To SPDS or Not to SPDS: Is the Standard Disclosure Form in the Best Interest of Sellers?
Categories: Real Estate
It is a common misconception that a seller's completion of the Arizona Association of Realtor's Seller Property Disclosure Statement ("SPDS") is required by law and will eliminate litigation regarding non-disclosure. The Arizona Association of Realtor's form residential purchase contract—the most commonly used form purchase contract in the state— requires the seller to complete and deliver a SPDS within five days of acceptance of the contract. The Arizona Department of Real Estate takes the position that everyone is entitled to a SPDS . While certain disclosures are required by statute and/or case law, the completion of the SPDS form is mandated by neither.
Is the SPDS in the best interest of all parties to a residential real estate transaction, and does it deter litigation? The SPDS certainly assists with the free flow of information and provides a standardized form that covers many of the more common concerns in a residential transaction. However, the question arises whether the average seller has the ability to complete the form without the assistance of a licensed professional and whether or not it actually deters litigation. What if the seller makes a good faith attempt to complete the SPDS but accidentally checks the wrong box—or forgets something because it happened long ago? How is "material" or "important" defined? Is it subjective or objective? Should the seller list the one time she saw a scorpion on her back wall in response to whether she has observed any scorpions on the property? And what about the squirrel that bounded across her front yard in response to whether she has observed any rodents on the property? And does she have to list every time she had routine maintenance at her house in response to whether she is aware of any work done at the property? And if she does, will the buyer, when he sells the property, have to list that he is aware of that previous work—or provide his buyer with a copy of the SPDS he received? Does the average seller understand the complexity of what she is being asked and that, if she is mistaken in her answers, she may be subject to liability?
The SPDS does not necessarily reduce the risk of litigation; rather, it changes the types of claims that are asserted. The seller's certified SPDS answers may give rise to claims of fraud, misrepresentation or negligent misrepresentation. Liability may attach for how the form is completed in addition to what is not disclosed. It would not be surprising to see an argument that, because of how the SPDS was answered, the buyer did not conduct further investigation on a certain matter, completed the transaction in reliance on that erroneous SPDS, and was thereby damaged.
Many of the questions are framed as "Are you aware of ___," with options of "Yes," "No" and Explain. In checking the box marked "No," is the seller stating she is not aware of that specific condition, or is she stating that she does not believe there is an issue? Is an explanation required? Would a seller be better off answering all the questions, explaining that she cannot possibly remember everything that was fixed over a 10-year period—or that she does not have the expertise to answer a particular question?
The SPDS form is a helpful tool but does not resolve all issues regarding disclosure of information to a perspective buyer. Because of the complexity of the form, the SPDS should not be left with a seller to complete without consultation or guidance. Although the SPDS may eliminate some liability, it may also be used as the basis for imposition of other liability.
This article is not intended to provide legal advice and it only relates to Arizona law. It does not consider the scope of law in the states other than Arizona. Always consult an attorney for legal advice concerning your particular situation.