What Do Sellers Have to Disclose?

Ohio and Kentucky both have laws regarding what a seller needs to disclose about a residential (1-4 family) property when selling, which types of sellers are exempt from those disclosures, and specific forms with detailed questions about the property. There are also several misconceptions about what a seller has to share, and about the consequences for doing so. Before I get too deep into this, please note that I am not an attorney, so what follows is not intended to be legal advice — just what I would advise any real estate client based on my experience.

The point of a property disclosure from the seller is to share any relevant material facts about the property, especially those which might not be obvious at first glance or even during an inspection. As I tell all of my sellers, it’s also the perfect opportunity to show that you fixed the issues that came up, developing some trust with the buyers that you’re not trying to hide anything. Leaky roof? That’s fine, you replaced it with new 30 year shingles. Heat pump failed? No worries, you replaced it with a more efficient one. Bathroom sink leaked into the room below? You had everything fixed professionally, some drywall replaced, and everything repainted.

Something I see often that concerns me are disclosures from non-occupant owners (usually investors) with the phrase “never occupied the property” and sometimes “seller has no knowledge about the property". What a ridiculous thing to say! Unless you only owned this for a short time and never had anyone lay eyes on it, you definitely know something about the property, such as whether it’s on public water and sewer — pretty sure you know which bills you had to pay, so why not answer that question? Many investment properties have been in the same hands for years, though, so if you’re a landlord who has had any work done to your investment property, speak up. You’re just leaving yourself open to potential lawsuits if you don’t, and making it harder for buyers to evaluate your property. If you made any repairs or upgrades, brag about it! If you get that boiler serviced annually, tell the world! You will automatically sound more responsible and respectable than other sellers.

I mentioned earlier that some sellers are exempt from completing the property disclosure form, which is true. The Ohio Association of REALTORS lists the following conditions as possibilities:

1. A transfer pursuant to a court order, such as probate or bankruptcy court;

2. A transfer by a lender who has acquired the property by deed in lieu of foreclosure;

3. A transfer by an executor, a guardian, a conservator, or a trustee;

4. A transfer of new construction that has never been lived in;

5. A transfer to a buyer who has lived in the property for at least one year immediately prior to the sale;

6. A transfer from an owner who both has inherited the property and has not lived in the property within one year immediately prior to the sale;

7. A transfer where either the owner or buyer is a government entity.

Kentucky doesn’t allow for quite as many exemptions. According to their Seller’s Disclosure of Property Condition, the only situations in which the form is not required is if the property is new construction and being sold with a warranty, or it is being sold at auction, or it is a court supervised foreclosure. It’s also worth noting that the Kentucky form is much more thorough than Ohio’s, and many of the questions are very specific with follow-up questions where applicable. While you always have the option to not complete these disclosure forms (we can’t force you), failure to disclose a material defect in a property leaves you open to legal consequences. Also, if you tell your licensed real estate agent about a material defect that you don’t include on the disclosure form, they are legally and ethically bound to share that with any potential buyer, so you might as well err on the side of honesty.

Last week a buyer asked me whether a seller in Ohio needed to disclose any deaths in the home. It’s not the first time I’ve been asked this! The short answer is no, there is no question on the property disclosure form that covers this and for most deaths that occur in the home (the peaceful passing of an elderly person, for example), there would be no material issue with the property as a result. However, a seller should probably disclose if there was a more unusual situation — suicide, murder, accident, etc. I had a listing a few years ago that was next door to another active listing where a well-publicized kidnapping and murder had taken place. I don’t know whether it affected my client’s sale, but I am sure that many prospective buyers of that neighboring home would have been very upset to not be informed about the history of that home before they moved in.

I’ve heard many questions that no seller has to answer, although it can’t hurt to ask the question if it’s important enough to my client. Examples include the sellers’ reason for moving, where they sent their kids to school, whether there is good wireless service in the house, how often (if ever) the ductwork gets cleaned, whether the sellers have noticed any ghosts, what the neighbors are like, and so much more. As a seller, be ready to answer as many questions as you can, especially if it gives you positive information to share — buyers feel more confident about making an offer and more understanding about their home inspection results when they have as much information as possible from you. This means quicker offers and a smoother transaction!

