Standard form real estate contracts in New Jersey usually contain a provision that a home is being sold in “as is” condition. This is essentially an indication that the seller feels that the contract sale price takes into consideration the condition of the home and the seller does not intend to make any repairs to the property. However, buyers generally have a right under a separate provision of the contract to conduct inspections of the property to ascertain its condition. If the buyer is not satisfied with the condition of the property for the contract price, they can often still request repairs and may cancel the contract if the Seller fails to make them. Further, these clauses often provide that the buyer accepts the property in its “as is” condition at the closing and the seller will not be held responsible for defects discovered by the buyer afterward.
This does not, however, mean that a seller can intentionally misrepresent the condition of the property. Courts have held that if a seller knowingly makes a material misrepresentation they can be found liable for common law fraud if the seller intends the buyer rely on the misrepresentation, the buyer does indeed rely on it, and the buyer suffers damages as a result of it. If this occurs, the buyer may be able to cancel the contract or seek damages from the seller.
New Jersey courts have found that failing to disclose certain types of conditions will constitute material misrepresentations. If a seller fails to disclose a condition which is latent (not currently visible or obvious) and plays a vital role in the buyer’s decision to purchase the property, the seller may be liable for damages. For example, in Weintraub v. Krobatsch, although the buyers found the condition of a home acceptable during their home inspection, when they visited the property on another occasion they were able to see that the property suffered from an insect infestation. The inspection was during the day and the subsequent visit was at night. The buyers refused to close. As the insect activity only occurred at night, this was a latent defect which was not observable during the day. The court found that the failure to disclose this information to the buyers was an intentional and material misrepresentation, and therefore the buyer was permitted to cancel he contract.
Real estate brokers have responsibilities for not making misrepresentations as well. Arguably their responsibility is even greater than that of the seller if the condition is known to the real estate broker, as they can be subject to the Consumer Fraud Act. The New Jersey Division of Consumer Affairs publishes a property condition disclosure form which should be completed by a seller of real property. Under the Consumer Fraud Act, real estate brokers will only be liable for misrepresentations of sellers if they had actual knowledge of the condition or failed to make a reasonable inquiry as to whether the information provided was false. The reasonable inquiry can be satisfied by a home inspection report by a qualified inspector, the report of a governmental official, or by a seller’s property disclosure statement – provided the buyer is advised that the information came from the seller themselves. The seller’s real estate broker can also be held liable for the failure to disclosure a defective condition if it was a latent condition known to the broker, and the broker, intentionally concealed the condition with the purpose that the buyer would rely on the concealment of the condition.
If the seller’s disclosure form is accurately and thoroughly completed, it aids the buyer by providing a wealth of information and it protects both the seller and the realtor from liability for non-disclosure.