A Homeowner’s Disclosure Obligations in Residential Real Estate Sales
In Colorado, prospective homebuyers should be provided a broad range of disclosures concerning their potential home’s present and past condition. The legislature and courts recognize the magnitude of investment an individual or family makes in purchasing a home and, accordingly, require transparency during the purchase process. The underlying rationale is that the seller is much more knowledgeable about the home than the buyer and withholding that knowledge may cause the buyer to purchase a damaged home that he or she did not bargain for.
A seller’s disclosure obligations come from two sources – the purchase contract and the common law.
In most home sales, the buyer and seller enter into a purchase contract approved by the Colorado Real Estate Commission. The typical Contract to Buy and Sell Real Estate (Residential) contains two major disclosure provisions, as well as disclosures related to specific conditions, such as lead-based paint.
First, Section 10.1 requires the seller to complete and provide the potential buyer a Seller’s Property Disclosure (sample form). This is the seller’s opportunity to formerly educate the buyer on the home’s condition. The form contains 146 separate categories of conditions and features that may apply to the home. If a particular condition or feature applies, the seller must select “Yes” on the form and, if necessary, write a short description of the issue or past occurrence of the issue. For example, Section B2 requires the seller to disclose any problems with roof leaking, even if the source of the leak was repaired before the home was listed for sale.
Second, Section 10.2 requires the seller to disclose in writing all adverse material facts known by the seller. This obligation includes information outside the categories listed in the seller’s property disclosure. A fact is “material” if the home buyer’s decision might have been different had the fact been disclosed. In effect, the seller must disclose any adverse fact that the seller is aware of and which might cause the buyer to terminate the purchase contract, negotiate for a lower price, or ask for a seller concession. For example, a seller should disclose that the home was involved in a prior construction defect lawsuit.
Colorado courts also impose disclosure obligations on sellers. In In re Estate of Gattis, the Colorado Court of Appeals defined a seller’s common law disclosure obligations. 318 P.3d 549 (Colo. App. 2013). A seller must disclose all known material defects, including latent defects in the home. A latent defect is one that it not observable upon reasonable inspection. These include issues not discovered during the pre-closing inspection performed by the buyer. For example, damage to a brick or poured concrete wall that is concealed by plaster or other building finishes must be disclosed. While the home buyer cannot discover the damage because it is concealed by the interior finish, the damage may pose a risk to the home’s structure and homeowner’s safety. Material defects are not limited to the physical structure of the home and may include environmental issues or unstable soils under the home.
A seller who fails to make these mandatory disclosures may be liable for nondisclosure, misrepresentation, breach of contract, or fraud. If seller fails to disclose its own negligent construction work or the negligent actions of its subcontractors, it may be subject to liability under the Colorado Construction Defect Action Reform Act.
A seller’s real estate agent is also subject to disclosure obligations. Agents are licensed by the State of Colorado and must undertake actions to protect buyers and sellers. While the seller’s agent is not required to personally investigate the home’s condition, the agent must disclose all adverse material facts of which the agent is actually aware. C.R.S. § 12-10-404(3)(a). This is an affirmative obligation and the Colorado Real Estate Commission endorses broad disclosure by licensed agents, stating that agents should err on the side of disclosing facts. Like the seller, the seller’s agent or buyer’s agent may be subject to liability if they fail to notify a buyer of known adverse material facts.
Home buyers should take reasonable steps to investigate a home before purchasing the home, including by carefully reviewing the seller’s property disclosure and conducting a pre-closing inspection. When that due diligence fails to reveal problems discovered only after the home purchase, a home buyer may consider taking legal action against the seller, seller’s agent, or even buyer’s agent.
Johnson Law regularly handles real estate nondisclosure and real estate broker liability law. If you have any questions about disclosures made by your home’s seller or seller’s agent – or the lack of disclosure – please give Johnson Law a call to speak with one of our attorneys about your legal rights.