Duties to Disclose
Caveat emptor – “buyer beware” no longer applies in Arizona. It is now basic Arizona law that a seller has an affirmative duty to disclose material facts concerning property or where, among other things, disclosure would correct a mistake of the other party as to a basic assumption on which that party is making the contract. Information is material if it would be likely to affect the conduct of a reasonable party with reference to the transaction in question. Thus, the seller is generally obligated to disclose material latent (not obvious) defects in the property, among other things, depending on the property and nature of the transaction.
The Arizona Association of Realtors form purchase contract and related documents conform to these standards. Under the form purchase contract, the seller typically specifically warrants that he/she has “disclosed to Buyer and Broker(s) all material latent defects and any information concerning the Premises known to the Seller, excluding opinions of value, which materially and adversely affect the consideration to be paid by Buyer.” Also, in the Seller’s Property Disclosure Statement (“SPDS”), a form also generally used, the seller is asked “What other material (important) information are you aware of concerning the Property that might affect the buyer’s decision-making process, the value of the Property or its use?”
The duty to disclose material information does not only apply to the seller. The main consideration (value) going from the buyer to the seller is the buyer’s agreement to pay the purchase price. Thus, if the buyer enters a purchase contract knowing that he may not be able to pay the purchase price, the buyer may have the duty to disclose that information to the seller.
In turn, real estate agents generally have duties to disclose that derive from the buyer’s and seller’s duties, as well as regulations adopted by the Arizona Department of Real Estate.
Berk & Moskowitz, P.C. has handled numerous claims for misrepresentation or omission against sellers, real estate agents, pest control companies, home inspection companies and others.
For example, in Sawko v. Jackson Properties, Berk & Moskowitz, P.C. filed suit against the seller/developer because, among other things, its agents falsely represented that a nearby dairy was being closed. The Court found the seller liable for misrepresentation and consumer fraud, ordered full rescission (reimbursement of the purchase price and other expenses), $15,000 of damages for emotional distress and attorneys’ fees.
In another case, Bergmayr v. Century 21, the firm filed suit against the sellers and their agent for failing to disclose that the property was used to breed and kennel large numbers of dogs. The problem was discovered when the buyer’s daughter and grandson suffered severe allergic reactions to the home. The Court found the real estate agent 95% at fault and the seller 5% at fault, and ordered the payment of $60,000, representing the difference between the purchase price and the value of the property at the time of close of escrow, plus attorneys’ fees.