Under a state statute, the Michigan Seller Disclosure Act (SDA), every seller of residential real estate that includes between one and four dwelling units is subject to specific disclosure requirements. The law applies to many types of residential real property transfers, including FSBO (For Sale By Owner) home sales, although there are limited exemptions.
The statute, found at MCL 565.951 through 565.966, contains important and complex provisions relating to a seller’s responsibilities and a prospective buyer’s rights under the SDA. An overview of the law follows. If you are involved in a FSBO transaction (or another type of transfer covered by the SDA) and have questions, you should discuss your situation with an experienced real estate attorney.
The Michigan Seller Disclosure Act requires the seller (or the seller’s agent) to provide a written Seller’s Disclosure Statement (SDS) to the prospective buyer (or prospective buyer’s agent) before execution of a binding purchase agreement for the property. The seller must include a statement of compliance on the purchase agreement.
The SDA contains the specific form for the SDS. No other format or form satisfies the statutory requirements or constitutes compliance with the SDA.
In the SDS, the seller provides detailed information relating to the condition of the property. The SDS includes a comprehensive list of specific items that are covered, including all fixtures and appliances; electrical systems and components; and plumbing, heating, and cooling systems and components.
In addition, the SDS includes the condition of all structural aspects of the property and improvements, as well as specific information about water problems, insect infestations, legal issues, and environmental issues and hazards.
If you are a seller offering your property as For Sale By Owner, you should complete the SDS before you put your property on the market. If you are in doubt about whether you need to disclose something, either disclose it or ask for legal advice from a real estate attorney. After you complete and sign the SDS, give a copy to every potential buyer who looks at your home. If any changes occur to the condition of the property after you provide the SDS to a potential buyer, you are required to notify the buyer about the changes. The SDS itself states:
If any changes occur in the structural/mechanical/appliance systems of this property from the date of this form to the date of closing, seller will immediately disclose the changes to buyer.
The seller has a duty to provide a prospective buyer with the “best information available and known” to the seller and to act in good faith. If the seller does not know the required information, or the information is unavailable, the seller may comply with the SDA by indicating on the Seller’s Disclosure Statement that the information is unknown.
The seller has a duty to exercise ordinary care in transmitting information from a public agency or person with expert knowledge, when that information is not within the seller’s own personal knowledge. If there is an error or omission in that information, the seller is not liable under the SDA, as long as the seller meets the ordinary care standard. In addition, the seller is not responsible for failing to disclose information obtainable only by inspection or observation of inaccessible parts of the property or discoverable only by an expert with knowledge beyond that of the seller.
If the seller provides the prospective buyer with a report or opinion of a public agency or expert or with regard to any of the items in the SDS, the seller is not liable for any mistakes or inaccuracies, as long as the seller does not have knowledge of a condition or defect that contradicts the report. This exemption and rule also apply when the prospective buyer requests an expert opinion or report about a specific concern.
If a seller does not comply with the requirements of the SDA by failing to provide a prospective buyer with the signed Seller’s Disclosure Statement, the prospective buyer may terminate the purchase agreement prior to the closing on the property for any reason or no reason at all. The Seller’s Disclosure Statement form itself states:
Failure to provide a purchaser with a signed disclosure statement will enable a purchaser to terminate an otherwise binding purchase agreement.
A prospective buyer’s right to terminate the purchase agreement for failure to provide a signed Seller’s Disclosure Statement ends when the property is transferred. Consequently, after closing on the property, a buyer cannot invalidate the sale on the basis of the seller’s failure to deliver the SDS.
Nevertheless, after closing, if the buyer discovers that the Seller’s Disclosure Statement contains material errors, omissions, or inaccuracies about the condition of the property, the buyer may have a civil cause of action against the seller for fraud, misrepresentation, or deceit. The SDA specifically provides that it does not limit or abridge a buyer’s right to bring an action for fraud, misrepresentation, or deceit regarding the sale of the property.
While terminating the purchase agreement prior to closing or filing a lawsuit after closing are alternatives available to a buyer if issues with the condition of the property arise, there is a better strategy. The best approach for a buyer concerned about addressing potential issues with the condition of a property is to obtain professional advice and inspections of the property to fully determine the condition of the property before closing.
Compliance with the provisions of the Michigan Seller Disclosure Act is one important reason why both sellers and buyers in a FSBO transaction should retain an experienced real estate attorney to advise and represent them. From my Ann Arbor law office, I assist buyers and sellers with all aspects of real estate law, including FSBO sales.
For a reasonable flat fee, I provide a full explanation about how FSBO works and assist clients through the whole process from start to finish, including preparation and review of the documents and forms required by law. I serve clients throughout Washtenaw County. To talk with me about a purchasing or selling your home in a FSBO transaction or any other real estate law matter, call (734) 649-0784, send an email to firstname.lastname@example.org, or use the online contact form.