Don’t Groan, This One is Important
By Kelly G. Richardson, Esq.

Who has not at least ten times been told that, when in doubt, “disclose, disclose, disclose”? This saying, while trite, conveys an important concept: When in doubt about whether or not something should be disclosed, lean toward the direction of disclosure.

As Realtors® know, sellers must disclose to buyers all facts, which, if known, would affect a buyer’s decision to buy at the price sold. Sellers are not required to disclose all facts, but only those which would affect the buyer’s decision – such facts are deemed “material”. A seller who fails to disclose such facts has committed a material misrepresentation – in other words, fraud. What is often not understood is that misrepresentation can be committed by honest people.

The statutory Transfer Disclosure Statement leaves many gaps in information. Sellers are not given any guidance in understanding what makes a fact “material”, and many disclosure issues are simply not covered by this statutory form. Perhaps as a result, too many real estate sellers accidentally omit material disclosures.

Presumably in response to this, C.A.R. issued a new three page form, called the Sellers Property Questionnaire (aka “SPQ-1”).

The Form is NOT MANDATORY, BUT… The form is not mandated by state statute. Therefore, it is technically not mandatory. However, you should regard it as mandatory because its existence makes it required by your standard of care, and the failure to recommend it could be considered negligence on your part. (You may want to read the last sentence again.) On its face, the form would appear to protect only buyers. As a Realtor® having to deal with yet another form, you may see only further risk and complication. However, it is intended to protect the real estate professional, the buyer, and even the seller. Because it benefits both parties in the transaction, the failure to inform a buyer or seller of the existence of the form may be held in a lawsuit to be negligent (i.e., a failure to meet your standard of care). Because it also benefits you, the Realtor®, your broker may look askance at you as well if you fail to recommend this form to your clients.

How does it protect…? It does so by encouraging over-disclosure, covering many broad areas of possible interest to buyers.

The BUYER: The SPQ protects the buyer by bringing to the seller’s attention items that might be inadvertently omitted from disclosure. Realtors® should tell buyers that this form is available, and recommend that the completion of the SPQ be a condition of closing escrow. Buyers need to be reminded that this form encourages over-disclosure, and that a “yes” answer to a question on the form is not necessarily a material issue – that is for buyer to decide. Buyers will inevitably ask the Realtor® what they should think about the contents of the completed form. Your answer should be that it is for the buyer to decide, and to encourage them to obtain the appropriate expert advice about any item which is of concern to them. DO NOT INTERPRET THE INFORMATION GIVEN in the form, because you may not be qualified as an expert in, for example, construction or law.

The SELLER: The SPQ helps to protect sellers from inadvertently omitting disclosures which might be material. The SPQ covers some of the common issues that can give rise to a non-disclosure claim. Realtors® should recommend sellers carefully review and complete this form at the same time they fill out the TDS. They should be told that this form helps protect them, not just the buyer, and that they should disclose anything on the SPQ that they remember. If they do not understand how to fill out the form, or they do not understand the question, DO NOT INTERPRET THE FORM. If you involve yourself in interpreting the form or helping to fill it out, you have become part of the representation process, and the seller may blame YOU for anything THEY understood incorrectly. As an alternative, you may wish to advise the client that, if they do not understand something on the form, that they simply say “no” to that question, and add a comment to that answer (“I don’t understand what is polybutylene”, for example).

The REALTOR®:
The Sellers Property Questionnaire form, if used consistently and properly, can be a help to you, the Realtor®. It is unfair, but nonetheless true, that buyers who learn of a non-disclosure usually blame both the seller and the agents in the transaction. To the extent this form helps reduce innocent non-disclosures, the real estate professionals also benefit from the decrease not only in litigation claims but in clients who feel betrayed and thoroughly dissatisfied in the transaction.

The Standard of Care- Believe It
There may still be some doubters at this point about the standard of care issue here. It can be resolved in this way. Listing agents: Do you want to stand before your client, the seller, who is being sued for a non-disclosure covered by the SPQ, and explain why you did not tell them the form was available? Selling agents: How would you explain to your client, the buyer, why you did not tell them about the SPQ, a form which might have prodded seller to disclose a material issue covered by the form? I rest my case.

In Conclusion…
All the forms and experts in the world cannot erase the fact that buying a property always includes some risk. Remind your clients of this, as well as the fact that often even the seller may not be aware of problems in the home which have not yet manifested themselves.
The SPQ is for your own good and your clients’ good as well. Is it perfect? No. Is it better than what was available before? Absolutely.

Kelly G. Richardson is the Association’s legal counsel, and can be reached at KRichardson@RH4Law.com.