There are two ways sellers can expose themselves to liability in the sale of real property. The first is to make a statement that is false and the second is to omit a statement about a material defect in the property. Both of these statements are types of fraud. To qualify as fraud a statement must be: factual (ie. not an opinion), false, “material” (ie. the passes the “so what?” test), intentionally made, and reasonably relied upon by the buyer (ie. cannot claim fraud if it is obvious the statement is not true or the buyer had the chance to verify the statement or perform an inspection which would have revealed the truth).
When determining whether fraud exists, courts will look at a couple of important factors. First, the court will look at the parties involved. Courts look to see if the parties are both equally skilled and savvy in business matters. When a contractor purchases land, the court will generally assume that the contractor possesses the skill to determine if the land is satisfactory for its purposes. However, regular consumers may not be held to the same standard as a contractor. Next, a court will look at whether the buyer had full opportunities to investigate the property, and whether the buyer took advantage of these opportunities. If a contractor buys land, but doesn’t do soil tests and doesn’t ask the seller pertinent questions, establishing a fraud claim is very difficult. Likewise if a buyer requires a home inspection before the closing, the chance of a seller being liable for withholding information is greatly reduced.
In the case of the second type of statement, a seller who is in a relationship of trust or a seller who knows the buyer is unaware of an important fact that it is not likely to discover may have a duty to affirmatively disclose “material” defects. Here’s the $64,000 question: the seller knows of a problem but is not sure if it is major, should he/she disclose it? We suggest one of two approaches: go with your gut feeling and hope for the best or require the buyer to have a home inspection and make them sign something that you make no guarantees as to the condition of the home.
IF YOU ARE THE BUYER: Ask the seller direct questions. If you don’t get a direct answer, check things out. Get a home inspection. If the home inspection raises issues, get those checked out. The amount you’re spending on the home is worth knowing what you’re getting.
IF YOU ARE THE SELLER: Opinions are not facts so saying the home is in “good condition” is usually not a problem. You also should not have a problem about defects you do not know about. The problem is the thing you know about but don’t want to say because you really want to sell. If you are having sleepless nights about whether to disclose something, it’s probably major. If it bothers you, it would likely bother a jury. So either disclose it or make it clear that the buyer has the responsibility of inspecting the home and you are selling it “as is.”
This article is meant as general knowledge and not meant to substitute for legal advice on specific issues. If you have a question, please call Doug McClanahan at 861-0693.
When determining whether fraud exists, courts will look at a couple of important factors. First, the court will look at the parties involved. Courts look to see if the parties are both equally skilled and savvy in business matters. When a contractor purchases land, the court will generally assume that the contractor possesses the skill to determine if the land is satisfactory for its purposes. However, regular consumers may not be held to the same standard as a contractor. Next, a court will look at whether the buyer had full opportunities to investigate the property, and whether the buyer took advantage of these opportunities. If a contractor buys land, but doesn’t do soil tests and doesn’t ask the seller pertinent questions, establishing a fraud claim is very difficult. Likewise if a buyer requires a home inspection before the closing, the chance of a seller being liable for withholding information is greatly reduced.
In the case of the second type of statement, a seller who is in a relationship of trust or a seller who knows the buyer is unaware of an important fact that it is not likely to discover may have a duty to affirmatively disclose “material” defects. Here’s the $64,000 question: the seller knows of a problem but is not sure if it is major, should he/she disclose it? We suggest one of two approaches: go with your gut feeling and hope for the best or require the buyer to have a home inspection and make them sign something that you make no guarantees as to the condition of the home.
IF YOU ARE THE BUYER: Ask the seller direct questions. If you don’t get a direct answer, check things out. Get a home inspection. If the home inspection raises issues, get those checked out. The amount you’re spending on the home is worth knowing what you’re getting.
IF YOU ARE THE SELLER: Opinions are not facts so saying the home is in “good condition” is usually not a problem. You also should not have a problem about defects you do not know about. The problem is the thing you know about but don’t want to say because you really want to sell. If you are having sleepless nights about whether to disclose something, it’s probably major. If it bothers you, it would likely bother a jury. So either disclose it or make it clear that the buyer has the responsibility of inspecting the home and you are selling it “as is.”
This article is meant as general knowledge and not meant to substitute for legal advice on specific issues. If you have a question, please call Doug McClanahan at 861-0693.
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