PROPERTY CONDITION DISCLOSURE FORMS: HOW THE REAL ESTATE INDUSTRY EASED THE TRANSITION FROM CAVEAT EMPTOR TO "SELLER TELL ALL"

G. Should Sellers Be Required to Disclose Area-Wide Natural and Man-made Hazards?

Many forms ask sellers to disclose what they know about past flooding, seismic damage, and whether their properties are in a wetlands, form part of a coastal barrier against erosion, or possess other significant features bearing on the property's use and development. Buyers who want to learn more than the seller about such matters must find out on their own.

In 1998, the California legislature went beyond asking sellers to disclose what they know when it enacted "the most comprehensive requirements of any state for disclosure of natural hazards to real estate."193 The California Natural Hazard Disclosure Law requires sellers and listing brokers to disclose whether the property is within a special flood hazard area designated by FEMA, a dam failure inundation area mapped by the State Office of Emergency Services, a seismic hazard zone as indicated by the State Geologist under the State Seismic Hazard Mapping Act, an official earthquake fault zone as indicated by the State Geologist, a very high fire-hazard severity zone according to state or local government maps, or a wildland forest fire-risk zone according to the California Department of Forestry and Fire Protection.194

The statute conditioned the obligation of sellers and listing brokers to provide this information on their possessing actual knowledge or a local agency making available maps showing parcels affected by the various hazards. In reality, sellers have difficulty ascertaining whether the local jurisdiction has such maps, and if it does, in obtaining them.195 To remove any doubt about whether exempt sellers must provide natural hazard disclosures, the latest California Association of Realtors Residential Purchase Agreement obligates sellers to make natural hazard disclosures even if exempt.196 Realtors have become proactive, anticipating that information about these hazards could be regarded by courts as material to buyers.

Certainly, if buyers find this information useful, it would be more cost effective for sellers, rather than buyers, to procure it. Because some buyers do not complete their sales, more than one prospective buyer may want to see the same report, making a single purchase by the seller more efficient. Also, large brokerage firms dominate the residential sales market and because of the high volume of reports they order, they have been able to negotiate favorable prices from information providers, a savings they could pass on to the seller.

Roughly seven out often natural hazard disclosures have one or more of the six statutory items marked "yes."197 Evidence shows that some buyers regard this information as relevant. Mike Hull estimates that three to five percent of buyers invoke a negative natural hazard disclosure as a reason for cancellation.198 A recent study of the consequences of this law shows that Hispanic buyers in flood plains paid, on average, $4,220 less than they would have paid without the disclosure.199