1. Form to Use
TREC Seller's Disclosure of Property Condition form is a copy of the statutory minimum information set out in the Texas Property Code. TAR’s Seller's Disclosure Notice, contains additional provisions to increase the information provided to buyers. MetroTex Association of Realtors also has a Seller's Disclosure Notice, which contains even more information than the form used by TAR. The additional information is designed to reduce risk and exposure for sellers and as an information source for buyers.
2. Exemptions to the Obligation
The seller's disclosure notice statute contains 11 narrow exemptions. The most common of these exemptions apply to: (a) a builder of a new home, (b) a trustee or executor of an estate, and (c) the lender after foreclosing on a property.
Keep in mind, however, even though these types of sellers are not required to provide a disclosure notice, they still must disclose any known material defects. A material defect is a specific issue with a system or component of a residential property that may have a significant, adverse impact on the value of the property, or that poses an unreasonable risk to people. For example, a lender who knows about a cracked foundation in a property that the lender acquired through foreclosure must disclose the defect to any buyer who purchases the property from the lender. The means of disclosure is not mandated.
A seller's disclosure is not required on a Duplex, however, to reduce any potential risk and/or litigation, the owner of a duplex may decide to provide the notice for each side of the duplex. Remember, disclose, disclose, disclose!
The statutory requirement to provide the notice does not apply to any lease transaction, no matter the duration of the lease period.
Texas falls closely in line with the majority of states by recognizing that a seller or agent has no duty to disclose deaths that occurred because of natural causes, suicide, or an accident that was unrelated to the condition of the property. Any known murders must be disclosed, as they are considered facts material to a real estate transaction. In addition, the Texas statute also requires disclosure of deaths that were caused by a condition existing on the property, even if the condition was subsequently remedied. This provision was intended to inform buyers about deaths resulting from structural defects or other dangers inherent to a property.
6. Inspection Reports
The seller and broker have a duty to disclose any known material defects. Possession of a prior inspection report may be evidence of the seller's or broker's knowledge of a known defect. The Courts of Appeals are split on whether there is a duty to disclose the actual report. We suggest that the broker or seller provide the prior inspection report to avoid allegations of nondisclosure or mischaracterization of a purported defect. Further, the TAR Seller's Disclosure Notice asks the seller to list and attach copies of previous inspection reports performed in the last four years. The notice cautions the buyer against relying on previous reports as a reflection of the current condition of property and suggests that the buyer employ an inspector of the buyer's choice.
Once an item is repaired, it is no longer defective, and disclosure of repaired items is not required except as noted in the seller's disclosure notice (namely, previous fires, previous flooding, previous foundation repairs, previous structural repairs, and previous termite treatment and repairs). Again, remember, we suggest conveying all information regarding previous inspections to a purchaser including the previous inspection report and any invoices showing that repairs were made. Why? Because, the potential for liability under the Deceptive Trade Practices Act (DTPA), Statutory Fraud, and Common Law Fraud is high.
8. A Seller’s Refusal to “Open” an Inspection Report
A broker or seller who receives an inspection report is charged with knowledge of the information in the report even if the broker or seller does not open the report. A buyer and/or buyer's representative cannot require the Seller to read the report. They can and should, however, negotiate for any repairs found in the inspection report during the buyer's option period. If the buyer is not satisfied with the information in the inspection report or cannot get the seller to agree to requested repairs, the buyer can exercise his right to terminate the contract.
9. Commercial Transactions
TAR has a Commercial Property Condition Statement that is an optional attachment to its standard commercial contracts. It is much broader in scope and addresses additional issues such as wetlands, underground storage tanks, and toxic waste. We recommend that a buyer should require that the seller provide it.
10. Relocation Companies
If the relocation company is the Seller, it must complete and deliver the seller’s disclosure notice. Generally, most relocation companies act more in the role of an asset manager and are under no obligation to provide the disclosure. However, most relocation companies provide a packet of disclosure documents, which includes a Seller’s disclosure prepared by the transferring employee and inspection report.
Noteworthy (and Interesting) Cases
Pfieffer v. Ebby Halliday Real Estate, 747 S.W.2d 887 (Tex. App. – Dallas 1988, no writ). Repairs correct defects, not prove continued known existence. Common knowledge of neighborhood conditions or conditions in the area or previous repairs does not establish knowledge of an actual or continued defect.
Kessler v. Fanning, 953 S.W. 2d 515 (Tex. App. – Fort Worth 1997, no writ). Seller answered “no” to questions related to improper drainage. Seller acknowledged to Buyer that he knew about the drainage problems. Seller has a duty to know whether an affirmative statement is true.
Robbins v. Capozzi, 100 S.W.3d 18 (Tex. App. – Tyler 2002, no writ). Buyer received notice that garage was in “working condition” and had “no known defects.” After closing, Buyer discovered she could not maneuver her car into the garage. No duty to disclose material facts that would be discoverable by a Buyer in the exercise of ordinary care.