If you are selling a residential property in New Jersey, you presumably wish to avoid having the buyer later back out of the deal, or worse, take you to court. To that end, you should consider what, if anything, you should disclose to a potential buyer about the property’s physical or other defects and issues.
You may have heard the legal term “caveat emptor,” a Latin phrase meaning "Let the buyer beware." It’s an age-old axiom that is still applied to real estate transactions, meaning that if the buyer isn’t proactive enough to figure out what’s wrong with the property, the seller can’t be held responsible. Allow me, however, to introduce you to a perhaps lesser known Latin axiom, caveat venditor. "Let the seller beware."
Although there are no required disclosures a seller must make under New Jersey statutes, New Jersey courts have carved out exceptions to this general rule (under what’s called the common law), which protect buyers against sellers who fail to disclose material facts or who hide information about their property.
Failing to understand and abide by your disclosure obligations can be costlier than whatever price reductions and repairs you might have had to undertake by being up front about problems early on. The ideal transaction will involve both the seller and buyer sharing with each other all information that is pertinent to the transaction.
New Jersey Sellers Must Promise That the House Is Fit to Live In
When selling a house, New Jersey law inserts a rule that you are implying that it is fit to live in or habitable under the "implied warranty of habitability." This is the case whether you say your house is habitable or not – in other words, you can’t sell it “as is” and thus escape this requirement.
New Jersey Sellers Must Disclose Known, Latent, Material Defects
In order to protect buyers from unwittingly purchasing real estate with hidden defects, a New Jersey home seller also has a duty under the common law to tell prospective buyers about known, latent (concealed) material defects in the property. For example, if you know that when it rains heavily your roof leaks into your attic, but there is no obvious evidence of that, you may wish to disclose this fact.
Hidden issues with the property that may affect the health or safety of inhabitants are particularly important to disclose. For example, if you have had your property tested for radon and the results show that the radon level is above what is considered safe, failure to disclose this may result in future legal action against you by the buyer.
As a seller, any materially false statements you say or write, or any material omissions you make that are relied upon by a buyer may, if they cause a loss to that buyer or make the property uninhabitable, set you up for a possible lawsuit. The likely legal bases include fraud or misrepresentation.
Such a lawsuit can be brought before or after the closing -- perhaps many years after, depending on New Jersey’s “statute of limitations” laws, which limit the number of years within which a suit can be brought.
Representations and Disclosures Contained in the Sale Contract
The key to determining what other disclosures you must make to prospective home buyers is often found in the sale contract itself. Your Contract of Sale, if it is the standard form prepared by a licensed selling or listing Realtor in New Jersey, will include representations or promises you are making about the property.
One of these "promises" is that the property and all systems and equipment servicing the property are in good working order. This doesn't mean that each system is brand new or in perfect working order -- just that for the age and type of the particular system, it works.
The contract may also have you identify how you have used the property and state that this use does not violate any current zoning ordinances. So, if you are using it as a single family home, your contract will state that this is a proper use of the home under the current local zoning laws.
The standard contract will typically state that you have not made any improvements to the property that require permits from your municipality; and, if you have made any such improvements, that you have obtained final approvals for the completed work. The reason you need to disclose this information is twofold. First, the buyer will want to know that the work was done properly and according to code and that it passed formal inspection by the municipality. Second, the buyer will want to know that the property tax already includes an added assessment based upon the property as improved.
In many cases, a seller will have made additions to the property -- say, an extra bathroom -- but never notified the municipality about the work. If this information is revealed during the sale process (perhaps because the township does a certificate of occupancy inspection and discovers the new bathroom), the seller will have to pay taxes in the form of an "omitted assessment" at settlement. However, if the municipality does not find out until some later date, the buyer may end up having to foot the bill for up to two years’ worth of omitted tax assessments, and might possibly come after the seller for misrepresentation.
A standard contract includes many representations. Contracts of Sale are long, complex documents that include legal terms. So, it is best to retain an experienced, local real estate attorney to review the contract with you. The attorney will explain the contract and point out what each provision means and its importance.
Selling a New Jersey Property "As Is"
You may want to sell your house "as is." Essentially, this means that you, as seller, do not intend on making any repairs to the property as part of the sale process. You may have set the sale price taking into account the condition of the property and reduced the price accordingly. You may not have the ability or the funds to make needed repairs to the property, even if you pay for them out of the sale proceeds.
