Before selling residential property in Arizona, a seller is required by law (a combination of statutes and court cases) to tell the prospective buyer certain things about the property’s physical condition. An Arizona seller has a duty to disclose important facts that might negatively affect the value of the property. (This comes from a court case called Hill v. Jones, 151 Ariz. 81, 725 P.2d 1115 (1986).)
The most typical method for disclosing this information is by completing a written disclosure statement and giving it to the buyer.
The information disclosed will help the buyer to make an informed decision as to whether to purchase the property and on what terms. If you're selling a home, it is important to comply with these requirements, as failure to do so will allow the buyer to sue you if upon discovering any defects that you knew of but didn’t disclose.
A seller in Arizona is required by law to disclose material information about the property that the seller actually and personally knows of.
As a practical matter, what is meant by "material?" You are not required to disclose every little detail about the property to the buyer, down to the last scratch on the floor. Material issues are those that have an impact on the value of the property, the buyer’s decision to purchase, or use of the property. You must also make sure to correct any mistakes or wrong assumptions that the buyer is relying on in agreeing to purchase the house at the offered price.
The court in Hill took particular note of the concern that nondisclosure could be equivalent to asserting that a fact does not exist, which could have the same legal effect as committing fraud or misrepresentation.
You are not required to expand your knowledge of the property's possible problems by performing any investigation of the property, and nor are you responsible for reporting issues that you “should have known,” but didn't. If you do not know the answer to questions raised by the buyer or listed on the standard disclosure form (which is provided by the Arizona Association of Realtors), you may satisfy the disclosure requirements by indicating that you do not know.
Never guess about an answer. You could be held responsible for misrepresentation if your guess is incorrect.
Your purchase agreement with the buyer will most likely require that you provide a disclosure statement. But even if it does not, you must disclose all legally required property information to the buyer. For example, you must let the buyer know about past termite damage even if the buyer does not ask about it. This is true even if the damage occurred several years ago and there is no visible sign of the damage.
If information you provided to the buyer changes after you’ve given him or her the disclosure form, you have a duty to disclose the new information. For example, if the roof starts leaking after you provide your disclosure statement, but before you actually close on the property, you must give the buyer information about the roof leak. Remember that this disclosure does not require you to repair the leak, only to let the buyer know about it. (You may negotiate the repair issue as part of the contract negotiations).
Reasonable minds might differ as to what property information is important, and therefore required to be disclosed. When in doubt, it's best to disclose all property information to the buyer.
As stated above, a good rule to follow is to disclose all material property issues to the buyer. There is some information, however, that a seller does not legally have to disclose, such as:
(See Ariz. Rev. Stat. § 32-2156.)
If the buyer asks, however, it is important that you do not lie to or make misleading statements about the matters above. Instead, either answer honestly or indicate that you will not answer because you are not required to do so by law.
Unlike in some states, the Arizona legislature has not come up with a specific disclosure form that a seller must complete. In an effort to assist sellers in satisfying their disclosure requirements, the Arizona Association of Realtors drafted the most commonly used disclosure form, the Residential Seller’s Property Disclosure Statement (pronounced “spuds” by real estate professionals in Arizona).
The form is essentially a checklist asking you to indicate the condition of various features of the property and known problems affecting the property.
The disclosure statement is not a warranty, but simply a disclosure of facts of which the seller is aware. It actually requires the buyer to acknowledge that the information in the statement is based only on the seller's actual knowledge.
The seller is obligated to make the required disclosures regardless of whether the property is being sold "As Is.” (See S. Development Corp. v. Pima Capital Management Co., 201 Ariz. 10, 31 P.3rd 123 (2001).)
The standard Arizona Association of Realtors contract requires a seller to deliver the disclosure statement to the buyer within three days of accepting the buyer’s offer. It is customary and good practice, however, to provide the disclosure statement early on, for example when showing the property to prospective buyers.
The disclosure statement is divided into the following six sections:
In addition to the property disclosures referenced above, Arizona real estate practices require additional disclosures in certain circumstances. For example, the standard Arizona real estate contract requires the seller to provide the buyer with a copy of a report showing a five-year history (or the length of time the seller owned the property if less than five years) of insurance claims filed on the property, called a Comprehensive Loss Underwriting Exchange (CLUE) report.
If a home was built prior to 1978, federal law requires the seller to disclose all information regarding lead-based paint and provide a pamphlet on identifying and controlling lead-based paint hazards. More information on lead-based paint can be found on the Environmental Protection Agency website.
Depending on the circumstances, a seller might also be subject to the following statutory disclosure requirements:
If you violate the disclosure law by misrepresenting or not disclosing required information, the buyer may pursue legal action against you for failure to disclose, fraud, or misrepresentation (intentional or negligent).
A buyer who is successful in such a lawsuit may be awarded substantial monetary damages. Or, in unusual cases, a court might void the contract and return all property or money back to the original parties, as if the purchase never occurred. So remember, if in doubt, and to avoid litigation, make sure to disclose all information about the property.
If you have a specific question about disclosure requirements, want to get the latest news about developments in Arizona’s disclosure laws, or find yourself in situation where you need advice on how to proceed, please consult an experienced local real estate lawyer. These laws can be complicated, and are best interpreted by professionals who handle such matters every day.