Rhode Island might be the smallest state in the Union, but selling your home is no small task. There are many steps involved, from finding an agent to readying it for showings to negotiating with potential buyers. Rhode Island’s legislature adds an extra small hurdle for sellers like yourself: You must provide the buyer with a “disclosure form” before signing a purchase contract.
What is a disclosure form? Essentially, it is a brief document that asks you to tell the buyer about any defects in your property, ranging from a leaking pipe to the presence of asbestos. While these sorts of disclosures are common in many states, Rhode Island is somewhat unique in the amount of information that sellers are asked to provide about the home. If you are ready to sell your home in the Ocean State, what must you disclose?
As a seller, you should familiarize yourself with Rhode Island Code § 5-20.8-2. This section of state law provides: “As soon as practicable, but in any event no later than prior to signing any agreement to transfer real estate, the seller of the real estate shall deliver a written disclosure to the buyer and to each agent with whom the seller knows he or she or the buyer has dealt in connection with the real estate.”
The timing is important. You must give the buyer the disclosure statement before a purchase contract is signed. Intuitively, this makes sense. A buyer who learns of severe defects with the property might quickly renegotiate the price, or back out of the sale entirely.
Rhode Island also has the unusual requirement that sellers must provide a copy of the disclosure not just to the buyer, but also to any real estate agent with whom the buyer has interacted. Clearly, the legislature wants to ensure that the buyer, seller, and agents are all aware of the property’s condition.
The statute charges the Rhode Island Real Estate Commission, a state agency that oversees real estate transactions and licensing, with creating the disclosure form to be used in real estate transactions. Before even getting to the potential defects, you will see that the form covers a series of specific facts about the home—for example, its age, your length of occupancy, any specific local taxes or assessments, and the presence of any hazardous material (such as lead paint or asbestos).
From there, the disclosure delves into practically every element of a property that you might imagine, from the condition of the chimney to the basement. For each element, you are asked to check a box as to whether you know of any “defects/malfunctions.”
You can check “Yes,” “No,” “UK” (unknown, if you do not have knowledge of whether as defect exists or not), or “NA” (not applicable, if that particular feature does not exist in your home). The Rhode Island Real Estate Commission asks you about 91 separate areas—no small number!—so as to give the buyer a comprehensive snapshot of your knowledge of the property’s condition. And just in case any topic was left out, the form includes numerous lines for additional information.
Both you and the buyer must sign the disclosure before any formal offer of sale is made. Needless to say, you should both keep copies for your records.
Not every Rhode Island homeowner knows every inch of his or her home. What if you have no idea about the integrity of the structure of your house, or whether there are any problems with the water pumps? Fortunately, the statute requires only that you “state all deficient conditions of which the seller has actual knowledge.” If you have no idea whether a particular aspect if your home is working or not, you can simply check the “UK” (“Unknown”) box on the form.
At the very top of the disclosure form, the buyer is reminded that he or she should not assume that what you disclose is the full story of the condition of the home: “[T]he seller is providing the buyer with this written disclosure of all deficient conditions of which the seller has knowledge. This is not a warranty by the seller that no other defective conditions exist, which there may or may not be. The buyer should estimate the cost of repair or replacement of deficient conditions prior to submitting an offer on this real estate.”
In other words, you are not giving the buyer any guarantee that, just because you do not know about a defect, it does not exist. Moreover, the form specifically advises the buyer to hire an inspector to conduct a thorough review of the property before closing the sale. This sort of professional inspection is common in real estate transactions. Even if an inspection does not turn up anything that concerns the buyer, it still gives the buyer peace of mind. You have no duty to pay for such an inspection. As the statute says, “Nothing contained in this section shall be construed to impose an affirmative duty on the seller to conduct inspections as to the condition of this real estate.”
As you can see on the form and by reading the statute itself, Rhode Island makes it very clear to the buyer that the disclosure is merely for convenience, and that the buyer should still hire a home inspector. Nevertheless, you can face angry buyers and possibly contentious civil litigation if you fail to disclose a defect about which you had actual knowledge.
From the buyer’s perspective, trust is key. If an inspection reveals a condition that you tried to hide, be prepared for negotiations to become contentious, and for the price of your home to plummet downward.
And if the buyer moves into the home and discovers a massive infestation of termites, for example, he or she will be irate. The buyer's anger will not merely be about the cost of remediating the infestation, but also about the surprise, broken trust, and frustration involved. All of these emotions might well lead to a lawsuit. An honest disclosure would have saved you from the buyer’s understandable reaction.
While failing to make honest disclosures might save you some trouble in the short term and result in a quicker sale, there is a potential for much greater trouble down the road. The better strategy is to be fully frank and honest in your disclosures, so that both you and the buyer get the benefit of the bargain—and closure once it’s done.