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New York State has some laws in place to protect 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 being an even bigger 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.
Disclosure Obligations in NYC
Most property transfers in NYC are done via the principle of “Caveat Emptor” – let the buyer beware. This means 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 that they are repaired before 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 Act
In 2002, a new law went into effect known as the Property Condition Disclosure Act (PCDA). By this law, sellers must complete a standard form disclosure statement disclosing the exact state of the property. It consists of 48 questions about the property and is 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
It should be noted that, under the PCDA, the seller is under no obligation to carry out a home inspection. All that’s 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 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 of a newly constructed property that has never previously been inhabited
- A transfer made to another co-owner of the property or spouse or a relative with a common ancestor.
Procedure 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 in lieu of the statement.