Disclosure statements arrived with litigious society
Question: I was a Realtor nearly 25 years ago, before having children. With my kids now grown, I’ve gone back to work but can’t believe how much things have changed. Before, no one ever talked about disclosure, and home inspectors were unheard of. Now I can’t spend five minutes in the office without someone mentioning home inspection reports and disclosure forms. How did all this change happen?
Answer: Disclosure marks the historical turning point in American real estate. To get the full picture, let’s step back a few generations. In the early 1900s, the main concerns among home buyers were stable foundations and watertight roofs. Litigation was the last thought on anyone’s mind, and most people were thankful to have indoor plumbing.
In the ensuing decades, home buying changed dramatically, from a simple, casual exchange to a complicated, legal process; from a personal handshake to an intricate complex of fine print signed in triplicate, witnessed by notaries, reviewed by attorneys, evaluated by appraisers, overseen by escrow officers, underwritten by title insurance companies and dominated by disclosure requirements.
Most of this change is fairly recent. By the mid-1960s, the purchase price of a home was barely more than two years income for one working person, mortgage interest rates were about 5%, and buyers were unconcerned about routine defects. The American Dream was affordable, and people accepted flaws as part of the package.
Then came the 1970s: Societal changes affected all aspects of business and finance. Home prices escalated to previously unimagined levels.
With the expanded financial commitment of enormous down payments and burdensome monthly installments, people were less willing to accept homes in “as is” condition. Properties were expected to be in good repair, and buyers were less forgiving of undisclosed defects.
In response to these changes, contractors offered a new kind of service: property inspections for home buyers. These early home inspections were basic overviews, concerned primarily with major structural and mechanical defects. Most people remained unaware of such services, and the quality of these new inspections was rudimentary at best.
As home inspections slowly became popular, growth brought an increased demand for ever more detailed inspections. When buyers were not satisfied, inspectors learned that faulty reporting spelled legal trouble. With the onset of claims and lawsuits, the exactitude of inspections intensified.
As these transformations were occurring in the marketplace, government agencies and legislatures were riding the wave of change. By the late 1980s, many states were enacting seller disclosure laws, signaling the end of the “buyer beware” era. Previously, sellers could make cosmetic changes to a defective home, declare that everything was perfect and walk away free of consequence.
New disclosure requirements altered that picture, providing penalties for sellers who failed to reveal known problems and setting new standards for agents and brokers. The problem with these requirements was that sellers and agents were often unaware of latent defects.
As the demand for disclosure increased on all fronts, home inspections became more important. The first generation of inspectors, in the 1970s, foresaw the need for meaningful standards to regulate their evolving trade. Across the country, they formed national and state associations, such as the American Society of Home Inspectors and the California Real Estate Inspection Assn.
Without state licensing, self-regulation helped elevate inspectorship. Formal standards of practice were drafted. Ongoing education became mandatory for member inspectors.
In the span of 25 years, the real estate transaction process has been totally transformed. Fear of litigation dominates the marketplace, and active disclosure has been recognized as the best defense.
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If you have questions or comments, contact Barry Stone through his Web site at www.housedetective.com. Distributed by Access Media Group.
