Full Disclosure: Half Truths Leave Sellers Subject to Full Liability

Written by Columnist:

Samuel Doncaster

One of the most common problems I see Realtors® facing is trying to evaluate a SPDS with hindsight. Your client contacts you about an undisclosed issue, and you point him to the SPDS. You or he read it and notice something related to the problem, and you wonder whether that prevents the Buyer from recovering. 

The Realtor® in this situation may begin worrying about the relationship with the client? Will the client blame me for not catching this? Will it trigger a negative review or a complaint? You may even be worried about the client—Will he lose his ability to recover over that. 

Fear not! This article will give you peace of mind to know that your client still has rights, and you can still protect him. How? The “least sophisticated consumer” standard.

When Courts consider the adequacy of a Seller disclosure, they invoke a rule known as the Least Sophisticated Consumer Standard. Under this rule, the test for whether a disclosure is adequate is whether the least sophisticated person in a market will adequately understand it. In other words, Courts evaluating a disclosure don’t assume that the audience is a professional Realtor®, even if the buyer happens to be one. They don’t consider whether it would have warned an investor or even an experienced buyer. In fact, they don’t even judge it by the average first time home buyer. 

The standard is whether the least sophisticated homebuyer anywhere in Arizona would have understood the disclosure and been adequately warned of the true condition of the property. Under that standard, buyers are generally protected unless the disclosure is plain as day. And, even more important for the Realtor®, you don’t need to worry about whether you could or should have caught an issue to explain to the client. The mere fact that something would have been ambiguous enough to require your explanation means the disclosure wasn’t good enough.

So, let’s consider some practical examples. Sometimes sellers claim a disclosure of water stains or water marks on the walls was a reasonable substitute for disclosing that the property had an active roof leak. Other sellers have tried to get away with disclosing that a well has “some” of a particular chemical is a valid substitute for disclosing that it has 2000 times the FDA recommended limit; when they possessed testing that showed that! Each of these claims fails, because the seller’s vague reference to a problem doesn’t fully and fairly disclose the true condition so plainly that the least sophisticated homebuyer, reading the SPDS alone, will understand the issue.

So don’t feel alarmed when you or your client wonder whether something got missed in the SPDS review. If something wasn’t disclosed so obviously that it couldn’t be missed, you can tell your buyer client, with confidence, that it was solely the seller in the wrong and encourage the buyer to pursue mediation and make the seller pay. 

Samuel Doncaster is the owner and founder of Fraud Fighters Law Firm. He regularly handles cases involving SPDS non-disclosure and fraud. If you or a buyer have an SPDS concern, give the firm a call at 480-666-4054 to discuss how these principles apply to your unique situation.