eaningNew York State has laws and disclosure obligations for sellers and agents in New York City to protect home buyers. For instance, there’s a law designed to protect people who invest in a car and end up with a lemon. Disclosure agreements exist to protect the buyer from such a scenario.
But despite a home purchase is an even more significant investment than a car, NY State has few requirements in place for making disclosures. Few, though does not mean any.
Whether you’re a buyer or seller, you should have a good understanding of a seller’s disclosure obligations in a property transfer. Read on to learn what those are.
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Sellers Disclosure ObligationsSellers Disclosure Obligations
Most property transfers in New York City completed via the principle of “Caveat Emptor.” Means: let the buyer beware. M that sellers have little duty to disclose defects. It’s up to the buyer to inspect the property for any. If found, all the buyer can do is ask for them to be repaired prior to closing or walk away from the deal.
However, there are exceptions to “caveat emptor.” Such as if the seller has a special relationship of trust with the buyer. For example, a trustee-beneficiary, guardian-ward, agent-principle, or attorney-client relationship. If a seller is found to have actively concealed a defect or impeded the buyer’s efforts to inspect the property, they can be held liable for damages caused by the defect.
The Property Condition Disclosure Statement ActThe Property Condition Disclosure Statement Act
In 2002, a new law went into effect known as the Property Condition Disclosure Act (PCDA). By this law, sellers must complete an official form disclosure statement disclosing the specific state of the property. It consists of 48 questions about the property organized by topic. It must be completed and delivered to the buyer before they sign the final purchase contract. Failing to do so will result in the seller having to make a $500 credit payment to the buyer at closing.
The PCDA does Not Require the Seller to Hire an Inspector.The PCDA does Not Require the Seller to Hire an Inspector.
It should be noted that, under the PCDA, the seller is under no obligation to carry out a home inspection. All required of them is that they disclose known defects. The very language of the statement makes it clear to the buyer that this is not a warranty or guarantee of the state of the property. The onus is still on the buyer to conduct a home inspection.
Exceptions to the PCDAExceptions to the PCDA
The PCDA only applies to “residential real property” – defined as one-to-four family dwellings. It does not include condos, co-ops, vacant land, or property that is part of a homeowner’s association. Also, certain types of property transfers are also except such as:
- A court-ordered transfer such as probate, foreclosure, divorce or bankruptcy
- Transfer made to distribute the property of a decedents estate or trust
- A transfer made to the State of New York or any other unit of local government
- Transfer; new construction property that has never previously inhabited
- A transfer made to another co-owner of the property or spouse or a relative with a common ancestor.
Procedure for Completing the PCDAProcedure for Completing the PCDA
Complete the statement by answering each of the questions while providing details of any known defects. You then sign at the bottom, and the completed statement is delivered, usually by your broker, to the buyer or their agent. The seller then signs an acknowledgment of receipt and understanding. If later, you become aware of any defects, you must send a revised statement to the buyer. However, you are under no obligation to do this if you discover the defect after closing.
Due to the relatively low penalty of $500 for not completed the PCDA, many NYC buyers forgo providing it. Be aware that going this route does not protect you from liability in the case of exceptions to caveat emptor.
You should discuss this with your attorney before proceeding. Also, you should have the buyer acknowledge in writing that the credit of $500 was accepted instead of the statement.
Listing Agent Disclosure RequirmentsListing Agent Disclosure Requirments
Selling a home in New York City can undoubtedly be a fraught process, especially with the city currently experiencing a buyer’s market. Chances are you’ll go the route of the majority of NYC sellers and hire a real estate broker. The sales agent – also known as the listing broker – is someone you’ll have a very close working relationship with. They’ll get to see every facet of the property, which naturally raises the question – how much must they disclose to any prospective buyers?
We’ve already touched on the seller’s disclosure obligations. Now let’s look at it from a listing agent’s perspective.
The Role of the Listing BrokerThe Role of the Listing Broker
After you’ve interviewed several real estate brokers and decided on one to hire, they’ll ask you to sign a “listing agreement.” This authorizes the broker, among other things, to offer the property for sale at an agreed-upon price and sets out the commission arrangement.
For the time that the agreement is in place, your listing agent will help you with setting the right asking price, negotiate with prospective buyers and their agents, and help you with contracting and the closing process. To carry all this out, they must gather up-to-date information on the property through appraisals, inspections, and surveys.
Buyers will also usually hire a broker, known as a buyer’s agent, to guide them through the buying process. During the open house, inspections, and negotiations, they’ll usually pepper both brokers about the condition of the property. Namely, whether or not it has any known defects. So what are the disclosure obligations of the listing agent to the seller?
The Listing Broker’s Disclosure ObligationsThe Listing Broker’s Disclosure Obligations
The traditional rule of “caveat emptor”; let the buyer beware. This law is still applied to real estate transactions in NYC. The listing broker is under little obligation to disclose known defects or carry out inspections in search of any. That responsibility falls on the buyer. However, there are exceptions to this rule.
If the listing broker passes on information about the property to the buyer that they know to be false or if they omit facts regarding defects, they may be liable for damages to the seller. But only if the buyer’s decision to buy was based on this misinformation.
Disclosure Requirements under the PCDADisclosure Requirements under the PCDA
Since the Property Condition Disclosure Act (PCDA) went into effect, listing agents are required to advise the seller about their disclosure obligations before the buyer signs the purchase contract. Also, the listing agent must also inform the buyer of the PCDA if they are unrepresented. Failure to perform these actions promptly could make them liable for the violation of the PCDA.
What the Listing Agent May and May Not DiscloseWhat the Listing Agent May and May Not Disclose
Under NY State property law, the listing agent is not required to conduct an inspection in search of defects or to verify what the seller has said about the property. However, if they know of any flaws or that the seller has misrepresented the condition of the property, they are obligated to inform the buyer of this.
To deal with the problem of “stigmatized properties,” brokers can choose not to disclose specific information about a property. For example, a felony committed on the site, such as a homicide or suicide. Or if the previous occupant had or was suspected of having HIV, AIDS, or other diseases that are unlikely to be transmutable through occupancy.
Granted, the buyer can make a written inquiry to the seller or their agent asking for this information, but they are under no obligation to respond. Nor can the broker be sued or face disciplinary action for failing to disclose the excluded matters.
Have a thorough understanding of a listing agent’s disclosure obligations before you hire them. They can answer any questions or clarify a few points during your first interview. This is also an excellent way to test their knowledge of property law and their level of confidence. After all, when it comes to choosing a listing agent, it pays to select the best.