How to Spot Trouble in Residential Real Estate Transactions

Whether buying or selling, there are three areas where difficulties occur in Ohio residential real estate transactions: Residential Property Disclosure Form; earnest money deposit; and timing and deadlines regarding inspection of the property. While specific terms of each contract will control the transaction, consider these general observations.

The Residential Property Disclosure Form. Both the Ohio Revised Code and Ohio Administrative Code require the seller of a residential property to complete a Residential Property Disclosure Form as part of the transaction. Failure to do so can excuse the buyer from closing. Many of the required disclosures are limited to events that occurred in the last five years (for example, water supply, sewer, roof, and termites). Others have no time limitation (for example, water intrusion, or structural or mechanical issues).  Be sure you understand whether the disclosure is limited by time. Some sellers will acknowledge issues that pre-date the required disclosure period. Such an acknowledgment might read, “While we have not had any issues with the roof in the last five years, in 2010 we put on a new roof because the old one leaked in many areas.”

Commonly, sellers often err to the side of less disclosure, which can lead to problems after the sale.  A disgruntled buyer can use missing information from the Disclosure Form to suggest that the seller was concealing a known defect. Therefore, consider over-disclosing where the response is not otherwise clear. The purpose of the Disclosure Form is to put the buyer on notice of an issue, even where that issue has been addressed. Think of the Disclosure Form as a method of identifying matters that a home inspector would want to know.  The Disclosure Form is not a warranty or a substitute for a competent home inspection, but a chance to put the buyer on notice. That notice may offer protection after the sale is completed.

Earnest Money.   Ohio Revised Code controls how earnest money is to be held and when it is to be distributed in a residential real estate transaction. Often sellers do not realize that if a buyer fails to perform, the earnest money is not automatically theirs. If the parties do not agree on how earnest money is to be disbursed, the agent holding the funds must await instructions from a court of law. The same holds true for the buyer if the seller fails to perform. Without written instructions signed by all parties, earnest money is held until a final court order is issued. If you are a seller, you may want to require a greater amount of earnest money to help offset to the cost of going to court. Buyers may want to go in the opposite direction.

Property Inspections. The property inspection period often contains critical dates, and both the seller and the buyer should understand exactly how many days are in each phase. First, there is the Inspection Period itself, which provides the number of days in which inspections must be completed. Then once the inspection period is complete, there is often a “Settlement Period” when the buyer identifies what items are to be corrected, and then the seller responds. Each has a specific period of time. Acting outside of any of the specific periods can result in a waiver of your rights under the contract.

Read the contract provisions carefully. Often the only obligation a seller has is to correct “material defects” to the property. Thus, it is important that you understand what may constitute a material defect. For example, a window that sticks and is hard to open may not be a material defect. But if that window is designed to open and will not operate, that may be a material defect.

While these three areas can cause of difficulties in residential real estate transactions, they are not the only areas of concern. Understanding the terms of the entire contract, and your rights within the contract, are critical to the successful sale or purchase of the property.

Charles C. Ashdown is a Partner of Strauss Troy Co., LPA, and has been practicing in the area of general business and commercial litigation for more than 30 years. Mr. Ashdown was named to the Best Lawyers in America® for Real Estate Litigation for 2018.