Reasons for leaving

Sellers now must disclose all material facts about their property, such as future public projects likely to increase noise and traffic.

Neal Gendler, Staff Writer

Published October 30, 2004 in the Star Tribune

If you're thinking of selling your home to get away from a highway to be widened, noise from a planned airport expansion, or perhaps a fire station going in across the street, the state has news for you: You have to tell buyers.

Minnesota real estate laws now give sellers the same disclosure requirements as agents. Industry leaders say that helps buyers, because agents can't disclose what they don't know and can't see if sellers don't tell them. Starting Jan. 1, 2003, sellers had to disclose material facts about “adverse physical condition” that significantly could affect an ordinary buyer’s use.

Since August, sellers also must disclose “all material facts” affecting such use or enjoyment. “We think it’s a change for the better,” said Susan Dioury, vice president of the Minnesota Association of Realtors, which sought the change. “I think it’s resulted in more disclosure.” It also has made the seller liable for failure to disclose a known material fact, making it easier for buyers to prevail in a lawsuit against sellers when an undisclosed material defect is found.

The overwhelming majority of home sales go smoothly, but seller concealment of facts can lead to acrimonious disputes. Without a paper trail or testimony from neighbors, buyers may have difficulty proving what sellers knew.

“We’ve been talking about this issue for a couple of years,” said John Anderson, who led an association task force reviewing Minnesota real estate law. He said seller “have more direct knowledge and understanding of the property” than agents.

Sellers are the ones who have been notified or heard talk of plans to make value-altering changes. They also know whether the wind can bring the scent of a factory, farm or feedlot. Prospective developments often can be 'one of the more awkward issues'

A title company’s records search should find assessments and notifications of future projects affecting the property. But some projects are expected long before they show up in documents, said Anderson, of Twin Oaks Realty in Crystal. "The title company searches things that cover the property; it doesn't search what covers next door or a half a mile away," he said. For example, "is that new runway going to affect enjoyment of the property? It may or may not, but if the seller has direct knowledge [that it will], the seller should disclose that."

Future developments are "one of the more awkward issues," said Don Smith, association general counsel. "The question is, when does something rise beyond prospective to the point of materiality that the seller should disclose it to buyers?

Most lawyers say, 'When in doubt, disclose.' But sellers don't want to disclose something that is only being considered, because that could reduce the price buyers offer. The extent of the agent's obligation to learn about such things is "where it starts to get a little dicey," said Smith, of Thomsen and Nybeck. "We teach that real estate agents have the right to reasonably rely on what their sellers tell them." If sellers don't mention a problem, agents can "reasonably believe" there isn't one. "There is what I call a 'red-flag exception.' For example, if the seller says there never have been any wet-basement problems but there are stains on the walls," the listing agent reasonably should be expected to probe further.

Buyers or their agents also should inquire which would make sellers respond truthfully or be liable for misrepresentation. Also, many Realtors concentrate on one part of town and should keep track of upcoming projects in that area.

Extent of the problem

In Dioury's opinion, failure to disclose a material fact is a major reason for arbitration or litigation. It can be a big problem for Realtors when the sellers do not want to disclose something to the buyer, she said. It puts the agent in a predicament, and he or she either has to violate the law or walk away from the representation.

Gauging by the number and type of inquiries from consumers and agents, she said, the new law has gotten attention. Callers ask about the specific requirements and whether something is a material fact -- for example, zoning changes or a farmer's plans to sell land for construction.

Another off-property example might be if a seller knows that "a wooded area across the street was soon to be ripped down for a development," Dioury said. "Most people would say that that's a material fact."

Counselor Realty agent Gregg Hartos, outgoing chair of the association's professional standards committee, said he thinks seller disclosure problems have been infrequent, and it's too early to tell whether the Aug. 1 law increases or decreases them. But the new law is an improvement.

For example, "there have been cases of association homes where the seller knew of a more-than-likely upcoming assessment, but we couldn't lay our hands on any documents saying so, because it's not official and maybe that's why the owner wanted to sell “Another one is a school closing. Sometimes buyers look at an area and say; 'Isn't that nice, it's walking distance to my kids' school; [but] if the seller knew that school was under consideration to close, it could affect the buyer's willingness to purchase” or the price to be offered.

If buyers are told of physical problems, they can negotiate over repairs. "It's the surprises that are the issues," he said. Buyer-paid home inspections have reduced disagreements, sometimes telling sellers of problems they didn't know about, he said. By addressing problems before closing, "the dollar amounts are more reasonable, tempers are lower and people are more civil."

Gene Bassett, of Gene Bassett Realty in Bloomington, said he recalls few disclosure problems in his firm's nearly 30 years. "That's why we do an inspection). We can use what [President Ronald] Reagan used to say: 'Trust but verify.'

"Proving that something was known usually requires circumstantial evidence or independent verification, Smith said. "Neighbors may know the roof leaked, or perhaps there's a problem with bat infestation, and “the buyer calls an exterminator, and the man says, “It’s funny, we were just out there three months ago on the same issue.’”

John Anderson of Twin Oaks Realty said he has sat in meetings and heard people talk about these problems. “I know it is an issue,” he said. “The was I always put it to the seller is this: ‘Is this something you would have wanted to know?...Or if you’re asking me ‘Should I disclose this?’ then you should disclose.”

Neil Gendler is at ngendler@startribune.com.



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