Many Realtor-prepared contracts will include an "as is" clause. However, because the buyer is entitled to inspect and cancel, if warranted, this "as is" clause is often misunderstood by sellers to mean that if the buyer wants the property he has to take it "as is," without any chance to cancel the contract or request repairs from the seller.
The "as is" clause more accurately points out to the buyer that the seller most likely has no intention of making any repairs to the property or even entering negotiations about repairs. The "as is" clause is accompanied by an inspection clause that permits the buyer to cancel the contract should the buyer's inspection(s) reveal major defects that the buyer is not willing accept the property with. See "How Buyer Inspections Affect Your Disclosure Obligations," below.
If you intentionally misrepresent, fraudulently conceal, or even negligently conceal something unrelated to the failure of inspection, even the "as is" clause may not protect you in a common law fraud or misrepresentation case. For example, hiding the fact that there is an old underground oil tank on the property may be unwise.
Buyers in the business of investing in, rehabilitating, and reselling (flipping) properties often buy a property "as is" and in some cases, without completing a formal inspection. These folks know what they are getting into. They know they are paying a lesser price because of its condition and do not expect the seller to make any repairs. Even in this scenario, you should carefully consider what to disclose to the buyer.
How Buyer Inspections Affect Your Disclosure Obligations
For most buyers, inspections are a must. Standard New Jersey home sale contracts normally give the buyer the right to have certified inspectors inspect the property to determine whether it has any defects. If the inspection(s) reveal major defects, the buyer may be permitted to cancel the contract. The types of defects that will permit the buyer to cancel are generally outlined in the contract: roof leaks, problems with the foundation or structure, plumbing, or heating and electrical systems that are not working properly, and so on.
Don’t worry that the discovery of home defects will inevitably lead to the deal falling through. Even if inspections reveal problems -- as is likely -- most contracts include provisions that permit the transaction to survive. For example, the seller can agree to repair or replace the defective items, give the buyer a credit with which to make the repairs later on, or the buyer can accept the property with a reduction in the purchase price. These details are usually negotiated between the parties or, preferably, between the parties' attorneys. The result of the negotiations should be put into writing and form an additional part of the contract.
There are time-sensitive requirements outlined in the contract in order for the buyer to take advantage of these provisions. This means that if the contract gives the buyer the opportunity to inspect the property and he or she does not, the buyer is still obliged to go through with the purchase.
What to Disclose If the House Is Haunted or Otherwise Stigmatized
There are some "intangible" problems with a property that buyers cannot discover through an inspection. A property may, for example, be "stigmatized" if it is affected by psychological or other factors that have nothing to do with its physical condition but affect whether it would be desirable to live in.
Examples of such stigma include a house that is allegedly haunted or where a violent death took place. In New Jersey, you do not have to disclose these things BUT, if the buyer asks you about them, you must answer honestly.
Filling Out a Disclosure Form
In light of the various disclosure obligations described above, most Realtors in New Jersey will require that the seller fill out a SELLER'S PROPERTY CONDITION DISCLOSURE STATEMENT to share with prospective buyers. You may attract more buyers if you are willing to let them know straight up what condition the property is in before they make an offer. If you do not provide a disclosure form, you may well scare off a buyer who thinks there must be issues with the property that you'd rather not disclose.
This form provides facts about the history of repairs to the property and almost every physical aspect of the property, from the basement sump pump to the rooftop. Sellers usually deliver it to prospective buyers when they express an interest in making an offer on the property.
The form is not required of a New Jersey seller. In fact, some sellers refuse to fill it out, for fear that they may make an innocent omission or representation. If you do fill it out, make sure you answer it completely and honestly. Failure to do so could set you up for a potential suit for misrepresentation or failure to disclose.
Do the Seller’s Disclosure Obligations Ever End?
There is a point at which any and all representations you make about the property literally die. When you have your money, and the buyer has the Deed and the keys to the property, the contract is no longer operative. However, this fact does not necessarily take you off the hook for any omissions or fraudulent misrepresentations you have made during the sale process, which may come back to haunt you.