With $500 credit eliminated, home sellers must disclose property flaws

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A change to New York State’s property condition disclosure law is causing some anxiety among those in the residential real estate industry. 

For the last 23 years, a home seller has been able to pay a $500 credit to a homebuyer to avoid filling out a Property Condition Disclosure Statement, a form where the home seller must list any issues with their property that they may be aware of. 

But with the amended Property Condition Disclosure Statement going into effect on March 20, the $500 credit option has been removed, requiring home sellers to fill out the form that asks about structural condition, presence of hazardous waste or materials, flooding history, condition of mechanical systems and roofs, termite or insect infestation, claims of adjoining property owners and legal of structures (certificates of occupancy), and more. 

In the past, real estate attorneys have advised their home selling clients to pay the $500 credit and skip filling out the disclosure statement to avoid any potential future liability. For more than two decades, almost all home sellers have opted to pay the credit, because if a homebuyer discovers problems with the property that were not disclosed, they have seven years to sue the seller for damages and costs incurred as a result. 

Real estate attorney Rich Klein, managing partner of Diamond Law Group, with offices in Smithtown and Massapequa Park, has been busy counseling groups of real estate brokers and agents on the changes to the disclosure law. Klein said that while home sellers might want their real estate agent to help them fill out the form, they shouldn’t get involved, because the agent’s only requirement under the law is to make the home seller aware of the seller’s obligation to complete the form. 

On Thursday, the New York State Association of Realtors issued guidelines for its brokers and sales agents on the property disclosure law changes. NYSAR recommends that agents provide a copy of the disclosure form to the seller and inform the seller to discuss filling it out with their attorney, warning that agents shouldn’t be assisting the seller in filling out the form. 

Klein, an 18-year real estate law veteran, agrees and said home sellers should enlist their attorney to consult on how to fill out the form. 

“You want to avoid future liability, and who better to navigate potential liability than an attorney,” he said. Klein added that if home sellers don’t intentionally fail to disclose problems with the property, they’re more likely to avoid future claims. 

“If everyone answers honestly, there shouldn’t be any problems,” he said. 

The Property Condition Disclosure Statement needs to filled out and signed by both seller and buyer prior to the contract signing. Home sellers in contract by March 20 can still opt to pay the $500 credit, but any home contracted for sale after that date won’t have that choice and sellers will need to fill out the disclosure form. The law applies to sellers of one- to four-family homes, though co-ops, condos and some other properties are exempt. 

Klein said another suggestion to give a home seller cover and peace of mind is to get their own home inspection. 

“If the seller orders a pre-sale home inspection and attaches that to the disclosure form, that can help limit future liability,” he said.