Buyer (and Seller) Beware: Disclosures of Defects When Selling Residential Property

The housing market in Northern Nevada is currently undergoing a growth period. For Sale signs are sprouting in the front yards of homes located in both new and well-established neighborhoods throughout the Truckee Meadows.

When buying residential real estate, especially an older home, the adage of caveat emptor certainly applies. An older home might contain defects the owner would like to downplay in order to make a sale. How can a prospective buyer protect themselves from buying a house that might look good on the outside but in reality is a money pit camouflaged by a coat of fresh paint and newly-shampooed carpeting?

Luckily for prospective home buyers in Nevada, the law requires a seller of residential property to disclose any defects in the property of which the seller is aware.

What constitutes a defect?

Here’s the legal definition:

  • A defect is “a condition that materially affects the value or use of residential property in an adverse manner.” 

That’s a pretty broad definition, so the Nevada Real Estate Division has adopted a form for sellers to complete and provide to buyers which discloses the condition of residential property offered for sale.

What does the Nevada Real Estate Division’s disclosure form requires sellers to disclose?

The seller must disclose the condition of the following:

  • Electrical systems

  • Heating and cooling systems

  • Plumbing

  • Sewer systems

  • Any other aspects of the property that might affect its use or value

The seller also must indicate whether or not each of those systems and any other aspect of the property has a defect of which the seller is aware.

When are the seller’s disclosures due?

At least ten days before the residential property is conveyed to the buyer.

If the seller fails to provide the buyer with the form by this deadline, the buyer can rescind the agreement to purchase the property without any penalties.

Do the seller’s obligations end with providing the disclosure form?

If a seller discovers a new defect on the property or a known defect gets worse before the property is conveyed to a buyer, the seller is under a continuing obligation to disclose any new or worsening defects to the buyer.

The seller must provide these continuing disclosures in writing to the buyer as soon as practicable after the discovery of the new or worsening defect, but no later than the conveyance of the property to the buyer.

What happens if new or worsening defects are disclosed?

Imagine you’re a buyer who’s set to close escrow on your dream home. Two days before all the paperwork is signed and recorded conveying the property to you, the seller discloses that the pipes in the upstairs bathroom sprang a leak and flooded not only the downstairs bathroom, but damaged the wood flooring in the living room that you fell in love with.  What can you do?

Nevada law provides that if the seller does not agree to repair or replace the new or worsening defect, the buyer can either:

  • rescind the agreement to purchase the property, or

  • go ahead and close escrow and accept the property with the new or worsening defect as revealed by the seller without further recourse.

But what if the seller never disclosed a defect in the first place?

Here’s where the “seller beware” part of Nevada law comes into play.

Sellers are under no obligation to disclose defects in residential property of which they are not aware. However, Nevada law provides a significant penalty for sellers who fail to disclose a known defect.

If a seller fails to disclose a defect in the property of which the seller was aware, and the cost of repair or replacement was not limited in the provisions of the agreement to purchase the property, the purchaser is entitled to recover from the seller:

  • treble the amount necessary to repair or replace the defective part of the property

  • court costs and reasonable attorney’s fees

In other words, if you know about a defect in residential property that you’re selling and you fail to disclose that defect to the buyer, you could be on the hook to the buyer for three times the amount necessary to repair or replace the defective part of the property, along with court costs and attorney’s fees.

Time limits on lawsuits for undisclosed defects in residential property.

The law sets a time limit for the initiation of a lawsuit to recover treble damages for undisclosed defects in residential property.

If a buyer needs to institute a lawsuit for damages, the lawsuit must be filed:

  • not later than one year after the buyer discovers or reasonably should have discovered the defect, or

  • two years after the conveyance of the property to the purchaser

Whichever occurs later.

Nevada law differs for homes purchased due to foreclosure sales, from co-owners of the property, spouses or certain other relatives, or on the first sale of a residence constructed by a licensed contractor.  But for the majority of residential sales transactions, the law provides significant protections for buyers against undisclosed, known defects.

If you need advice or the assistance of an experienced real estate attorney concerning non-disclosed defects in residential real estate in Nevada, The Stone Law Firm is available to help you.