Someone buying a home naturally wants to know whether it has any hidden problems, perhaps behind the walls, under the fresh coat of paint, or behind the swank staging furniture. That's why under today's law, you—as a New York home seller—could be found liable to a home buyer for having failed to disclose certain property conditions or defects in the course of the sale.
Let's take a look at a sellers' duty to disclose, including:
The relevant law in this area comes from both the New York State courts and legislature.
In the early days of property law, New York followed a concept called "caveat emptor," or "let the buyer beware." That meant sellers could remain silent about home defects without risking liability. Then New York courts took steps to protect buyers by creating exceptions, for example that a seller with a special relationship of trust to the buyer, such as trustee-beneficiary, guardian-ward, agent-principal, or attorney-client, could be held liable for undisclosed defects.
Moreover, the courts said that sellers who actively concealed defects could be found liable to the buyer for resulting damages. "Active concealment" means the seller knew about, but failed to disclose, a defect, and interfered with the buyer's efforts to inspect the property. (See Laxer v. Edelman, 75 A.D. 3d 584 (2d Dept. 2010).)
To augment the courts' guidance, the New York legislature created the Property Condition Disclosure Act (the PCDA) (N.Y. Real Prop. Law § § 460-467). It requires home sellers to make certain disclosures about the property or pay a credit of $500 to the home buyer at closing. Many if not most home sellers in New York actually opt not to complete the statement, and instead pay the credit.
Below, we'll take a closer look at what the disclosure requirements of PCDA mean for New York home sellers who don't pay the credit.
The PCDA applies to "residential real property," which the law defines as a one- to four-family dwelling that is either actually used as a home or residence by one or more people, or intended to be used as such a home or residence.
The term does not include condominium units, cooperative apartments, vacant land on which the owner intends to build a residence, or property in a homeowner's association that is not owned by the seller. (N.Y. Real Prop. Law § 461(5).)
The law applies to all contracts for the purchase of "residential real property," not only the standard ones, but also including long-term installment contracts and leases with either an obligation or an option to purchase the property. (N.Y. Real Prop. Law § 461(4).)
You are not required to complete and deliver the disclosure statement for certain types of property transfers that are exempt from the PCDA, as follows:
The PCDA requires sellers to complete a standard form disclosure statement, a copy of which is available on the New York Department of State, Division of Licensing Services website.
The real estate broker, agent, or sales person, representing you in your home sale—usually called the listing broker—is required to remind you of your disclosure duties under the PCDA, and will likely give you a copy of the standard form disclosure statement.
The listing broker is also required to share this information with any unrepresented buyer. Any listing broker who fails to inform you, or the buyer, about the PCDA may be liable to either for this violation.
The language of the disclosure statement comes directly from the law and contains numerous questions about the property, organized by topic, with boxes to check and lines to fill in covering:
The disclosure statement also asks you to check off any systems or property components that have known material defects from a list that includes plumbing, air conditioning, heating, hot water, security and other detection systems, foundation, walls, sump pumps, floors, chimneys, patios, decks, or driveways. If any of these systems or components are defective, you should describe the defect in detail in the space provided on the form. (N.Y. Real Prop. Law § 462.)
Under the PCDA, you do not have to make any investigation or inspection of the property or check the public records for information about the property before completing the disclosure statement. You are required to disclose only known defects, without making any special investigation or inspection.
The language of the disclosure statement reminds the buyer that it is not a warranty or guaranty from the seller regarding the condition of the property and is not intended to substitute for any of the inspections, testing, or other research generally recommended to buyers.
Also, the form repeatedly asks for disclosure of "material" defects, not every little defect. A material defect is considered to be one that would affect the value or sales-worthiness of the property. Thus you don't need to catalog every little scratch or crack. On the other hand, reporting more than you're legally required to can help boost homebuyer confidence, assuring them that you're not trying to hide something.
You must complete the disclosure statement by answering the questions and explaining any known defects in detail in the space provided on the form, or on a separate sheet of paper that you attach. Then, you sign the certification located near the bottom of the last page. Your signature means that your answers, and any explanations on or attached to the form, are true and complete to your actual knowledge as of that date.
The completed and signed disclosure statement should be delivered to the buyer before the buyer signs the final purchase contract. Typically, the listing broker will give the completed disclosure statement to the buyer or the buyer's agent. If there is no listing broker, you may deliver the disclosure statement directly to the buyer or the buyer's agent.
The buyer then signs an acknowledgment of receipt and understanding, which is located at the bottom of the form. A copy of the completed form should be attached to the final, signed purchase contract.
You must deliver a revised disclosure statement to the buyer if you become aware of an inaccuracy in the original statement, or if you discover a defect in the property after delivery of the original. However, you have no duty to revise or update the disclosure statement after the closing, nor after possession of the property is transferred to the buyer if that occurs on a date other than the closing date. (N.Y. Real Prop. Law § 464.)
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.
If you fail to timely complete and deliver the disclosure statement, you will owe the buyer a $500 credit toward the purchase price at the closing. (N.Y. Real Prop. Law § 465(1)).
Many New York sellers' attorneys interpret this relatively low penalty as an opportunity for their clients to opt out of the PCDA by paying the $500 in lieu of providing the form, and see this as avoiding the risk of potential liability for misstatements on the form.
However, paying the $500 statutory remedy does not protect you from liability under the case law exceptions to "caveat emptor" described above. So, you should consult an attorney before making any decision not to complete the form, or not to otherwise disclose a material defect in the property. If you decide to give the $500 credit in lieu of the disclosure statement, ask the buyer to acknowledge in writing that the credit was accepted in lieu of the statement.
If you timely deliver a disclosure statement, with or without a revision or update, you may be liable to the buyer for a "willful failure to perform" the requirements of the law. (N.Y. Real Prop. Law § 465(2)). New York courts have interpreted "willful failure to perform" under the PCDA narrowly. If you make a misstatement in the disclosure statement, it is likely that you will be liable to the buyer only if the misstatement actually prevents the buyer from learning about the defect through the usual inspections, or the defect could not reasonably be discovered through an inspection.
If you are found liable to the buyer for a "willful failure to perform" the requirements of the PCDA, you can be required to pay the buyer's actual damages causes by the defect.