Disclosure of Property Conditions When Selling a Home

Selling a home and wondering what physical conditions at the premises need to be disclosed to a potential new buyer?  Everyone wants to present a positive picture of their home, especially during a slow real estate market.  But it is usually in a sellers best interest to thoroughly disclose any defects which are not readily observable.

Most residential resale properties are sold in “as is”condition.  This is usually intended to mean that the buyers have a right to make whatever inspections they seek and the sellers are not responsible after closing for any conditions later discovered by the buyers.

However, selling a home “as is”does not mean that a seller can deliberately misrepresent the condition of the property.  Sellers may be liable for common law fraud if they make a material misrepresentation of any present or past fact which they know or believe to be false, they intend the buyer to rely on, the buyer does rely on it and damages result.  The Jewish Center of Sussex Cty. v. Whale 86 N.J. 619, 624-25 (1981).  In such instances, a buyer may be entitled to rescind or terminate their contract with the seller, or may seek damages from the seller.

Our New Jersey courts have defined misrepresentation to include the failure to disclose certain conditions.  In Weintraub v. Krobatsch 64 N.J. 445 (1974) the buyers inspected a home during the day and found it acceptable.  Prior to closing, however, the buyers visited the property when it was dark and were astonished to discover that the house was heavily infested with crawling insects.  The buyer refused to close.  When the litigation which later ensued reached the New Jersey Supreme Court, the Court held that a seller is not only liable to a buyer for affirmative and intentional material misrepresentations, but also for non-disclosure of defects known to a seller, unobservable by buyers, and where the facts not disclosed would be of significant materiality to the buyers decision to purchase.  In such situations, a buyer would be entitled to rescind their contract.

Thus, our courts have indicated that sellers risk a contract being rescinded, or incurring liability for damages, if sellers do not disclose a defective condition which is 1) latent, 2) not reasonably observable to the buyer and 3) significant to the buyers decision to purchase Correa v. Maggiore 196 N.J. Super. 273 (App. Div. 1984).

Real estate brokers have similar responsibilities concerning disclosure issues. In addition to possible claims of common law fraud, realtors may also be subject to the New Jersey Consumer Fraud Act N.J.S.A. 56:8-1 et seq.  Under the New Jersey Consumer Fraud Act, a real estate broker representing a seller of a home previously occupied may be liable (in addition to affirmative acts of misrepresentation) for acts of non-disclosure of a defective condition if the condition was known to the broker, but not readily observable to the buyer.  Strawn v. Canuso 140 N.J. 43, 58-59, 65 (1995). (Subsequent to this decision, a statute was passed to address disclosure obligations for newly constructed residential real estate.  N.J.S.A. 46:3C-1 et seq.)  In instances of non-disclosure, it must be shown that the broker knowingly concealed a material fact about the premises with the intention that the buyers would rely on the concealment.  N.J.S.A. 56:8-2, Leon v. Rite Aid Corp. 340 N.J. Super. 462, 469 (App. Div. 2001).

Other examples of failure to disclose conditions which created liability for sellers or realtors and which have been addressed in New Jersey court cases include:

• Failing to disclose that a tennis court would be constructed on an adjoining property.  Tobin v. Paparone Construction Co. 137 N.J. Super. 518 (Law Div. 1975).
• Concealment of a defective septic system.  DiBernardo v. Mosley 206 N.J. Super. 371 (App. Div. 1986) cert. denied 103 N.J. 503 (1986).

In response to the potential pitfalls involving disclosure issues, most real estate brokers now provide sellers with an extensive disclosure form to complete and sign.  This form is then provided to potential buyers.  Completing this form accurately and thoroughly helps to protect the seller (and the realtor) from claims of misrepresentation or non-disclosure.