If you’re preparing to sell your Maryland home, you know that the process is not easy. In addition to cleaning your house and making it presentable for showing, you have to interview agents, settle on a price, open your house to visitors (or move first), and perhaps play a long waiting game. Naturally, you try to make your home look as perfect as possible for prospective purchasers.
Unfortunately, Maryland law forces you to reckon with the unappealing aspects of your home too, through various mandatory disclosures of defects to buyers. Marylanders, like sellers in many states, are required to reveal various problems that could affect the property's value or desirability. For example, a seller cannot fraudulently conceal major physical defects, such as a broken water pipe or a defective HVAC system. If you're selling your Maryland home, what must you disclose, and when?
Before you begin the process of selling your home, you should read Md. Code Ann., Real Prop. § 10-702, which requires the seller of residential real estate to complete a form—known as the Residential Property Disclosure and Disclaimer Statement—disclosing conditions and defects with the property. Maryland is someone unique in that sellers can choose between either giving the buyer a disclosure of known defects, or a disclaimer as to the condition of the house. One of these must be given (but not both).
The purpose of the statute is to compel a seller such as yourself to detail any material facts of which you are aware that negatively affect the property. This could cover a wide variety of defects in your home, ranging from the condition of the roof to the condition of the gas tank.
You are required to provide written copies of this form to potential buyers. Its precise format can vary, but you can view samples online. Your real estate agent or attorney will provide you a copy as part of the standard materials.
Upon examining the four-page form, you’ll notice that it’s actually two forms: You have the option of filling out either a “Disclaimer” or a “Disclosure.”
If you fill out the “Disclaimer,” then you “make no representations or warranties about the condition of the property.”This is simply saying that you’re selling the home “as is.” The buyer will assume liability for any defects that may or may not exist in the home. If, for instance, a water main bursts a week after the closing, the buyer cannot look to you for payment or reimbursement. But that doesn't let you off the hook for disclosing latent defects in the home about which you have actual knowledge (under Md. Code Ann., Real Prop. § 10-702(d).) The law states that the disclaimer must "Disclose any latent defects of which the vendor has actual knowledge that a purchaser would not reasonably be expected to ascertain by a careful visual inspection and that would pose a direct threat to the health or safety of the purchaser or an occupant."
The disclaimer must also state that, except for the disclosed latent defects, you make "no representations or warranties as to the condition of the real property or any improvements on the real property" and the buyer "will be receiving the real property “as is”, with all defects, including latent defects, that may exist, except as otherwise provided in the contract of sale of the real property."
You may be wondering: What does it mean to have "actual knowledge" of a latent defect? You probably do not have actual knowledge of every defect in your home. Actual knowledge means that you know that your water pipe is defective, and you sell the house anyway. This is different from merely not hiring an inspector to tell you that your pipes are broken. On a disclaimer, Maryland requires only that you disclose what you know.
At first, choosing the disclaimer option might sound like an attractive option for limiting your liability. But be careful. Giving a potential buyer a disclaimer might actually raise some red flags. The buyer may wonder why you’re so quick to wash your hands of the home. The buyer might hire one or more inspectors to examine the property particularly closely. You may spook your buyer into looking for some other way out of the deal.
Your other option is to submit a disclosure. The disclosure asks you to fill out a whole variety of questions and answers. You will need to state “yes” or “no” to whether there are any material defects in specific areas—the floors, the walls, the fire sprinkler system, and so on (including an "Other" clause).
The statute lists the types of latent conditions that must be disclosed if you choose the disclosure option. For example, Md. Code Ann., Real Prop. § 10-702(e)(1) states that you must disclose the condition of the water and sewer systems, the structural systems, the plumbing, electrical, heating and air conditioning systems, the existence of wood-destroying insects, the presence of hazardous materials, and any other material defects known to the seller.
In addition, you may make comments. Both the comment and the answer is part of a Maryland seller’s formal disclosure. The comments are a good way to explain any issues, particularly if “yes” or “no” doesn’t tell the whole story. For example, one question asks whether the air conditioning is supplied to all rooms. If you say “no,” this could alarm a buyer. But if you add a comment indicating that all rooms except the basement are air conditioned, this minimizes the impact.
Note that the form also asks you to identify non-defect issues, for example whether the home is under any restrictions from a homeowners' association, or whether the home is located in a flood zone or in a historic district (which would limit potential renovations).
Study each of these disclosures carefully before answering, and check with your real estate agent or attorney if you are uncertain how to answer.
You won't be asked about everything. For example, the Maryland disclosure form doesn't ask you to disclose anything about past occupants of the property--whether someone living there had HIV or AIDS, or whether the property was the scene of a crime, death, or suicide. (These come from explicit exclusions in Maryland law, at § 2-120 of the Real Property Code.) If buyers ask about such issues, you cannot lie; but you can say that you are not able to answer. (Just be aware that buyers have Google at their disposal.)
The disclosure form also doesn't ask about every aspect of the home. For example, while it asks about the condition of the dishwasher, it doesn't ask about other major appliances that may come with the house, such as the oven or refrigerator. It asks about the condition of the fire sprinkler system, but not about any fire alarms or carbon monoxide detectors. Thus, there are certain smaller issues on which you can perhaps remain silent; though if any are defective, you might be safer disclosing them in the "Other" clause than waiting for the buyer to find out and wonder whether you lied.
As to larger issues, though, the disclosure definitely asks you to disclose any material latent defects that are not specifically enumerated. Therefore, if you choose to submit a disclosure rather than a disclaimer, you'll need to affirmatively make those admissions.
At first, all of this may seem to be a tremendous burden. Why would your elected representatives in Annapolis make it harder for you to sell your home by leading buyers straight to the problems with it, latent or otherwise?
While it is true that your disclosure may result in a lower purchase price, the legislature is actually doing you a favor: If you disclose a known defect, the purchaser cannot turn around months after the transaction has closed and sue you for fraud or misrepresentation. Indeed, the disclosure form will insulate you from this sort of liability, which could otherwise cause legal fees and headaches long after you wish that you could move on.