What’s the Condition of the Property?

For years, Sellers of real estate have had to provide very little information about the property they were selling, and the mantra was “buyer beware.” That may be about to change…

The Property Condition Disclosure Act of 2002 began the requirement for the Sellers to answer a series of forty-eight (48) questions about the various areas of the home and property and their condition on a document referred to as the Property Condition Disclosure Statement (PCDS). The PCDS was to be provided to a prospective Purchaser of property at the time of signing of the contract for the purchase of the subject property. The Sellers could answer the questions on the PCDS with the following responses: Yes, No, Unknown, or N/A. If a Seller refused or chose not to provide a completed PCDS with the contract, the Act stated that the penalty was for the Seller was to provide the Purchaser with a $500.00 credit at closing for failing to provide a completed PCDS. The Act also provided a few exemptions for
parties or entities who were not required to provide a completed PCDS, with the idea that certain persons or entities may not have personal knowledge sufficient to meaningfully complete the disclosure.

In late 2023, the Property Condition Disclosure Act received a facelift. The amendment, which takes effect on March 20th, 2024, deletes the subsection which provided for a $500.00 penalty for Seller not providing a completed Property Condition Disclosure Agreement, effectively trying to make the completion of the PCDS mandatory, and adds seven (7) more questions to the PCDS, primarily
related to flood plain issues with the property and flood insurance. Again, as before, there are a limited number of exempted persons and/or entities… However, the amendment does not provide any new penalty should the Seller refuse to complete a Property Condition Disclosure Statement.

The following language remained in the amendment: “Nothing contained in this article shall be construed as limiting any existing legal cause of action or remedy at law, in statute or in equity.” However, the amendment, as in the original Act, only provides for liability for actual damages to a Purchaser from a Seller who provides a completed PCDS or fails to provide a revised PCDS. The Act, as amended, does not speak to what happens if a Seller refuses to complete and provide a Property Condition Disclosure Statement in the first place, and it is not likely that practitioners will know the answer to this question until the Courts have had an opportunity to weigh in on any litigation brought before them.

The Act also does not specifically preclude parties to a real estate contract from waiving this requirement, if agreed between the parties. Could this potentially usher in a new era of Sellers requesting a waiver from interested Purchasers of the PCDS requirement in order to get around having to provide one? We currently see a similar trend in this very competitive Seller’s market where Purchasers are waiving their right to an inspection in an effort to make their
offer stand out.

Some have offered that interested Purchasers could try to force the issue and require a completed PCDS before they would sign the contract, but in this very competitive market, it is likely that there will always be at least one interested Purchaser willing to undercut that requirement and sign a waiver. Others have offered that a Purchaser may bring an action to compel the Seller to provide a completed PCDS. However, an action to compel a completed PCDS would be costly and take time, and Purchasers may decide to rely more on an official inspection report they would order from a licensed inspector.

If the goal of the Act is to require a Seller a provide a completed PCDS at the time of contract signing, maybe a better option would be to increase the penalty credit to Purchaser rather than remove it. If, for example, Sellers were required to provide a $5,000.00 credit to Purchaser in lieu of a completed PCDS, imagine how many more PCDS’s would be completed.

As the world of real estate continues to evolve, both real estate brokers and attorneys will need to educate their clients as to the amended Act and closely watch for any new trends that emerge.

How much longer will buyers need to “beware?” Stay tuned.