Sometimes the completion of a Real Estate Condition Report (RECR) can be a stressful time for sellers. Sellers ask questions like “What should I disclose?”; “I don’t understand what this is asking, can you help?”; “How do I word my statement disclosing X?”; “What happens if I don’t disclose?”; or “Can you fill this out for me?”
This series of questions or similar often place agents in a precarious position because agents cannot really answer much of what the seller is asking. This article discusses future changes to the statute relating to the disclosure by owners of real estate relating to their property and how the form can more readily empower the owner to answer the questions as opposed to peppering their agent with a series of questions about how to complete the form.
The law is called "disclosures by owners of real estate"
The statute is not called “disclosures by owners of real estate with the assistance of their agent.” The RECR is to be completed by the seller, not the seller’s real estate agent. Sellers disclose defects relating to the property.
Generally sellers of one-to-four dwellings or vacant land are required to complete a RECR or VLDR. Therefore, when sellers accurately complete a RECR, they disclose to prospective buyers information about defects in the property.
However, Wis. Stat. Chap. 709 does not apply to:
- Personal representatives, trustees, conservators and other fiduciaries appointed by or subject to supervision by the court, but only if those persons have never occupied the property. This exception does not include powers of attorney.
- Real estate that has not been inhabited, such as new construction.
- Transfers exempt from the real estate transfer fee, such as between spouses, foreclosures or probate transfers. This exception does not include REO sales of foreclosed properties.
Real estate licensees have their own disclosure obligations
Real estate licensees disclose material adverse facts. If a seller fails to disclose a defect and it is not disclosed elsewhere, the licensee must promptly disclose the defect to all parties, in writing, if it constitutes a material adverse fact.
To assist in making these disclosures, the WRA created the Disclosure of Material Adverse Fact (WRA-DMAF) disclosure letter, which is available in zipForm.
What if the seller asks me questions about how to complete the report?
You can redirect the seller’s attention to the top of the report that reminds the seller what “am aware” and “defect” mean. Remind sellers that if information they know about the property falls into those definitions, then they should respond accordingly. You should not provide the seller any further guidance. The seller should consult with legal counsel about the completion or amendment of the RECR.
But the report is confusing to the seller
We are hoping to fix that. One of the WRA’s legislative priorities is to reorganize/reformat and possibly add new disclosures to the RECR and the Vacant Land Disclosure Report (VLDR). While the specifics of the statutory changes have not been finalized as of the publication date, conceptually the overall disclosures will remain the same but will receive a facelift.
The goal is to create a more user-friendly form that:
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Categorizes and organizes the form so disclosures of a similar nature are near each other: The environmental information — such as mold, radon and radium — will all be together and break apart sections of the form that have randomly been pooled together, such as item 26 in the current form that includes subdivision homeowners associations, common areas co-owned with others, zoning violations or nonconforming uses, rights of way, and easements or another use of the property by nonowners.
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Provides sellers a better understanding of what question is being asked of them: The form would include examples of the type of items that may prompt a disclosure, such as disclosing defects in part of the plumbing report, like excessive or insufficient water pressure. The WRA’s three-page RECR was the inspiration for some of the suggested inclusions.
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Includes new disclosures: Like most things, as soon as a form is updated, market changes or law modifications could easily warrant a change to the form. Therefore, in addition to organizing and reformatting, the revised RECR will likely receive new disclosures — such as whether there are rented items located on the property like a water softener, water quality issues, manufacturing of meth on the property, use value assessments, enrollment or violation of a farmland preservation agreement, burial sites or insurance claims.
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Creates a better opportunity for sellers to complete the form by themselves without requesting help from an agent: Real estate licensees may not give sellers legal advice about the completion of the RECR; such questions should be referred to private legal counsel. Answering a question as to whether the item is or is not a defect could be construed as legal advice, therefore real estate licensees should defer their party to an attorney.
If you have any comments or suggestions about the RECR or VLDR, contact Cori Lamont at coril@wra.org.
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Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.