Termites in Your House? Confess!

HOMEBUYING'S golden rule - caveat emptor - is losing its gleam as more and more sellers choose to confess property defects to potential purchasers. This step can prevent a post-sale trip to the courtroom, where buyers prevail with increasing frequency.As for sellers whose lips remain sealed, a drive is on to enact a mandatory property condition disclosure law in every state. At the moment, only California and Maine force homesellers to tell all, but 20 other states are considering doing so. The disclosure drive was launched last June by the National Association of Realtors because buyers who sue often include the seller's real estate agent in the complaint. The NAR noted that "with growing frequency, and with severe penalties resulting in some cases, disgruntled home purchasers are asserting claims against sellers and brokers involving allegations of misrepresentation, negligence, or fraud." Two-thirds of lawsuits against realtors allege misrepresentation or undisclosed defects. Disclosure laws place legal liability more squarely on the shoulders of the seller, the NAR says. That reduces the possibility of lawsuits against brokers, or at least the time and cost of defending against such a suit, the association says. However, NAR president Harley Rouda emphasizes that the campaign is intended to help consumers, not the association's 775,000 members. Getting defects out into the open before the sale gives the purchaser the chance to back out or to negotiate with the seller. That circumvents a lot of lawsuits, he says. Mr. Rouda owns HER Inc. Realtors, Cleveland's largest real estate agency. Several years ago he adopted a policy of refusing to list a property unless the sellers agreed to fill out a property defect disclosure form. Only three out of 5,200 sellers sought another realtor. One seller reported on the disclosure form that he had occasional trouble with his air conditioning system's compressor. After he and the prospective buyer agreed to a lower price for the house, the sale was completed. A year later, when the compressor failed, the buyer wanted compensation. He had "conveniently forgotten" that the defect had been addressed in the purchase agreement, Rouda says, but when reminded dropped the idea of suing. The disclosure trend began on a hillside in the San Francisco Bay area, down which a recently sold home slid in 1984. A court ruled that the seller should have spoken up about the property's soil problems, and what's more, that his real estate agent should also have known and therefore was jointly liable. When the seller declared bankruptcy, the agency was stuck with the whole tab. California passed a seller disclosure bill the next year. The law also required realtors to conduct "a reasonably competent and diligent visual inspection" and pass on to buyers all material facts affecting the value and desirability of the home. The agent's responsibility was weakened in a subsequent law sponsored by the California Association of Realtors, says Larry Hoyt, president of the American Society of Home Inspectors (ASHI). The realtors wanted the standard of care to be set as low as possible, Mr. Hoyt says. So the later law defined it as what a reasonably prudent licensee would do. That means someone with the knowledge a rookie real estate agent has, he says. Home inspectors say that realtors typically had viewed them as troublemakers who might ruin a sale. That attitude is changing now because a home inspector's report can help insulate realtors from liability over defects. Rouda advocates seller's disclosure, followed by a home inspection paid for by the potential buyer, and a one-year warranty available for purchase in most of the country. Sellers themselves should get an inspection when they list their homes, recommends Tom Carroll, president of AmeriSpec Inc., a nationwide home inspection chain. That way they can remedy any problems before buyers ever ring the doorbell. "There are no perfect houses," he says. Mr. Carroll offers a program called AmeriSpec Seller's Assistance Plan, or ASAP. It includes a list of appeal-boosting fix-ups to make based on the inspector's report and yard sign that says the home was professionally examined. That, he says, might be an edge in selling in tough times.