If you are selling a residential property in New Jersey, you presumably wish to avoid having the buyer back out of the deal, or worse, take you to court later because they feel defrauded. To that end, consider what, if anything, you should disclose to potential buyers about the property's physical or other defects and issues. Here, we'll discuss:
Unlike in some states, the New Jersey legislature has not passed laws mandating disclosures a real estate seller must make. The state's courts have, however, created what's called "common law," to protect buyers against sellers who fail to disclose material facts or who hide information about their property. In the words of the New Jersey Supreme Court, silence about such matters "may be fraudulent." In other words, the home buyer can sue for non-disclosure of material facts. (See Weintraub v. Krobatsch, 64 N.J. 445 (1974).) This court in this case was addressing a home sale where the seller failed to mention a cockroach infestation.
The New Jersey statutes do, however, contain a section that directly affects home sellers' real estate agents. Under the Consumer Fraud Act (CFA), a home seller's real estate agent can be held liable for nondisclosure of a defective condition on the property if the agent knew about it but it wasn't readily observable to the buyer. (See N.J.S.A. 56:8-2 and following.) That means you can't tell your agent about problems with your home "off the record," nor expect your agent to lie for you. Also bear in mind that agents are sharp-eyed, having viewed many properties, and might observe problems that the average person wouldn't.
Failing to understand and abide by your New Jersey disclosure obligations can be costlier than whatever price reductions and repairs you might have been asked to undertake had you been up front about the problems. The ideal transaction will involve both the seller and buyer sharing with each other all information that is pertinent to the transaction.
When selling a house, New Jersey courts also say that you are implying that it is fit to live in or habitable, under the "implied warranty of habitability." (See Andreychak v. Lent, 257 N.J.Super. 69, 607 A.2d 1346 (App.Div.1992).)
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. What "as is" really means is discussed below.
The focus of a New Jersey home seller's common law duty to provide information to prospective buyers is on latent (concealed) defects known to the seller. In other words, you don't have to disclose minor issues that any visitor can see (a crack in the cement stairs in front, for example), and you don't have to poke around looking for problems that you never knew about.
Hidden issues that are known to you and that might affect the health or safety of inhabitants are the ones that are particularly important to disclose. For example, if you have had your property tested for radon and the results showed that the level is above what's considered safe, failure to disclose this could result in future legal action against you by the buyer.
Any materially false statements you say or write, or any material omissions you make that are relied upon by a buyer can, 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 could 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.
There are some intangible problems with a property that buyers cannot discover through an inspection. A property might, 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 about them, you must answer honestly. Also see, Selling My House: Do I Have to Disclose a Previous Death Here?.
By custom, most Realtors in New Jersey will require that home sellers fill out a SELLER'S PROPERTY CONDITION DISCLOSURE STATEMENT, which will be shared with prospective buyers. There are distinct advantages to filling it out for this purpose. You might attract more buyers if you are willing to let them know what condition the property is in (at least, so far as you know) before they make an offer.
This multi-page form covers numerous topics. For example, it asks about the age of the house and roof, about the history of repairs to the property, and about the presence and condition of almost every physical aspect of the place, from the basement sump pump to the rooftop. It also asks whether you know of pest infestations, or have treated it for such. It asks about some legal matters, such as whether lawsuits are pending that involve the property, and whether you've made improvements or additions to the house without getting permits for the work.
In most cases, you're asked to answer "Yes," "No," or "Unknown" to questions about whether you're aware of various issues. Hiding behind an "unknown" answer could bring legal trouble if it becomes clear that you actually did know about a problem but conveniently forgot or overlooked it.
Also notice that the form makes liberal use of terms like "or other problems" to make sure that someone filling it out can't wiggle out of revealing a problem because the form didn't ask about precisely that problem.
Sellers usually deliver the disclosure form to prospective buyers when the buyers express an interest in making an offer on the property. Again, however, use of this form is not legally required of a New Jersey real estate seller. In fact, some refuse to fill it out, fearing that they might make an innocent omission or representation. If you do fill it out, make sure to answer all questions completely and honestly.
Your Contract of Sale, if it is the standard form prepared by a licensed selling or listing Realtor in New Jersey, will also 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 might also have you identify how you have used the property and state that this use does not violate 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 current local zoning laws.
The contract might state that you have not made any improvements to the property that require permits from your municipality; and, if you have done so, that you obtained final approvals for the completed work. The reason you need to disclose this is two-fold. 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, sellers who've made additions to a property, such as an extra bathroom, never notified the municipality about the work. If such 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 might 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.
Contracts of Sale are long, complex documents that include legal terms. An experienced, local real estate attorney can review the contract with you and point out what each provision means and its importance.
You might want to sell your New Jersey house "as is." This means that you, as seller, do not intend on making any repairs to the property as part of the sale process. You might have set the sale price taking into account the condition of the property and reduced the price accordingly. You might not have the ability or funds to make needed repairs, 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 a buyer who wants the property must take it "as is," without any chance to cancel or request repairs from the seller.
The "as is" clause more accurately points out to the buyer that the seller likely has no intention of making repairs to the property or even into 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 inspections reveal major defects that the buyer is not willing accept the property with.
If you intentionally misrepresent, fraudulently conceal, or even negligently conceal something unrelated to the failure of inspection, even the "as is" clause might 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 could 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're getting into. They know they're paying a reduced price because of the property's 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.
For most buyers, professional home inspections are a must. Standard New Jersey home sale contracts normally give the buyer the right to have certified inspectors examine the property to determine whether it has significant defects. If so (as is likely), most contracts include provisions that permit the transaction to survive. For example, the seller can agree to "cure," that is, repair or replace the defective items, give the buyer a credit with which to make 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. Of course, negotiations can fall through, in which case the buyer is free to void the contract based on this contingency.
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 the buyer fails to do so, the buyer is still obliged to go through with the purchase.
Federal law requires disclosure of potential lead paint hazards, as described in Seller Responsibility to Disclose Lead-Based Paint Hazards.
Before putting your home on the market, it's wise to consult an experienced real estate attorney for further information about state and federal real property sale disclosure requirements.
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 might have made during the sale process, which could come back to haunt you.