P.S. Every state has different laws, so it’s important to consult a licensed real estate agent and/or an attorney who specializes in real estate law if you have any questions or concerns about what you should share about any property you are selling.

What Happened to Affordable Homes?

If you’ve been paying attention to home prices in greater Cincinnati over the past few years, you’ve probably noticed a trend: homes that were selling for around $150,000 in 2018 are now selling for well over $200,000. In fact, in many areas it is nearly impossible to find a move-in ready home for under $200,000. So, what happened?

The short answer is that we have been dealing with a shortage of homes for sale since 2012 or so. Remember that mortgage crisis circa 2008 - 2011? Many builders didn’t survive the sudden influx of foreclosed homes for sale, and others became much more conservative about building on spec (i.e. without a ready buyer) and financing terms.

As you can see in the chart above, newly completed single family homes haven’t even returned to half of the levels we were seeing in 2005. Think about it this way: over the past 18 years of population growth, not to mention the normal major life events that usually result in a move, builders in the Midwest have not built even half of the number of homes they had built prior to that. Could this have just been a market correction, though? Were builders in 2005 building way too many homes?

Nope. Over the same 20 year period, new household formation in the USA shows an obvious and steady increase (I’m very curious to know what that spike in 2020 was…maybe in a later post!). So, we saw an increase in demand for housing that was not compatible with supply levels that were not growing at the same rate. This led to increasing home prices in many markets, which was great for existing homeowners, many of whom had built more equity than they expected and continue to do so. For first time buyers the situation was a little more complex, but that’s a whole other post.

At the same time, many older homeowners were facing tough decisions about their long-term housing needs in the face of a struggling stock market and increasing long-term care costs. Some chose to age in place, so they opted to improve or adapt their homes to their changing needs. First floor bedroom suite additions, elevators, in-home caregivers, and inviting extended family to move in were all strategies for retirees who felt they had no great options. More recently, we’ve seen them reconsider moving because they don’t want to give up their attractive mortgage interest rates (assuming they refinanced within the past 4-5 years). This has further affected the number of homes available for sale.

The moral of the story is this: don’t wait for home prices to go down if you need to move. There is no reason for prices to drop until our supply issue is resolved, and that will take years (construction takes time, and good quality construction takes even more time). Interest rates will probably decrease over time, but I also wouldn’t recommend waiting around for those sub-3% rates we were seeing during the height of the pandemic. Focus on your needs today instead: if you need to buy, sell, or both, work with a professional to determine what your options are.

Commissions, Lawsuits, and NAR: Reality Check

A family member asked me how I felt about the recent court decision on a lawsuit against NAR and some large brokers, and it took me a little while to answer that email. I honestly hadn’t thought about it a lot even though I was aware of the pending decision, because I try not to stress myself out over things outside of my control. But the more I look into the case, the more confused I am about how the court arrived at their decision and found myself wanting to think this through.

Based on the news articles I have read about this case and the decision, it sounds like the courts are accepting the plaintiff’s characterization rather than actually understanding how real estate works in our country. I’m not terribly surprised, because there are a lot of misconceptions and stereotypes about the real estate industry and probably plenty of bad actors out there. But there are a few points I would urge the court to consider (if they cared what I think, which I’m sure they don’t).

At the center of the complaint is that sellers of property end up paying the buyer’s side of the commission. Legally, based on the listing contracts I’ve seen, the seller is only paying their broker a commission, and that broker is choosing to split that with whichever broker brings the buyer. The brokers are not required to offer any compensation to buyer brokers – no compensation listings do happen sometimes, especially with corporate-owned properties – but if they are a member of an MLS, they are probably required to allow all MLS affiliated brokers to see their publicly advertised listings, and if they are offering compensation it has to be the same for any buyer broker. 

