Imagine that you own a house, condominium unit, or parcel of land in Alaska and that you want to sell it. Alaska law requires that before you actually make the transfer, you first give the potential buyer a lengthy disclosure statement. This disclosure is intended to put the buyer on notice of any defects with the home. This prevents the buyer from having a nasty surprise--like a hole in the roof--before the closing.
If you’re selling property in the Last Frontier, what must you disclose, and how?
Alaska Stat. 34.70 et seq. broadly covers disclosure requirements for home sellers in Alaska. The statute provides: “Before the transferee of an interest in residential real property makes a written offer, the transferor shall deliver by mail or in person a completed written disclosure statement….”
Note that the statute applies not merely to direct sales, but also to exchanges of land (i.e. trades of one parcel for another) and leases where the lessor has the option to purchase. You must make this disclosure before you are given a formal offer by the buyer. (This makes sense, since the defects that you may disclose could easily cause the buyer to rethink the size of their offer.)
Unlike in some states, Alaska’s legislation does not specifically state what areas or aspects of the property require some sort of disclosure. Instead, the legislation outsources the creation of the particular disclosure requirements to Alaska’s Department of Commerce, Community and Economic Development, which has created a sample form. This form covers the information that you should disclose to the buyer.
As you can see, the nine-page form asks you to disclose (by checking boxes) whether various defects exist on dozens of locations on your property. For example, if you know that your “Hot Water Heater” is busted, you can simply check the box next to that particular area of your home. (Note that you must also list “Other items not covered” and are encouraged to be thorough in disclosing known defects that are not specifically listed on the form.) You are also encouraged to explain any defects on the addendum page.
Alaska’s disclosure form is somewhat unique in that you are also required to estimate monthly utility costs. The form specifically lists gas, electric, oil, propane, wood, coal, water, sewer, and refuse. Again, the goal here is to avoid any surprises for the buyer after the closing.
Both you and the buyer will sign this form, acknowledging that it has been given and received. You must give this form before the buyer makes a formal written offer for purchase. From your perspective, an important purpose of this exercise is to prevent the buyers from coming back to you after the closing and complaining that you never told them that there was a huge hole in the roof. Assuming you are honest on the form, you would have mentioned this sort of defect.
Like anyone trying to sell a house, you want the transaction to go as smoothly as possible. The process is already stressful and uncertain enough, without being forced to identify every major flaw. You may think to yourself: Why should you be honest in making these disclosures?
There are several important reasons for honesty. First, Alaska Stat. 34.70.20 gives the buyer the ability to rescind any agreements to buy your property if you fail to fully comply. The statute provides that if a disclosure statement is delivered to the buyer after he or she has made a written offer (rather than before), the buyer “may terminate the offer by delivering a written notice of termination… within three days….” Needless to say, this can create further uncertainty during an already stressful period.
Second, Alaska provides for strict penalties for those who violate the disclosure requirements. Alaska Stat. 34.70.90 notes that a seller who willfully violates this chapter or fails to perform a duty it requires is liable to the transferee for up to three times the actual damages suffered as a result of the violation or failure. In plain English, this means that if you are found to have purposefully failed to disclose a material defect, you would be liable for three times the cost of repairing that defect. This is meant to be a punitive deterrent--and should make you think twice about any dishonesty!
Moreover, Alaska Stat. 34.70.60 mandates that your disclosures must be made in “good faith;” which means, essentially, that you should not try to use clever language or other such tactics to obfuscate material defects in your property.
There's a practical benefit to openness and honesty, too. A buyer who sees that you aren't hiding problems is likely to be cooperative in negotiations leading up to the closing. And if the buyer learns of problems with the house after commissioning an inspection report, he or she might not negotiate as hard for price reductions or repairs if he or she realizes that your price already took the problems (which you disclosed) into account.
Finally, disclosing a defect in your home will insulate you from legal liability. Imagine that you sell your condo in Juno to a buyer without disclosing that the bathroom has a huge outbreak of mold. If the buyer closes on your condo without having discovered the mold, moves in, and then (inevitably) finds it, he or she may decide to sue you for breach of contract or fraud in order to cover the costs of remediation. Had you first disclosed the condition, Alaska Stat. 34.70.30 would protect you: “A transferor is not liable for a defect or other condition in the real property or the real property interest being transferred if the transferor discloses the existence of the defect or condition in the disclosure statement.”
In short, while you may be tempted to not disclose various defects on your disclosure form, or give the form to the buyer at the last minute, these tactics could cause you further problems down the line. Honesty is the best policy.