concealment, a buyer only has to prove that the seller had actual knowledge of a hidden defect and failed to disclose it. The buyer does not have to prove a seller’s intent to deceive or hide the defect. At the same time, once the seller does disclose an actual or possible defect, the duty shifts to the buyer to exercise diligence and investigate.
Recent changes in the law require buyers and sellers to negotiate a seller’s liability for negligence or negligent misrepresentation. The Northwest Multiple Listing Service has amended its form purchase and sale agreement to accommodate these negotiations. Most buyers will expect sellers to exercise reasonable care when selling a home, and a seller who declines to take responsibility for negligence may have difficulty selling a property.
Instead of minimizing disclosures, a savvy seller will try to consider the property from the perspective of a buyer and then disclose what a buyer would want to know. Many of the conditions that lead to lawsuits would have been acceptable to the buyer if they had been disclosed in advance. Other conditions simply are not important enough to the buyer to fully investigate before purchasing a property. To maximize the benefit of disclosure law, sellers may want to make full disclosure of the property and neighborhood even if they have no legal duty to do so. It is better to be over-insured than not insured at all.
Your Agreement and Disclosure
Paragraph 9 of the form Purchase and Sale Agreement now requires the parties to agree whether the seller can be liable for negligence. If the parties do not agree, then the seller will not usually be liable for negligence. In other words, if you do not make a choice, the law will make one for you.
Checking the box that the buyer will have a remedy for the seller’s negligence will maintain the legal duties that were well established until recently. Under the law of negligence, sellers are not guarantors of the condition of the property and have no duty to investigate its condition. Negligence requires that the seller be on notice of the defect and failed through inadvertence or mistake to disclose it.
At the same time, even if the contract precludes a buyer’s remedy for seller negligence, it is not a defense to a claim for fraudulent concealment. A seller who has actual knowledge of a material defect has a duty to disclose the defect, and no contractual provision can eliminate that duty.
Buyers and Sellers will both benefit if these changes force greater consideration of disclosure and diligence. Buyers and Sellers are encouraged to seek the advice of an attorney if they have questions about disclosure or negligence. Your Windermere agent can refer you to an attorney.
The undersigned client of Windermere acknowledges receipt of this Memo.
Buyer/Seller Date Buyer/Seller Date
I'm still sorting out my thoughts and feelings on this issue. as they become clearer, I'll let you know.
Here's an article I posted earlier in the year:
It's Buyer Beware!
Greg Perry,
Kirkland Realtor
www.425realty.com
My wife is an elementary school teacher in the Issaquah school district. Since the moment I started creating this blog I have been under an immense amount of pressure to give the Eastside educational institutions props... so I've done just that. Check out the new "school info" link on the right, and be sure to click through to the higher education page. We are blessed to have such great schools in the area. Voters in the area support local bonds and levies, the schools have relatively low class sizes, and they stay current with technological advances in education. (my wife totally digs her "smart board"... a giant chalkboard meets plasma screen technology). 
