Expert: Russel Ray - 8/8/2008

Question
Hi Russel,
Before we put our house on the market, we hired an inspector to inspect the house. He found minor termite problems. I hired a professional to treat the termite problems and there is 5 years warranty on that. Now we put our house on the market for sale. I have a few questions that I hope you can help me with.

1) Is it required by law that I have to disclose the termite problem to the buyer?
2) Now the termite problem is fixed, do I need to transfer the warranty to the buyer as well?
3) What happens if I do not disclose the information to the buyer since it is a small damage and already fixed?
4) If I do not want to list our house as a "Red Flag" house, what is the period of time without termites do I have to wait before I can sell the house without disclosing the termite problem information?

I thank you for your time.

Heidy

Answer
Hey, Heidy.

The answers to your questions are going to be different for different states. Here in California, I would recommend always disclosing anything that can possibly be remembered. It's just safer that way. Remember that disclosures usually occur after there is a purchase offer on the table, so once that earnest money is in escrow, and the buyers are emotionally committed, termite problems that were fixed and have a five-year warranty shouldn't pose any problem whatsoever. So I would highly recommend scratching #3 from your list.

Look at it this way: If you don't disclose it, then you could be sued for misrepsentation if there is a problem. If you do disclose it, and there's a problem, the termite company takes on the problem with their warranty, leaving you free and clear.

I can't imagine your situation being a "red flag" house unless you or your Realtor were to put all the problems, past and present, in the MLS listing or on Realtor.com. Then it's a different story, but I certainly wouldn't recommend doing that. Get a good Realtor who understands marketing.

Here in California, and many other states with significant disclosure requirements, there is no time frame other than the time frame for when you owned the property and what the previous seller might have disclosed to you.

I have a good Realtor friend here who represented both sides of the transaction. After close of escrow, the buyers removed the popcorn ceiling and found water damage. This was in a condo. They asked the Realtor to ask the seller, who had been there for 17 years, about the water damage. The seller finally admitted that there had been a leak from the upstairs condo 10 or 11 years ago. The Buyers sued for $6,000 in repairs to the ceiling. Although they lost because $6,000 was exorbitant (they were trying to get the Seller to pay for removal of all the popcorn throughout the unit rather than just the water damage; the judge didn't like that), it still resulted in a lawsuit from lack of disclosure, and the Realtor was in a difficult position since he represented both sides. He had worked hard to get the Seller to remember everything that could ever have been wrong, but the leak here was so small that the Seller had forgotten about it. And after looking at the damage myself, the water damage could be replaced with one $20 sheet of drywall.

So my recommendation is disclose, disclose, disclose, but not until you're in escrow.