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May 22, 2002: Rules of Disclosure when Selling a House

Q: We can't take it anymore. We feel our house is haunted. Should we try to drive out whatever is here before we list the property? Do we have to tell the buyers?

A: So who are you gonna call, me? Before I answer your question directly, let's spend a few moments strolling down disclosure lane.

Not too long ago the rule was buyer beware. It was up to the buyer to inspect the premises and make appropriate inquiries. As time went on, "known defects" were required to be revealed. Thus, usually the issues in dispute were about what was known and whether the defect was something that warranted disclosure.

The law evolved to require the seller to make a reasonable inspection and disclose anything that might "materially affect the sales price." The issue of what that might include and whether the item was that significant bounced around, often ending up in Court for the judicial system to decide on by a case- by-case basis.

The Colorado Real Estate Commission developed a Seller's Property Disclosure Statement that comprehensively lists the various physical, structural, environmental, and miscellaneous items, totaling 94-plus areas, and also with blank spaces to add additional concerns that could have a material affect on the property. (I bet you did not realize how many important items there are in your house.) And as time marched on, things such as asbestos and environmentally contaminated areas were added.

So we find ourselves in 1991 and at the Colorado legislature. Many social, emotional, and political concerns were swirling around during that time, catching the real estate industry right smack in the middle. So what happened? A law was passed, of course.

By statute, circumstances that could psychologically impact or stigmatize property need not be disclosed. For example, that a former occupant was HIV positive or had AIDS, or that the dwelling was the site of a homicide, suicide, or felony are examples of items that need not be disclosed.

References in the statute about ghosts or other paranormal events are absent. I am told by local realtors who have sold properties in other states that in certain areas, if such activity exists, it must be disclosed. Nondisclosure can serve as grounds to set aside a sale, or even worse, a law suit for damages. Other jurisdictions seem to explicitly prohibit any disclosure to potential buyers. According to the Colorado Real Estate Commission, such occurrences do not have to be disclosed because such matters could psychologically impact or stigmatize real estate, even though such parapsychological events do not seem to match the examples listed in the statute to clarify its coverage and there seem to be no Colorado Supreme Court cases addressing the issue.

Thus, in the absence of specific language in the statute including ghosts as an example of covered prohibitions, and apparently with no Colorado Supreme Court cases to guide us, there is nothing that concretely guides us to a definite yes or no. So whose advice are you going to follow? Let your real estate agent or broker be your guide. If he or she says disclosure is not necessary, you will lower your selling costs because an exorcism will not be needed. If you are sued and lose, then look to that person for reimbursement (boy, have I just lost a lot of realtor friends).

But it also is intriguing to imagine that sometime in the future a cleansing might be part of the contract conditions along with the termite inspection, the traditional buyer's inspection, and who knows, maybe even a Feng Shui evaluation.

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