You might wonder why it works this way…I know I did, when I was in real estate school back in 2014! As recently as the 1980s, all agents, even if they only worked with buyers, were legally required to represent the interests of the seller. They couldn’t point out flaws in a property and could be sued if it was found that they might have discouraged a likely buyer from making an offer. No one was actually working for the buyer unless they retained their own legal counsel to review the purchase contract. This wasn’t explained very well to buyers, though, which led to state and national laws regarding buyer representation and required disclosures about how commissions work. Buyer broker agreements, which are contracts between potential homebuyers and their agents about the commission to be paid and the commitment to work together for a period of time, are a relatively new concept in real estate and infrequently used. These agreements usually include language about what compensation the agent should expect from the buyer if the cooperating broker or a FSBO seller doesn’t choose to offer commission to the buyer’s agent.

No matter what it says on the listing contract, the listing itself, or a buyer broker agreement, commission rates are always, always, always negotiable. I’ve seen agents cut their commission to get a lucrative listing or to guarantee that the client buys through them. I’ve seen agents both chip in parts of their commissions to keep a deal from falling apart before closing. I’ve negotiated flat fee commissions on very low priced properties. So, while a company can encourage their agents to charge a certain amount of commission, there are always exceptions because we’re mostly independent contractors and every situation is different. If you’re a high producing agent and you want to charge someone half the company-recommended commission, your broker probably won’t care too much because they’re still getting plenty of money out of you. If they don’t decide to keep you in their company because of your commission strategy, another broker will gladly take you on.

Which brings me to the next point: if all agents only worked for one company their entire careers, I could understand why people might think there was some kind of collusion or price-fixing on commission rates. But to be honest, hardly any of us stay with the first company we join in real estate, so all of us have a good idea of what each company recommends as a commission rate. Which means our brokers also know, and not from sitting around in a back room somewhere deciding that there’s only one percentage that we all use. We also know that when your income is only based on commission, it’s super helpful to use an average commission rate when making goals and evaluating trends in your production. If the local market wasn’t willing to bear the commission rates brokers are charging, they would be lower.

And in fact, they are often lower than the 6% figure cited in the court case! There are plenty of alternatives for people who think that commission rates are too high. There will always be an agent or broker out there who’s willing to compromise on fees in order to get your business. Online brokers have existed for over 20 years, flat fee brokers have probably always existed, i-Buyers are a thing now and don’t even require an agent, and you can always go FSBO, especially in a sellers’ market with limited inventory like we are experiencing now. If you don’t want to pay for the services a broker is offering you, don’t. Or convince someone to do it cheaper. But don’t be surprised if you don’t have access to the same tools and networks to get your property sold that we do —we’re paying for the privilege of using them the same way we ask you to.

It will be interesting to see whether real estate actually changes as a result of this lawsuit and others like it. Personally, I think that real estate is an adaptable thing that should reflect local market conditions and norms, within the guidelines of applicable laws. At the end of the day, if commission rates end up decreasing then agents will just have to sell more properties to make the same amount of money, or renegotiate their commission splits with their brokers, or sell more expensive houses. With the drastic increase in home prices we have seen in the greater Cincinnati area, things are already moving in that direction (and I’m sorry if you’re waiting for prices to go down — it’s unlikely to happen here anytime soon). I just have one final note: in many pricier parts of the country, commission rates are lower than in the Midwest. It’s reasonable to assume that natural market forces would eventually drive broker commissions down in areas where average property values continue to rise. These things tend to happen in a capitalist economy.

P.S. I’m not sure I need to say this, but for the record, this is just my opinion as a licensed real estate agent. I’m not an attorney and this article doesn’t have any relation to the views of my broker, Coldwell Banker Realty, or any of the trade groups I represent.

Today's Home Buying Process

Whether you have never bought a home before, or it's been a few years, the home buying process is probably a little more complicated than you think. Finding a great agent and loan officer to work with are important steps in making sure you're prepared for the whole process. But your first step is determining what you need in a new home as well as what you would like in the perfect home, and understanding the difference. Most parts of Cincinnati have very low inventory available, so you may end up deciding on a home that has all the right bones but needs cosmetic updates -- remember to leave room in your budget for future improvements!