Unlike in many other U.S. states, Alabama law employs a rule known as caveat emptor for the sale of used residential property. Caveat emptor is Latin for “let the buyer beware,” which means that the seller has no actual duty to advise the buyer of issues with the property’s physical condition during the sale. (Many states require sellers to formally disclose such issues, often by filling out a standard form.) Alabama's rule usually places the responsibility of discovering defects upon the buyer.
As a home seller in Alabama, however, you’re not completely off the hook. This article will discuss situations in which you will need to alert prospective home buyers to issues concerning your property.
Alabama courts have, based in particular on the state's fraud statute (Ala. Code § 6-5-102), carved out three exceptions to caveat emptor in Alabama. Thus sellers become legally responsible for disclosing defects to the buyer if:
In the above instances, the seller must disclose those defects with which he or she is personally familiar.
What’s a fiduciary duty? It is a legal responsibility to act in another party’s best interest, creating a situation where the buyer would naturally place trust or confidence in the seller. An example would be if the seller was the buyer’s attorney or medical doctor. If the seller is the buyer’s medical doctor and knows the buyer is allergic to cedar, failing to disclose that the house has cedar closets might be a breach of fiduciary duty.
What does it mean that Alabama’s health and safety guidelines require home sellers to notify potential buyers of defects that could pose a direct threat to the buyers’ health or safety? One example would be if a seller knows the home has lead paint or mold or contains asbestos. Structural problems could also pose safety problems, such as a staircase railing that's prone to falling off.
Lastly, if a buyer specifically inquires about a defect, Alabama law requires the seller to answer honestly and to disclose known defects. In a major Alabama case, for example, the buyer asked about water incursions or damage, the seller said there was none, and the buyer was unhappy to discover later that the house was full of rot and evidence of leakage. (See Moore v. Prudential Residential Services, 849 So. 2d 914 (Ala. 2002).)
A buyer who discovers a defect the seller failed to disclose can sue the seller for misrepresentation, negligence, suppression of material facts, or even fraud. But, under Alabama law, the failure to disclose a known defect alone might not be sufficient to prove any of these, or to hold a seller liable for damages. The buyer would have to show that the seller knew that that the defect matched one of the above criteria, which could be difficult.
Although Alabama law does not require sellers to provide a laundry list of defects to potential buyers, nor to proactively inspect the property for problems, smart sellers will disclose material defects as a risk-management tool. Doing so will help avoid buyer anger and the possibility of lawsuits. One way of doing so is to complete a property disclosure form and give it to the buyer during the sale.
The purpose of the disclosure form is to aid both purchasers and sellers in identifying aspects of properties that may require attention: health, safety, environmental, structural, mechanical, or other potential problem areas. The disclosure form is usually fairly detailed and asks for information on the condition of such things as the roof, plumbing, boundaries, heating and air conditioning systems, and other items.
Most Alabama real estate agents attach a completed disclosure form, created by the Alabama Association of Realtors, as an exhibit to the purchase and sale agreement. Typically, the real estate agent will give the disclosure form to the seller to complete and sign at the time the seller lists the house with the agent.
The seller’s agent will then furnish a copy of the disclosure to any potential buyer who wants more information about the property before the signing. If selling your property without the aid of a real estate agent, you might be able to find a comprehensive form with a bit of research online.
Once you have completed the disclosure form, be sure the buyer acknowledges receipt by signing and dating a copy. Or at the very least, have the buyer affirm receipt of your disclosures in a separate writing such as an email or letter.
Alabama home sellers, like those across the country, must comply with federal legal requirements regarding lead disclosures, as described in Seller Responsibility to Disclose Lead-Based Paint Hazards.
Another way in which an Alabama seller can protect from a lawsuit and comply with the laws requiring disclosure of known health and safety risks is to encourage the buyer to commission a home inspection before the closing.
If the buyer’s inspection turns up significant material defects, you’ll probably need to return to the negotiation table to discuss who pays for any costly needed repairs or replacements. A common solution could include having the seller repair the defect or lower the asking price to allow the buyer to correct the defect after purchase, which is still cheaper than facing a later lawsuit.
If you have concerns about what you need to disclose about your home, or other questions about your sale, discuss them with your listing agent or contact a real estate professional or an attorney in your area for help.