If you are selling residential real estate in Oregon, the law requires that you deliver to each buyer who makes a written offer to purchase your property a property disclosure statement (ORS 105.465(2)). The requirement applies whether you are selling a single family home, duplex, triplex, quadplex, condominium unit, timeshare, or manufactured dwelling.
If you fail or refuse to provide a property disclosure statement, a buyer has the right to revoke the offer any time prior to closing. To make sure that a buyer does not pull out after you have put time, energy, and money towards closing the sale – and to avoid later lawsuits over undisclosed defects – it is important to provide a full and complete disclosure statement.
In Oregon, a seller’s property disclosure statement must be in substantially the same form as and use the language provided by the state legislature in the statute, ORS 105.464. The form takes the guesswork out of what you must disclose.
The property disclosure statement requires you to answer specific questions regarding the condition of your property, relating to:
For most questions, you will be required to answer “Yes”, “No,” or “Unknown”. Each answer must be based on your actual knowledge.
Let’s say the question is: Is the outdoor sprinkler system operable? If the sprinkler system is operable without any leak or other problems, the correct answer is more than likely “Yes.” Alternatively, if you have never used the sprinkler system, or have not used it in several years, the proper answer is likely “Unknown.” If you are uncertain, answering “Unknown” is the best answer. Such answer should alert the buyer, if he or she is concerned, to inquire further regarding that issue.
Consider each answer carefully. If you are unsure how to answer, ask your real estate agent or attorney.
The last question in the disclosure statement acts as a “catchall” to make sure all issues that may influence a buyer’s decision to purchase the property are fully disclosed. Specifically, it asks “Are there any other material defects affecting this property or its value that a prospective buyer should know about?” You must answer “Yes” or “No”. “Unknown” is not an option. If you answer “Yes,” you will need to provide a written explanation.
A material defect is a condition that may have a significant (negative) impact on the value of the property. For instance, toxic mold growing in the crawl space below your kitchen may significantly impact the value of your property. Likewise, a venomous spider infestation may significantly impact the value of your property. Oftentimes it is unclear whether a condition is material. Don’t be afraid to ask your real estate agent or attorney.
Although answers to the questions in the disclosure statement need only to be based on your “actual knowledge,” a buyer may not believe that you didn't know about a particularly obvious defect. If toxic mold is growing under the kitchen sink, smells odd, and is visibly obvious, but you fail to disclose it, a buyer may infer that you knew of the mold, and therefore sue you upon discovering it after the sale.
To avoid such a dispute with a disgruntled buyer, it is worth examining your closets, drawers, and other easily accessible areas of the house for obvious defects. This may be especially prudent if you are selling a house that you have not lived in recently (such as a rental). However, you don’t have an obligation to seek out hidden, unknown defects.
In addition to state-mandated disclosures, for certain older houses, federal law also requires a lead paint disclosure. (42 U.S. Code § 4852d). If your house was built before 1978, you must provide the buyer both a pamphlet titled “Protect Your Family From Lead in Your Home” and a lead paint disclosure. Additional information and sample forms can be found on the HUD website.
To protect his or her investment, a buyer may have the house professionally inspected. An inspector will do a thorough examination of the house and likely prepare a written report. However, the inspector can’t see water damage through fresh paint, determine whether underground plumbing is leaking, or otherwise find hidden defects. If an inspector misses a defect you knew about and failed to disclose and perhaps even took steps to hide, you are at risk of being sued.
It is critical to be truthful when making disclosures to home buyers. If you fail to disclose a known defect, the buyer may sue you for fraud. Amongst other potential remedies, a buyer may seek to rescind the transaction or sue for monetary damages. Defending a lawsuit is stressful, can cost tens of thousands of dollars (or more), and take years to resolve.
Being honest about existing defects on the disclosure statement may result in additional negotiations with the buyer. In most cases, disclosed defects can be worked around. If not, at least you will not be sued by the buyer after he or she discovers the defect! Covering up material defects will cost more in the long run.
The bottom line is that an honest and complete disclosure is the best way to avoid defending a lawsuit from a disgruntled buyer. If you have questions about the disclosure statement, ask your real estate agent or attorney.