Duty to Disclose Adverse Material Facts

Are you a Denver homeowner who is considering putting your home on the market? Maybe your house is already for sell? It is important to know that when you are selling a home, you and your real estate broker have a duty to disclose adverse material facts to prospective property buyers. Disclosures allow buyers to make informed decisions about property and prevent lawsuits over the status of the property down the road.

What is an Adverse Material Fact?

An adverse material fact is a fact that, if known, may cause a buyer to make a different decision regarding purchasing the property or the amount offered. Real estate brokers and people selling property have disclosure obligations under both federal and state law.

It is important to note that sellers are only obligated to disclose known defects, especially if the defects are hidden, or latent. Cracks in concrete basement walls may be hidden by paint and plaster, but can be indicative of significant structural damage to a home. A buyer would almost certainly choose to act differently if he or she knew of these cracks – either by asking for a more extensive assessment, lowering the offer price, or even choosing not to make an offer in the first place.

Federal Disclosures

Under Federal law, property sellers must disclose if a property built before 1978 contains lead-based paint. The Environmental Protection Agency estimates that approximately 75% of homes built before 1978 contain some lead-based paint, which can cause permanent brain damage. Lead-based paint creates a hazard when the paint chips or deteriorates, releasing lead dust into the air which can be inhaled or land on food.

Colorado State Disclosures

Under Colorado law, sellers of residential property must, among other items, disclose:

• Structural damage to the property, such as previous damage to load-bearing walls or the roof after major storms;
• Previous flooding, not only because it could create structural damage or mold growth, but because flood waters can bring sewage and other toxins into the home;
• The home’s source of drinking water;
• To whom surface and mineral estate rights belong, as well as any oil and gas activity on the property; and
• Whether the home is part of a homeowner’s association that requires membership and assessment fees

It is important to note that sellers are required to disclose known property defects, even if they have been fully repaired. This will allow buyers to understand the property better and make an informed decision when making an offer. Failure to disclose adverse material facts is the leading cause of lawsuits filed against sellers and their real estate agents. Hiding property defects in order to get a slightly higher bid is simply not worth risking a lawsuit over.

When is Disclosure Not Required?

Disclosure is not required in situations in which information could be psychologically stigmatizing about the property. For example, many states, including Colorado, do not require disclosure if someone passed away in the home. Psychologically stigmatizing disclosure requirements vary by state, so you should speak with a licensed agent or attorney in your state to understand local laws applicable to your property.

This article does not provide legal advice and is for informational purposes only. For questions about real estate brokers and duties of disclosure or other real estate legal needs in Colorado, contact the Law Offices of Eric L. Nesbitt, P.C. at 303-741-2354 or info@NesbittLawOffices.com.