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Caveat emptor in real estate disclosure law

When a potential buyer puts an offer on a property, the period of due diligence begins. During this short period, which is 17 days in California, a physical inspection is ordered to assess the many potential issues such as the structural integrity of the building, the condition of the plumbing and electrical systems, and the general condition of both the interior and exterior of the property.

For investors, agents and developers who deal with multiple properties, however, there are additional concerns that can get overlooked if the owners do not fully disclose construction defects, boundary issues, drainage problems and other concerns. This lack of disclosure makes buyers, real estate brokers and agents liable.

California’s real estate disclosure law

Under California law, the seller is required to provide the buyer with a transfer disclosure statement, or TDS, which must provide full disclosure of anything of note about the property. Some of these issues may include:

  • foundation cracks,
  • faulty framing or door and window issues
  • bowing or slanting of floors and walls
  • drainage, plumbing or electrical issues,
  • mold or odors,
  • leaky roofs or windows,
  • knowledge of sex offenders living in the neighborhood,
  • a death on the property.

The seller can only be held liable if the buyer took a specific action or actions to inspect the property before purchase.

While these disclosures, which are required under Civil Code § 2079, place a heavy burden on the seller to provide comprehensive information about defects on a property, the buyer also has responsibilities when they enter into a real estate transaction. Under Civil Code § 2079.5, a prospective buyer has a duty to exercise reasonable care in gathering facts that are known or can be known.

Disclosure requirements for realtors and brokers

Real estate agents must also report any defects or hazards on the property if they know about them. Sometimes, defects do not appear until after the sale, and the buyer can still sue for compensation. Both the agent and the owner can also be held liable if defects are discovered that were not found in an inspection. When this happens, it is important to have skilled legal counsel serving San Francisco and surrounding areas that can build an effective defense against constructive defense claims.