Not long ago the Latin term “caveat emptor” or “buyer beware” was the rule of practice that real estate buyers faced. Issues relating to the condition of the property, hazardous materials present in the property, encroachments, easements, and many other topics were solely the responsibility of the buyer to determine. Sellers and their agents were not obligated to tell or disclose what they knew about such matters.
But in 1984, the case of Easton v. Strassburger helped change the principle of “caveat emptor” in real estate. Resulting from this case, sellers and agents were now required to disclose what they knew of the property they were selling. Also contributing to this movement to support buyers’ rights was that buyer representation by their own agent came into force during this period.
Real estate was not the only perpetuator of “caveat emptor.” Just look at how advertising for pharmaceuticals has changed during the last few decades. Side effects and polypharmacy conditions now must be presented in television commercials. There has been a growing movement in our culture to protect and make buyers more informed.
Easton v. Strassburger was a landmark California real estate court case. Easton purchased a large home on a sizable multi acre property located on a hillside. The listing agent and seller were aware of a history of land movement, corrective action to limit the soil shifting, and presence of fill soil. Initially these facts were not disclosed. The buyer sued and in spite of the practice of buyer beware, Easton was awarded nearly $200,000 by the court. But more importantly, the landscape of disclosure responsibilities for sellers and real estate agents was redefined.
Consequently, this case not only led to both buyer and seller agents having to disclose what they knew concerning a property, but also what they should have known. Real estate agents assumed the responsibility of having to disclose facts that reasonable due diligence would have disclosed.
Easton v. Strassburger led to a series of new disclosure forms being required in California. Forms such as the Transfer Disclosure Statement (TDS), Agent Visual Inspection Disclosure (AVID), were enacted through court action and state legislation. Resulting from this case and its new perspective, more disclosure forms over the subsequent decades to inform buyers would be added.
The California General Assembly established the Transfer Disclosure Statement (TDS) in 1985 to require sellers of residential real estate to provide buyers with a completed TDS during the contract contingency period. California created one of the strongest disclosure laws in the country. The mandatory Transfer Disclosure Statement (TDS) requires residential real estate sellers to make thorough and detailed disclosures before a sale is finalized. Among other things, a seller is required to disclose the following: any malfunctions or defects on the property; the presence of chemicals on the property; common neighborhood disturbances, including traffic issues; the existence of easements or encroachments; flooding issues, drainage problems, and other environmental impacts; and any outstanding legal claims against the property.
Many states soon followed California’s new law and now in all U.S. states, residential property sellers are required to make certain disclosures to buyers.
Another form, the Agent Visual Inspection Disclosure (AVID), was created to require both seller and buyer agents to conduct a reasonable and competent visual inspection of the property. It is used in conjunction with the Real Estate Transfer Disclosure Statement (TDS) in California. The AVID is not a replacement for the TDS, but rather a form that can be used to supplement the TDS.
Additional disclosure forms to inform and protect buyers have been added following the TDS and AVID. Some of these forms are the Natural Hazard Disclosure (NHD) Statement, Lead-based Paint Disclosure, Seller Property Questionnaire (SPQ), Mello-Roos Bonds and Taxes, Smoke Detector Compliance Statement, and Foreign Investment in Real Property Tax Act (FIRPTA) Statement. Home inspection and pest control reports are not required, but generally are performed to compliment these other disclosures.
Buyers of real estate no longer face “caveat emptor” or “buyer beware” due to court decisions and legislation. And with this, buyers can make more reasoned and informed decisions concerning their real estate purchases.
Gary Frueholz is a realtor with Engel & Volkers Real Estate, a past member of the Alhambra Planning Commission, a Certified Senior Real Estate Specialist, Certified International Property Specialist, and can be reached at 626-318-9436.
