Dislosure vs Due Diligence: The Changing Face of Obligation?

The Oregon state legislature is currently debating a bill that would completely change the idea of seller disclosure as we know it.  For many years home sellers have been obligated, in my opinion rightly so, to disclose any “material fact” regarding the condition of the property they are selling.  In addition, home buyers are currently given the opportunity to perform their own due diligence in the form of home inspections.  However, House Bill 2839 changes the roll of seller disclosure by forcing them to perform due diligence, an expensive energy audit, that will then be provided to prospective buyers.    

“House Bill 2839 [if passed] would require sellers of real property to obtain an energy audit and provide a copy to each buyer that makes a written offer to purchase. This would allow a buyer to withdraw an offer within three days after receiving an energy audit.”  The average audit or performance test costs $350-$500 for a typical residential home and takes over a week to get results. 

Personally, I think the legislature is overstepping its bounds by requiring the seller to perform due diligence for the sole benefit of the buyer.  In effect, the legislature is asking a home owner to shell out hundreds of dollars for information that will be of no benefit to the home owner.  As the green movement gains steam, I believe these types of energy audits will be become much more common, which is a good thing.  Many home owners have already had their homes tested for energy efficiency and many more will do so in the coming years.  These energy audits can be extremely beneficial and often reveal striking results.  Over time these energy audits usually “pay for themselves” if the home owner makes suggested changes to upgrade energy efficiency.  If a home owner has an energy audit performed, I do believe the results should be disclosed if and when that owner decides to sell the home.  However, asking a home owner to disclose this knowledge if an audit has been previously performed is a very different thing than requiring a seller to pay for an audit as a prerequisite to selling a home.  This is where disclosure becomes due diligence and, in my opinion, is a line that should not be crossed. 

Once the door is open for seller required due diligence how far might it be pushed open?  Might the legislature eventually decide that a pest and dry rot inspection be done prior to sale?  I can easily imagine a day when a seller is required to test for mold and provide the results to prospective buyers, afterall, mold is still a hot button topic.  What about radon?  Or soil contamination?  What makes energy efficiency special in such a way that it should be treated differently than other forms of due diligence? 

Beyond the muddying of the disclosure versus due diligence waters, I also believe that this bill would have unfair economic impact on home sellers.   The market is currently filled with short sales, foreclosures and FSBOs because the poor market and worsening economy has put many families in economic distress.  If home owners are having trouble paying the mortgage and are forced to sell below market and are realising no gain or profit, why should they be forced to shell out hundreds of dollars for an inspection that does not benefit them?

Better still, not all home sellers will be required to investigate and disclose these facts as banks and other financial institutions are exempt.  Banks are currently exempt from most forms of disclosure, but the argument has always been that the bank itself really does not and could not have knowledge of material defects.  Fair enough, but once sellers are legislated to investigate issues, why should financial institutions be treated differently? 

 It will be interesting to see if the bill is passed and, if it is, how it will implemented.  Stay tuned…