Imagine that you are looking to sell your Montana home. Most states have legislation that would require a home seller like you to give a written disclosure report to potential buyers. Such reports typically identify any material defects in the property, from a defective refrigerator to a leak in the attic. In the great state of Montana, by contrast, no law requires you to disclose these sorts of defects to the prospective buyer of your home (so long as you don’t make any direct misrepresentations in the course of the sale).
If, however, you use the services of a real estate agent, your agent may need to make certain disclosures to the buyer based upon professional regulations and state law. And there are some good reasons for you to give the buyer a full disclosure report anyway, notwithstanding the lack of explicit legislation requiring you to do so.
Not only does Montana lack any law that requires home sellers to give a formal disclosure statement to a potential home buyer, but Montana courts 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, Montana does have some relevant regulations around disclosures of property defects. M.C.A. § 37-51-313 requires that, “A seller agent is obligated to the buyer to… disclose to a buyer or the buyer agent any adverse material facts that concern the property and that are known to the seller agent….”
Montana defines an “adverse material fact” as “a fact that should be recognized by a broker or salesperson as being of enough significance as to affect a person’s decision to enter into a contract to buy or sell real property and may be a fact that… materially affects the value, affects structural integrity, or presents a documented health risk to occupants of the property.” What does this mean in practical terms?
Imagine that you tell your real estate agent that you’re really hoping to sell the property quickly, because you’re not sure how much longer the foundation of the house will hold out. Or, the agent, in walking around the property getting it ready for sale, may simply notice this and other problems without your input (being an expert on real estate matters). An unsteady foundation is surely among the “adverse material facts” that would affect someone’s willingness to buy the property.
The agent would have a legal obligation, under M.C.A. § 37-51-313, to report this fact to the buyer. An agent who fails to disclose such a fact to the buyer could lose his or her license. Thus, a real estate agent faces a great deal of risk if he or she knows about a defect, but fails to disclose it in order to expedite the sale.
Still, there are important carveouts in Montana’s requirements. The real estate agent is “not required to inspect the property or verify any statements made by the seller.” Moreover, the agent should “disclose to a buyer or the buyer agent when the seller agent has no personal knowledge of the veracity of information regarding adverse material facts that concern the property.” If you were the buyer, this language would not be particularly comforting. Essentially, the real estate agent is merely required to disclose to the buyer what was manifestly obvious or what you, as the seller, actually mentioned about the property. But the agent is not required to perform any independent inspections, and must even emphasize to the buyer that he or she has no real knowledge of the property.
In addition, the agent need not (under M.C.A. § 37-51-102) disclose that someone who lived in the property has or has had a communicable disease or that the property was the site of a suicide or felony.
Initially, you may feel fortunate 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 Montana sellers choose to affirmatively make such disclosures.
Many Montana real estate agents use a simple, three-page Seller Disclosure Form. This 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 is the subject of any liens or lawsuits, and whether you are aware of any major problems with various aspects of the house (heating, cooling, electrical, plumbing, and so forth).
Although the form is short, the answers should give potential buyers a fairly comprehensive snapshot of any known defects with your property—at least enough information to know what they should pay particular attention to when commissioning inspections of their own. 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 point of this disclosure form, if Montana doesn’t require it? First, it sets clear expectations regarding the quality and condition of the home, and may smooth negotiations while you’re in escrow. The buyer will see from the start that you are being open and honest about the condition of the house, and will have less reason to react with shock and dismay if and when the inspection report turns up defects. (Imagine, by contrast, if you were to disclose nothing, after which the buyer hires a home inspector who finds unmitigated outbreaks of mold throughout the home. The buyer would not be particularly pleased, and would likely try to renegotiate the sale price or demand repairs).
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 busted HVAC system, and you do not say anything to the potential buyer. Even if the sale does close successfully, the buyer will quickly discover the problem upon trying to turn on the heat. 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 the buyer 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.
Of course, you may have strong arguments to beat such a buyer’s lawsuits, especially 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. All of this will help to make sure that your home sale in the Big Sky State goes as smoothly as possible.