Real estate investing involves buying property, remodeling, re-selling, and financing properties. To be efficient in real estate investing, you need to have all the critical information regarding a property, including its selling price. However, some states aren’t required to disclose important information to the public.
Non-disclosure of a seller’s real estate investment information is a common practice in real estate investing, which can be devastating to investors. The most common examples of non-disclosure are:
- failure to provide disclosures of certain important information.
- failure to provide an accurate statement of the property and other significant facts.
- failure to make public all financial information that’s needed to evaluate the property
- failure to provide information on certain assets.
- failure to provide financial statements.
- failure to provide an investor with a copy of the completed real estate documentation when the investor is given notice of a closing date.
- failure to give an investor reasonable notice of the impending sale date of the real estate
- failure to disclose an important transaction.
- failure to provide a reasonable explanation of the use of funds received from an outside source.
- failure to provide a notice of the date and circumstances of the investor’s receipt of funds received from an outside source.
This list is not exhaustive and, as the practice continues to grow, investors must be careful to ensure their legal rights are protected.
In the United States, 12 states are considered non-disclosure. The list of non-disclosure states are as follows:
- Some counties in Missouri
- New Mexico
- North Dakota
Impacts Of Non-Disclosure To Real Estate Investors
In real estate, the biggest impacts of non-disclosure are not on the seller. This is because the seller isn’t obligated to accept the offer if they don’t want to. The main impacts of non-disclosure are on the buyer and the agent. These two groups have a great deal at stake in these cases and must take steps to protect themselves.
- Impact On The Buyer
Buyers are at a disadvantage when it comes to negotiating with the seller in this case. When the seller isn’t sure about the property’s value, the buyer will probably give up. The buyer knows that the seller will have to pay them and is, therefore, not willing to negotiate. In short, the buyer has no choice but to accept whatever the seller is offering.
If the deal looks good, the buyer needs to act quickly. Otherwise, the buyer may be stuck with a home that the seller won’t accept if it turns out that the price is not as low as the buyer expects. Take note that in real estate, there are no guarantees. The buyer has to work at finding the best deal possible.
Aside from that, property investors will have a hard time simulating their investment return when they don’t have any idea of a property’s value. This can lead to errors in property tax assessments. This can also result in the under or over appraisal of the properties. Hence, lower-priced homes pay larger taxes than they should because the seller didn’t correctly disclose the property value.
- Impact On Courts And Creditors
Non-disclosure in real estate investing is harmful to investors, courts, and creditors seeking to recover funds and property from investors. Non-disclosure creates problems for both parties as they struggle to prove whether a transaction or property involved in the transaction is fair or profitable. Also, non-disclosure of information is often used as a shield to deceive investors, which has resulted in the wrongful death of countless investors who were defrauded.
When investors learn they’ve been cheated, they often feel anger, frustration, confusion, sadness, and fear over losing important information. Investors who have been victims of such fraudulent activities often file suits against the person(s) responsible for fraudulent conduct. In some cases, plaintiffs may seek monetary damages from the negligent party.
Because of the serious legal issues involved in this area, it’s important that anyone who invests in real estate ensure that they obtain proper disclosure before purchasing a property or investing money. Failure to do so could result in serious consequences for a potential investor.
- Impacts On The Seller
Although non-disclosures are usually done to favor the seller, non-disclosures still have some impact on them. If sellers are caught with gaps in their disclosures, they could be thrown out of the sale process. This is the reason why sellers should always disclose critical information about their property.
This is because many aspects of the sale can be left out or misrepresented if a seller isn’t prepared for a disclosure. In some cases, the seller may have information that shows the house is less expensive than it is but this information could damage a buyer’s credit rating and shouldn’t be left in the hands of the seller. Therefore, the seller must prepare a disclosure that includes everything from the price, the unit’s size, and whether there are any hidden costs.
Home disclosure for sellers should be as detailed as possible. This means that the disclosure should state the total price of the home and information about how much it would cost the buyer if they purchased the property. For example, if a seller lists a property for sale for two hundred thousand dollars but has a bank loan for a million, the disclosure will state that the home is overpriced by about fifty percent. The home seller will have to backtrack and make the correct disclosure if a buyer tries to purchase the property at this price.
If you’re planning to invest in real estate, you should be aware of the many issues that can arise from improper disclosure. Investing in real estate requires diligence and common sense. Your attorney will advise you of your rights under the law regarding the use of disclosure and the protection afforded to you as an investor.
Real estate investing lawyers will also help you resolve disputes that might arise due to non-disclosure of real estate investment information or improper disclosure. A successful resolution to any legal issues can prevent you from being held liable for personal injury or wrongful death claims. As a result, your lawyer will be able to assist you in developing strategies to protect your interests and protect your assets.
Ron Washington is a full-time blogger who has a made in the industry by publishing high-quality content on business, investment, and finances.