What If Sellers and Their Agents Don’t Disclose Known Defects to Their Listings?

Real_Estate_Today_bylineLast week I got a call from a reader who sold a house with structural defects last year, defects he had properly disclosed. He was concerned because he thought the current seller might not be disclosing those same defects to prospective buyers.  He feared that the seller had simply covered up the defects when he finished the basement, hiding them from unsuspecting buyers.



What safeguards are in place to protect buyers from being sold a home with undisclosed defects?  The primary safeguard, of course, is basic honesty — that most sellers and agents are forthcoming, as I’ve found, when it comes to disclosing defects. Another is that the listing agent could lose his real estate license if it can be proven that he or she conspired in failing to disclose a major defect.  Unfortunately, should you purchase a property directly from a seller who is not himself a licensed agent, you don’t have that same protection.

A buyer’s recourse against an unlicensed seller for failing to disclose a defect is civil in nature. The buyer would have to sue the seller and rely on a judge or jury to decide in his favor and rule that the seller must provide compensation for their deceit.  Even if successful, though, the buyer still has to deal with the defect, which can be a hassle.  And what if they’re not successful?   Well, along with having to fund the repair of the defect themselves, they’re out whatever time and money it took to work their way through the court system.  On the other hand, it costs virtually nothing for that buyer to seek damages from a licensed agent: just go to the Colorado Real Estate Division’s website and fill out an online complaint.

My personal experience is that both sellers and their agents have been forthcoming in disclosing known property defects using the very detailed Sellers Property Disclosure form provided by the Colorado Real Estate Commission.

This January, a simplified version of the disclosure was issued, and some agents, including myself, are not entirely pleased with it.

Old_SPD_formPrior to January 1st, the Sellers Property Disclosure asked sellers to answer “Yes,” “No,” “Do Not Know” or “N/A” to each item, as shown on the disclosure at right from one of my own transactions.

The Sellers Property Disclosure that all listing agents were required to begin using on January 1, 2018 asks only whether there is (or was) a problem, but doesn’t provide an opportunity for the seller to affirm that there is no problem.  Below is the same section of the new disclosure as completed by the seller of one of my 2018 listings.

New_SPD_formWhat was nice about the previous version was that it required an answer to every item, even if that answer was “do not know” or “not applicable.” I’m not a lawyer, but it seems to me that if there were to be a civil trial over a failure to disclose a known defect, it would be more convincing to show that the seller answered incorrectly rather than simply remained silent on the issue at hand.

One reason agents are unhappy with the new form is that there will often be entire pages of the form with no checkmarks at all, raising the question of whether the seller even completed the form.

Despite this development, you can be comfortable with the fact that listing agents and their clients take seriously their responsibility of disclosing all material facts about a property. The next time someone compares real estate agents to used car salesmen, you can tell them it’s a bogus comparison. Failure to disclose a used car’s defects isn’t a crime.


Author: Golden Real Estate, Inc.

Golden Real Estate is a prominent member of the Denver/Jefferson County real estate scene. Based in Golden, we service both Denver and Jeffco, representing both buyers and sellers. We're well known for Broker Jim Smith's weekly "Real Estate Today" column published in the Denver and Jeffco editions of the Denver Post's YourHub section each Thursday. The column also appears in several weekly newspapers and is archived at www.JimSmithColumns.com. We have nine agents, all of whom are Realtors and EcoBrokers. Our office is Net Zero Energy since December 2017, and several of us drive electrics cars. Known for our sustainable practices, we accept polystyrene (aka "Styrofoam") for recycling, keeping 200 cubic yards per year out of area landfills.

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