Thursday, October 25, 2007

Tell 'em The Facts - Full Disclosure

by Osman Parvez
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In most states, including Colorado, real estate agents and home sellers must disclose known material facts about a property that could influence a buyer's purchase decision. If you know your roof is leaking, sellers must note this in the disclosure documentation.

So what happens if the disclosure is made but the buyer didn't read or notice it?

This is a real problem. It recently happened to one of our buyers. He didn't realize that his new HOA banned dogs. Although we had strongly advised him to read the HOA rules and minutes, he didn't do it and only found out his pooch was banned after closing. What a disaster. I'll tell you what we're doing about his situation at the end of this post. First, here's another disclosure disaster.

From Dan Melson:

My husband and I bought a golf course-view house in DELETED. We closed 5 days ago; moved-in 4 days ago; and 2 days ago found out that the golf course is scheduled to close. It was announced by the golf course management 2 years ago at the home-owners' association meeting, and the seller and her realtor most likely knew. But they did not disclose it to us, even though they had ample opportunity to do so. They had advertised the house everywhere as golf course view. We definitely would not have bought the house if we had known that the view is there only for 2 more months. We paid for the view and know that homes without a view like that go for a lot less. Now a school or more homes are scheduled to be constructed in its place. What are our legal rights? Can we "return" the sale of the house?

The first questions are who knew what, when did they find out, and how did they disclose the information. In Dan's case, the advice he gave is to consult with an attorney and consider the options. It's possible the HOA documents or other closing materials contain the disclosure but even so, there may be a possible remedy. The manner in how the information was disclosed is relevant.

In the case of our client, we had repeatedly encouraged him to read the HOA docs for any possible objections. He admits that he didn't do so. However, as with all of our clients, doing the right thing is one of our most important values. In his case, we offered to resell the property free of commission. However, our client would still end up losing money because of the co-op commission (to the other agent) and closing fees. So for now he's fixing up/remodeling the property (he's a contractor, it was part of his longer term plan) and thinking about selling it. The dog is staying at his parent's house.

image: frogmuseum2

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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

3 comments:

  1. I feel sorry for the buyers in both those situations. But, I also feel that those buyers need to take some responsibility for their current situations -- they could/should have done just a little more investigation and fact checking before closing.

    It is not surprising that one of the issues was HOA related. I tend to think HOAs are getting out of control in this country. I'm a recent first time buyer but, I still feel very much like a renter because the crotchety old folks that run the HOA have more control over my home and lifestyle than any of the landlords I previously had ever did. I'd like to see you make a blog entry or two regarding HOAs.

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  2. I agree with you Anon. It's really important to roll up your sleeves and do your due diligence. There are simple things a buyer can do to reduce the risk of unpleasant surprises. I'll see what I can do to write something up. Stay tuned...

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  3. What a tough situation. I would be heartbroken if I found out I just bought a place where I couldn't take my pup. Yikes...then again, yes, how about taking some personal responsibility here? Tough situation, either way. I'm glad to hear he didn't just automatically drop the dog off at the humane society.

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