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May 28, 2009
Hatteras Island Real Estate: Property disclosures
BY TOM HRANICKA Buyers rightfully want to know as much as they can about the home or lot that they have selected for purchase. Fortunately, a broad tapestry of professional resources, as well as legal and regulatory protections, is in place to foster the achievement of the goal of full disclosure. In this article, I would like to share with you the very interesting and sometimes complex topic of property disclosures. The subtitle for the discussion could easily be -- “What your real estate broker should, can, and cannot tell you about the properties you are considering!” Central to the discussion of property disclosures is the concept of “material facts.” A definition of this term is easier said than done. One explanation that was offered in this year’s educational update course for real estate brokers is that a material fact may be “any fact that is important or relevant to the issue at hand.” Another description states that a material fact is “any fact that would affect the decision of a reasonable and prudent person whether or not to purchase a property.” My favorite explanation is both simple and broad in scope – a material fact is anything that a buyer might reasonably want to know about a property he or she is purchasing. To provide further clarity to the term, the North Carolina Real Estate Commission has indicated that it considers material facts to include the following types of information. Regardless of whom a real estate broker represents in a transaction, the following categories are considered to be material facts that must be disclosed to all parties with whom the agent deals if the agent is aware of such facts or should reasonably be aware of them.
With these comments as background, let’s take a look into some of the practical applications of material facts. What Real Estate Agents Cannot Tell You Perhaps the easiest type of information to identify and to explain is what real estate agents cannot discuss or disclose about a property. Based on interpretations of fair housing laws and actions taken by real estate licensing authorities and state legislatures around the country, real estate brokers are prohibited by law from answering any questions about a property related to race, color, religion, sex, national origin, handicap, or familial status. Just about everyone is aware of the legal safeguards against discrimination that are afforded to these “protected classes.” What Real Estate Agents Can & Should Tell You By far, the vast majority of facts about a property should be readily available to prospective buyers from their real estate agent and the seller. To foster disclosure, a North Carolina General Statute created the Residential Property Disclosure Statement that, with some exceptions, must be given by sellers to buyers. This form creates a checklist of 21 specific issues related to the property. The topics range from the structural components of the house to zoning, environmental issues, homeowners’ associations, and flood hazards. The law gives sellers three choices regarding each of the listed items. They can check “yes” they have had a problem and provide an explanation. They can check “no” indicating that they have not experienced any problems. Or, they can check “no representations.” This last option, which many sellers choose, is, in effect, like saying, “no comment.” It places the burden of investigation on the buyer, which is another way of saying that the buyer should retain the services of a licensed home inspector to evaluate the cottage. It is worth noting that regardless of the option that the seller checks, if the real estate agent has information or knowledge about a defect or condition related to any of the items, the agent is duty bound to disclose that information to the buyer or to the buyer’s agent. At this point, we need to spend a minute or two identifying a few material facts that are somewhat unique to Hatteras Island and about which buyers should be sure to inquire. These include such issues as erosion on both the oceanside and the soundside; the flooding potential/flooding history of the property; the potential development of nearby unimproved parcels of land; the existence of some locations on the island where federal flood insurance is not available; whether a cottage has a septic system with sufficient capacity for the number of persons to which the home is being rented; special zoning districts that place restrictions on some forms of development; condominium pet policies; the terms of the existing property management agreement when a cottage is in a rental program; and the presence of improvements or additions to the property for which no building permits were obtained. What Real Estate Agents Can Tell You If You Ask Next, we come to an area of disclosure that does not always make everyone happy. The generic name for properties associated with this category of facts is the ominous sounding term “stigmatized properties.” This is the real estate world’s version of the military’s “don’t ask, don’t tell” policy. The North Carolina General Assembly has enacted legislation stating that the death or serious illness of a former occupant is not a material fact. Some conditions associated with a property that are not considered to be material facts are the presence of gravesites on the property, a murder or suicide in the home, and the allegation that a house is haunted. A real hot potato is the legislation that ruled that the presence of a registered sex offender in a neighborhood is also not a material fact. If a buyer considers this information important, the state of North Carolina has an Internet site (http://sexoffender.ncdoj.gov/search.aspx) that identifies former sex offenders and their addresses for 10 years following the offender’s release from prison. Please be aware that it has been estimated that the statewide registry may have an error rate of about 35 percent. Since these conditions are not considered to be material facts, real estate agents are not required to voluntarily bring them to the attention of a buyer in the normal course of a transaction. On the other hand, if a buyer asks about any of these items, the real estate agent or the seller is required to answer the question truthfully to the best of their knowledge. Finally, there is a rather fluid group of conditions that may be a material fact under one set of circumstances but not another. Perhaps the best example is that a seller being behind on mortgage payments is considered confidential information and not a material fact. However, as soon as a foreclosure proceeding is filed at the county courthouse, the potential foreclosure becomes a material fact because it could be a reflection on the seller’s ability to complete the contract. It would be easy for some to conclude from our brief survey of property disclosure issues that consumers are navigating an informational minefield when they purchase real estate. I would disagree with such an assessment. I believe that entering the purchasing process with the attitude that you are going to be an educated buyer is good common sense. You are certainly not traveling this journey alone. Your real estate agent receives ongoing training about property disclosures, and if your agent is a member of the National Association of Realtors, they have sworn to conduct their business according to a stringent professional code of ethics. Your agent will usually be your primary source for information about the properties that you are considering. Once you make the decision to buy, your agent may recommend additional professionals to work for you as circumstances warrant. These typically include a licensed home inspector, a pest inspection service, and your closing attorney. Other specialists may be called in to assist you as needed. Studies conducted by the National Association of Realtors confirm that the majority of buyers are very satisfied with their purchases and with their agents. I think this is especially true on Hatteras Island where buyers are realizing their dreams of owning a home at the beach, and their real estate agents are helping to make those dreams come true in a place they call home. (Tom Hranicka is an associate broker with Outer Beaches Realty. Questions, comments, or suggestions for future articles may be sent to Tom Hranicka at P.O. Box 237, Avon, NC 27915, or e-mail to hranicka@hatterasisland.com ) Copyright©2009 Tom & Louise Hranicka. All rights reserved. |
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