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Broker Group Urges Seller-Disclosure Rule

WASHINGTON - If the head of the country's largest group of real-estate brokers has his way, home sellers in every state will be required to disclose all defects they know about their property in advance of the sale.

Harley E. Rouda, 1991 president of the National Association of Realtors, is leading what one industry expert called a ``personal'' lobbying campaign to encourage passage of state laws requiring seller disclosures. Although the 800,000-member realtor association has not adopted Rouda's plan as its own policy to date, it may do so later this year.

Currently only two states - California and Maine - have mandatory seller disclosure rules. But legislative efforts are actively under way in 30 states to adopt similar requirements.

Behind the big push for mandatory disclosures are two key rationales, according to Rouda: For protection of the home buyer, he says, ``no one has more intimate knowledge of the product than the seller.'' Equally important in his view, standardized disclosures place legal liability for alleged misrepresentations about the condition of the property more squarely on the seller's shoulders. That, in turn, tends to cut down on one of the fastest-growing legal headaches in the realty brokerage business: Costly liability suits by purchasers against brokers charging they either knew of, or should have known about, defects in the home.

Two-thirds of all lawsuits against real-estate agents or brokers in the United States allege misrepresentation or failure to disclose defects, according to Laurene Janik, general counsel of the National Association of Realtors. Very often, she said, ``the broker is the only party (to the transaction) left in town. The sellers are long gone and may live out of state. So the buyer who discovers the roof has leaks and the basement floods turns around and sues the broker.''

Janik conceded that one source of opposition to mandatory disclosures are her fellow lawyers in private practice. By having to reveal defects that the purchasers might not otherwise have noticed or blamed on them, said Janik, some lawyers feel their clients surrender ``part of their rights'' and take on ``additional liability'' through the disclosure system.

Among questions asked by California's disclosure statement are these - ``Are you aware of'' any:

-- Environmental hazards including but not limited to formaldehyde, radon, asbestos, lead-based paint, contaminated soil or water on the property?

-- Structural additions, repairs or changes to the property made by previous owners - or yourself - that were or are not in compliance with building codes, or were made without the correct permits?

-- Neighborhood noise problems or ``other nuisances'' in the area, homeowner or condo association liabilities that may be pending, or any lawsuits against the seller that could affect the property?

-- Zoning violations, nonconforming uses, or any violations of local subdivision ``setback'' requirements?

These and other questions are in addition to requests for disclosures of any ``significant defects or malfunctions'' in the property's interior walls, ceilings, floors, insulation,roof, windows, doors, foundation slabs, driveways, electrical systems, plumbing or septic systems, and ``other structural components.''

The California disclosure form makes it clear that all the information contained in the two legal-page disclosure document are ``representations made by sellers . . . not the agents.'' Rouda and other proponents of such mandatory disclosures readily concede that sellers worried about complying with the law may end up disclosing problems that even professional inspectors would fail to detect.

But John P. Moravek, senior vice president and general counsel of Century-21 International, argues, ``Over-disclosure never hurts. . . . Sure it may kill a deal or two, but it's basically in the consumer's interests.''

Although seller disclosures are not required under state law, Rouda's firm, HER Inc., of Columbus, Ohio, has begun refusing to take listings on houses whose owners decline to fill out a property disclosure form. Since making that change last August, according to Rouda, the firm has ``not lost one listing'' because the seller balked at the requirement.

Rouda has even turned mandatory disclosures into a sales tool. ``We point out (to sellers) that it gives them a market advantage over the competition. Buyers know that you've had to make fairly detailed disclosures about the house,'' and have pledged that you're telling everything.

They also know that if there are intentional omissions or misstatements on the form, judges and juries are likely to come down extra hard on the seller, and provide sizable monetary awards to the buyer.

The upshot of the coming national campaign for mandatory disclosures? At least when it comes to purchasing a home, say Rouda and other advocates, ``caveat emptor'' (buyer beware) can no longer be good enough. The new standard of consumer protection in real estate: Read all about it.

(Copyright 1991, Washington Post Writers Group)

Kenneth Harney's column appears Sundays in the Home/Real Estate section of The Times.