Until 1985, caveat emptor ("let the buyer beware") was the standard practice for Florida residential real estate sales. Sellers had no stated obligation to tell potential buyers about any problems or defects a seller may have known, were not readily observable when viewing the property in person, yet could have affected its value (and how much a buyer wanted to offer for it).
It was the buyer's own responsibility to look for and find any existing issues/flaws/defects that may affect a house or condominium's market value. Condition issues influence buyers' decisions on whether to proceed with the purchase, offer less than asking price, or bail out within the contract's Due Diligence period and get their deposits back.
Hidden, undiscovered (through normal observation or inspection), and undisclosed property condition problems or flaws existing at the time of purchase are called "latent defects" by real estate attorneys. Latent defects may or may not be known by sellers when offering their properties for sale.
Then came Johnson v. Davis, a 1985 Florida Supreme Court case in which homebuyers Mr & Mrs Davis brought a lawsuit against sellers Mr & Mrs Johnson for (allegedly) not telling them about an existing roof leak. The court ruled in favor of the Davises after evidence suggested the Johnsons were aware of the leak yet said that there were no problems with the roof when asked. Speak with a Florida-licensed attorney for detailed discussion and application of this landmark court case.
The decision resulted in a significant departure from the previous "buyer beware" environment and the start of a State-wide obligation for sellers of residential real estate to disclose any known latent defects that could affect the property's value.
The court's written opinion included the statement:
“Accordingly, we hold that where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer. This duty is equally applicable to all forms of real property, new and used.”
The same duty to disclose obligation also extends to real estate licensees who are involved with the transaction.
Today, the Johnson v. Davis ruling continues to affect and influence residential real estate transactions throughout Florida by attempting to discourage misrepresentation and reduce misunderstanding regarding property condition between sellers and buyers. The court's decision resulted in specific language being included in Florida residential real estate sales contracts, and eventually brought about the widespread use of written Sellers Disclosures.
As a direct result of this often-referenced court case, residential sales contracts used in Florida contain some version of language such as "Seller knows of no facts materially affecting the value of the Real Property which are not readily observable and which have not been disclosed to Buyer."
However, the Johnson v. Davis decision by itself did not require the use of separate written Sellers Disclosures in Florida. Discussion and practical application of the legal concepts presented in the court's ruling eventually led to the use of disclosure forms as tools to help ease some of the "buyer beware" exposure, and make it easier for sellers to voluntarily describe property condition as accurately and completely as possible.
VERY important - latent defects are NOT the same as Defective Inspection Items as defined in the purchase contract. Some earlier articles on this site discuss seller and buyer handling of Defective Inspection Items revealed in a Home Inspection.
Now that we have a little background, let's discuss how Sellers Disclosures work in residential real estate transactions. They are usually completed before owners put their house or condominium on the market, often part of signing a Listing Agreement with a licensed real estate Broker.
It is important to note that Sellers Disclosures still do not have to be in writing, though having a written, signed Sellers Disclosure contributes greatly to buyer comfort and confidence to proceed with submitting an offer.
Many Florida real estate companies, offices, and organizations have pre-printed blank Sellers Disclosure forms for sellers to fill in when putting their properties on the market.
Categories on a Sellers Disclosure form can include:
Structural - roof, walls, foundation
Appliances, HVAC, other mechanical equipment
Roof - leaks, age, recent repairs
Electrical supply and wiring
Plumbing, municipal water and sewer, private well and septic system
Windows and doors
Termites, pests, Wood-Destroying Organisms
Water intrusion, previous flooding
Mold
Pool, hot tub, spa
Automatic irrigation systems
Radon, defective drywall, lead-based paint
Environmental hazards / toxic substances
Municipal code violations, open building permits
Insurance claims
Going through the checklist format, sellers are prompted to consider most aspects and systems of the property, helping reduce the possibility of missing any known issues or defects. When filled in honestly and accurately, the buyer gets a good snapshot of current property condition as known and represented by the seller.
A Sellers Disclosure is NOT a replacement for a thorough Home Inspection performed by a Florida-licensed Home Inspector. Always have a Home Inspection performed when buying a house or condo.
Sellers Disclosure forms include checkboxes for Yes, No, and Don't Know responses to each of the questions in the various categories, and lines for details like age of various items, specific comments, property address, and seller signatures.
Best practices suggest that sellers fill in the form by hand (not digitally) and physically sign it with a pen (not a digital "click-sign") in order to give potential buyers greater assurance of accuracy and good faith in revealing known property condition. Real estate licensees should NEVER fill in a Sellers Disclosure form.
If you would like a PDF version of one of the most widely-used Sellers Disclosure forms in Florida, send me an email. I'll be happy to send you a copy to look over and keep in your own files.
Keep in mind that even with an As-Is contract, the obligation to disclose known latent defects remains. Using an As-Is sales contract does not relieve a seller from the obligation to disclose known yet unseen, hidden problems that could affect the property's value as perceived by a buyer.
Sellers Disclosures are even more critical with As-Is contracts in my opinion. When submitting an offer on an As-Is contract, I suggest that buyers request a written, signed Sellers Disclosure if one has not been made available. See earlier articles on Inspection and Due Diligence periods.
In my opinion, leaving the discovery of property condition solely up to buyers by not providing a separate Sellers Disclosure is a very poor business practice. When you are selling something, you want any prospective buyers to be comfortable enough to seriously consider giving you an offer.
Here are a few discussion points to keep in mind:
Sellers must disclose latent defects because the Johnson v. Davis court decision (case law) established the duty to do so, and Florida residential sales contracts include language acknowledging this obligation.
Latent defects are NOT the same as Defective Inspection Items as defined in the contract. A condition issue mentioned in a Sellers Disclosure may or may not be a Defective Inspection Item. Seller responsibility to address an item's condition also depends on the contract being used.
A condition concern documented in a Sellers Disclosure cannot be a latent defect because it is then known to potential buyers.
Blank Sellers Disclosure forms are available to sellers, though in Florida there is NO requirement to use them. As mentioned above, they include the seller's observation of condition for a broad range of a property's physical components.
Written Sellers Disclosures are one of the best methods available for helping buyers feel comfortable enough with going forward and submitting an offer, then having Home Inspections performed after their offers are accepted.
Navigating and negotiating property condition issues within the context of a real estate sales contract can be very involved. Have a Florida-licensed real estate attorney ready to advise you of your rights and responsibilities with respect to any purchase or sale.
Feel free to forward this article to anyone you'd like, and be sure to check out the All Posts page for more articles on how real estate really works in Florida.
Until next time -
Christopher Carter
Real Estate Broker Associate
Licensed Community Association Manager
Mortgage Financing Advisor NMLS 861361
(239) 898-5455 direct
Waterfront Realty Group, Inc. - Naples, FL 34103
I am NOT an attorney. For interpretation and application to specific circumstances of anything you read on my site, you must speak with a Florida-licensed attorney.
NO Artificial Intelligence software is used to produce any of my articles. All content is original.
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