Imagine that you are looking to sell your Arkansas home. Most states have clear legislation that would require a home seller like yourself to give a written disclosure report to potential buyers. This report typically identifies any physical defects in the property, from a defective garage door to a leak in the cellar. Arkansas has no such law, however.
Indeed, in Arkansas, there is no legislation that requires you to disclose these sorts of defects to a buyer (so long as you don’t make any direct misrepresentations). However, if you use a real estate agent, your agent may need to make certain disclosures to the buyer. And there may be some good reasons for you to give the buyer a full disclosure report anyway, notwithstanding the lack of legislation requiring you to do so.
Arkansas does not have a law that requires you to give a formal disclosure statement to a potential buyer of your house. Arkansas courts also enforce caveat emptor clauses in purchase contracts. Under the doctrine of caveat emptor (“let the buyer beware”), judges ordinarily refuse to compensate buyers for home defects found after the purchase unless the seller did something to actively prevent the buyer from inspecting the property to find all of the defects.
Despite the lack of legislation on disclosure and the caveat emptor doctrine, the Arkansas Real Estate Commission (AREC) does have some relevant regulations around disclosures of property defects.
AREC is a state agency charged with enforcing much of Arkansas’s real estate laws, as well as administering and issuing licenses to real estate agents. It also forces licensed agents to abide by a set of regulations.
AREC Regulation 10.6 states: “[A real estate agent] shall exert reasonable efforts to ascertain those facts which are material to the value or desirability of every property for which the [he or she] accepts the agency, so that in offering the property the [agent] will be informed about its condition and thus able to avoid intentional or negligent misrepresentation to the public concerning such property.”
In plain English, this means that any licensed Arkansas real estate agent has a professional obligation to “exert reasonable efforts” to investigate the condition of a property that the agent has been hired to sell. A reputable real estate agent cannot, for example, sell a house with a flooded basement and simply neglect to mention that ‘little fact’ when talking with potential buyers. The agent could thus lose his or her license. AREC suggests that, while the definition of “material to the value” of the property might be vague, agents must use their common sense and investigate the property that they intend to sell.
Most likely, you are using a licensed real estate agent to sell your property. (If not, the AREC regulations aren’t relevant to your direct sale). Fortunately, nothing in Rule 10.6 requires the agent to perform a complete floor-to-ceiling investigation of your home before approaching buyers, nor does it require them (or you) to hire a professional inspector to find potential physical defects. The buyer will likely want to hire an inspector for this purpose, but neither you nor your real estate agent need to bear that cost.
You may think that you are lucky to live in a state that doesn’t force you to reveal damaging defects about your property. However, you may be surprised to learn that there are some long-term benefits and protections associated with making disclosures--and that, as a result, many Arkansas sellers proactively make the disclosures.
The Arkansas Realtors Association promulgates a popular “Seller Disclosure Form.” This simple three-page form asks you to check “Yes,” “No,” or “Don’t Know” in response to a few dozen questions about your property. For example, you are asked how old the home is, whether it contains asbestos, and whether you are aware of any major appliances that need to be replaced. Although it is short, the answers should give potential buyers a fairly comprehensive snapshot of any known defects with your property. The form also gives you additional space to explain any of your responses to those questions in greater detail, and encourages you to attach pages if necessary.
What is the value of this disclosure form? First, it sets clear expectations, and may smooth negotiations while you're in escrow. The buyer will see from the start that you are being open about the condition of the house, and have less reason to react with shock and dismay if and when the inspection report turns up defects.
Second, the disclosure prevents the buyer from later claiming that he or she did not know about a particularly defect. Imagine that there is a major, ongoing leakage issue in your basement, and you do not say anything to the potential buyer. Even if the sale does close successfully, the buyer will quickly discover the problem. Any claim that you “didn’t know” about it would be, at best, difficult to believe. The buyer will be angry; not just because you were dishonest by omission, but also because he or she will now have to face the (probably significant) cost of remediating the basement and fixing the leak. This creates a risk that the buyer may sue you for breach of contract or fraud.
Legally, you may have strong arguments to defeat such a buyer’s lawsuits, particularly if your purchase contract included a caveat emptor clause. Still, nothing prevents the buyer from suing you. The buyer may lose the legal arguments, but you will be forced to hire an attorney and engage in the stress of litigation. Making a full and forthright disclosure would ensure that the buyer’s expectations match reality.