Disclosures versus Disclaimers – caveat emptor to a lesser degree

What’s the difference? Why choose one over the other? Soon, this question may be moot, as there is a bill in the General Assembly (HB 2011) that will essentially combine the two forms. For as long as I have been in the business, we have had two forms from which to choose a Disclosure and a Disclaimer. Keep in mind that Virginia is a caveat emptor state.

A Disclaimer is exactly that, it is a form that states:

… that the owner makes no representations or warranties as to the condition of the property, except as otherwise provided in the disclaimer statement or the purchase contract.

As part of the Disclaimer, the owner chooses to:

… sell the property without representations and warranties as to its conditions …

And the Purchaser agrees to accept the property in this condition … subject to negotiations that emanate from the home inspection.

In six years, I have seen only one transaction with a Disclosure, and that was a corporate-owned relocation. The reasons for Sellers not electing to use Disclosures are varied –

*The market has been so hot that, with Buyers waiving home inspections from time to time, there was no incentive to use Disclosures.
*Using a Disclosure would confuse many (most?) Realtors.
*In my opinion, choosing a Disclosure may open Sellers up to more potential liability (note: I am not an attorney!). In this day and age, whereby very few accept responsibility for their decisions, and litigation (and settlements) are often seen as the shortest point between A and B, a Disclaimer is the safest route. For example, if a Seller were to choose a Disclosure, and on that Disclosure they noted that the HVAC worked, and three days after closing, the HVAC dies … the Buyer may assume that the Seller knew that the HVAC was bad, when in fact, it was working fine and it just happened to die. What do you think the Purchaser would do in that situation?

This is a pertinent article from the HooK in 2003, wherein Robert Ramsey, a prominent and well-respected Realtor was quoted:

However, “Just because a seller chooses disclaimer doesn’t mean he can go around committing fraud,” warns Ramsey. “It doesn’t protect a seller who knows he has a terribly wet basement, waits until a drought year to sell, and paints the basement and puts in new carpet to hide the damage.”

And while fraud is hard to prove, a disclaimer doesn’t mean the seller is immune from prosecution, nor does it prevent the buyer from suing. “A disclaimer is not a free ticket,” Ramsey says.

And if realtors have actual knowledge of adverse material defects of a property, they must reveal them. “Realtors shouldn’t stick their heads in the sand regarding the condition of the property,” he says.

If nothing else, ALWAYS do a home inspection. I am proud of the fact that every single one of my buyers have chosen to have a home inspection; it is perhaps the best $300-$500 you will ever spend.

Buyers and Sellers would do well to read this bill.

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