Real Property Condition Disclosure Statement: The $500 Dollar Credit Waiver

For anyone who has sold real estate in New York State, there was a time where your attorney or realtor has advised you to provide a $500 dollar credit to the purchaser in lieu of completing a six page disclosure statement. 

The Disclosure Statement is a questionnaire in which the seller is required to disclose all general information as well as structural, electrical, environmental and mechanical conditions of the property. It poses questions to the Seller, such as “Is there asbestos in the structure?” and “Is there lead paint in the structure?”. While these may seem like straightforward questions, the Disclosure Statement includes more specific and hard to answer questions such as:  “Are there any know material defects in any of the following structural systems: footings, beams, girders, lintels, columns or partitions?”. For an average seller, questions such as these may be difficult to answer. I mean, really, what is a “lintel”? 

Failure to answer these questions properly can result in liability on behalf of the Seller to the Buyer. In the event a Seller answers a question incorrectly and such statement caused the Buyer not to investigate a potential defect or if such defect was unable to be discovered through a regular home inspection, Seller will most likely be liable to the Buyer for such damages. 

Given the complexity of some of the questions and the potential liability, most Seller’s attorneys and/or realtors will advise the Seller to provide to the Buyer a credit of $500 to the Buyer at closing in lieu of the completing the daunting statement. This has been derived from the penalty provision which created the property disclosure requirement, N.Y. Real Property Law Section 460-467, also called the Real Property Disclosure Act. 

The Act provides that in the event that a Seller fails to complete a Disclosure Statement, the Seller will owe the Buyer $500 as a penalty for failing to provide the completed statement at closing. As the $500 dollar penalty amount when compared to the potential liability is low, most Sellers will opt to pay it and not complete a disclosure statement. 

What should be kept in mind is that despite the payment of the $500 to the Buyer, the Seller remains liable for disclosure requirements that have been established by case law. Modifying the caveat emptor (“Buyer Beware”) doctrine in New York, the Courts have established avenues for liability, including but not limited to instituting liability to a Seller for such things as proactively concealing or hiding known defects or for failing to disclose defects that could not be reasonably ascertained from a home inspection.