FRAUD: A false representation of a matter of fact—whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed—that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury.
Far too often in the Arizona real estate market, we find listings that are for sale on the Multiple Listing Service (MLS) but where the seller refuses to provide a Seller's Property Disclosure Statement (SPDS), or an insurance claims history (or similar CLUE Report). Both items are required in the Residential Resale Real Estate Purchase Contract, yet sellers regularly demand that the requirement be waived. Despite this attempt to avert their responsibility, sellers are obligated by Arizona law to disclose all known material facts about a property to the buyer, and their agents serve them well by reminding them of this requirement.
So why do sellers do this? Banks, when they are the sellers, often do this because they actually have no idea what the condition of the property is or has been. Typically these are Real Estate Owned (REO) properties that have been foreclosed upon and taken back by the bank, which are often located out of state. In cases such as those, it would be difficult for a bank to make any disclosures about a property they've never seen, and that makes logical sense. There are other cases where disclosures are difficult, such as in an estate sale, but these are much less common and not what I'm referring to here.
I'm specifically referring to properties that have been partially or completely remodeled by a seller and yet the seller claims to know nothing about the property, even if it's ever had an insurance claim during their ownership. I would submit that a seller who has remodeled a property over three months likely knows far more about a property than someone who may have lived there a few years and never touched a thing in the house. Remodels often include myriad repairs and upgrades. Floor coverings are often replaced, thus exposing cracks in the foundation. The seller never saw those? Plumbing is often updated, yet the seller did the updating in his/her sleep and doesn't remember? Wiring is also often upgraded, along with the electrical panels. Do sellers expect us to believe this was done with magic? They install new cabinets, counter-tops, carpet, drywall, outlets, insulation, garage doors, paint, tile, light fixtures, disposals, hot water heaters, HVAC units, pool pumps, garage door openers, or any combination of the aforementioned. And sellers expect us to believe they know nothing about the property they are selling? Do they think we're all stupid??
Apparently so. And all too often,
tragically, buyers waive the right to learn about the property they are
buying. They don't want to waive that right, mind you, but they are led
to do so out of fear of losing the opportunity to purchase an identified
property. Good agents will persist in acquiring the disclosures even after
the contract is signed - and there are smart ways to go about that - but there
is no guarantee. Ultimately, no seller
should be able to even attempt to circumvent state law and hide material facts
about a property.
Ironically, hiding material facts can be very problematic legally for the seller AND real estate brokerage/agent in the long run. It doesn't take a jury of rocket scientists to determine if a seller was falsely claiming ignorance about something that should have been obvious and disclosed in the first place. It's much easier to avert legal issues by giving a full and honest disclosure up front.
What can buyers do? First, hire a competent Realtor. A good Realtor will counsel buyers on the perils of buying from sellers willfully hiding material facts about a property, and steer them away if possible. If it's a property a client "has to have," then the Realtor can advise his/her client what to look for regarding things that are often concealed, and direct them to professionals who can help uncover those things. Most Realtors are not trained to uncover such things on their own, and should not be relied on to do so.
Why can't this be stopped? It can be, and real estate agents can help immensely by not taking listings where a seller will not make full disclosures. I would never take such a listing, and most of the good Realtors I work with wouldn't either. There are legislative ways to stop it as well, but that is more difficult. And of course buyers can put a stop to it by ignoring properties whose sellers refuse to follow the law.
Over time, I hope such deceptive practices will cease to exist, but in the mean time, buyers are advised to hire among the vast majority of honest and capable Realtors who put their clients' best interests first, and who can help them steer clear of problematic situations. In any case, as always, buyers need to beware.
David Roney is a former Designated Broker, currently working with Coldwell Banker Residential Brokerage.