About this time last year would-be home buyers were scrambling to close a deal on a suitable property. Amidst bidding wars, many purchasers didn’t insist on a home inspection or any other condition that could result in an offer being refused. Today, with a record number of new listings on the market and sales slowing down somewhat, the housing market seems to be returning to a more balanced state. As the purchase of a home is likely the single largest purchase many of us will ever make, buyers may want to do everything they can to ensure that the decision is well-informed.
Purchasers or their agents often ask sellers to complete a form detailing their knowledge about the condition of the subject property. These statements are referred to as property condition disclosure statements. They typically include questions about known structural defects, flooding problems, plumbing or electrical issues, pests, rodents and so on. While there is no legal requirement for such forms, when used they sometimes even form part of the purchase agreement.
It is important for buyers to understand that while property disclosure statements can provide useful information, they have their limitations. First and foremost, many parts of the disclosure statement deal only with the seller’s knowledge of the condition of the home and whether they are aware of any problems. Second, the forms sometimes ask the seller to answer questions on matters they may have very little knowledge or understanding of, such as conformance with local bylaws or building codes.
On the other hand, it is important for sellers to realize that buyers are entitled to rely on answers that the seller provides under a property disclosure statement absent any conflicting evidence. Sellers will want to carefully answer the questions to the best of their ability and may want to provide more information than the “check box” style answers allow for. False or misleading statements could later be used against them.
If a dispute arises over the condition of the property and the matter ends up in court, the court will try to determine whether the disclosure statement accurately reflects the condition of the property and the seller’s knowledge of the conditions and problems. If a seller does not disclose knowledge they actually have about problems asked about, the court can consider them to have misrepresented the facts to the buyer and may order them to pay damages to the buyer.
However, courts have found that even when disclosure statements form part of the sale agreement, the answers to the standard questions do not necessarily amount to a warranty about the condition of an item or a representation that there are no problems other than those asked about. The main purpose for these disclosure statements is to give the buyer notice of problems that are known to the seller so that the buyer can then make whatever inquiries are necessary to make an informed decision.
If a buyer becomes aware of a problem or potential problem, they can choose to walk away from the deal before it becomes final. Alternatively, they may choose to request further information about the issue or arrange for an independent inspection of the property by a trained professional. They may decide to make a lower offer on the property that takes the defect into consideration or they may just decide to make the purchase as planned, in spite of the problem.
In one Saskatchewan case, the buyers of a home asked the court for damages from the seller to cover repair costs after leaks were discovered in the basement of their newly purchased home. The sellers had indicated in a property disclosure statement that they were not aware of any water problems or leaks. In addition to the property disclosure statement, the buyers had also gone ahead and arranged for an independent inspection of the home. That inspection had, in fact, raised some concerns about drainage issues and the potential for water damage. In spite of this, the buyers decided to rely on the disclosure statement which indicated that the sellers were not aware of any water problems. The court was not convinced that the sellers knew about the water problems and therefore refused to award damages.
The bottom line with regard to home purchases, as with other purchases, is “buyer beware” Consider having an independent inspection. Make all necessary inquiries. If, however, there have been active steps by the seller to conceal problems which would otherwise be obvious or if the seller misleads a buyer about known issues, they may be liable for damages to the buyer.
This article is intended to be general information only. People who need specific advice should see a lawyer or other professional.
Mike Botterill
Associate Broker with InfoMarket Group GMAC Real Estate
www.mikebotterill.ca
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