A 'No Known Defects' Disclosure, a Wet Basement, and an As-Is Demand
Built in 1968, 218 Willow Bend has had one owner for 30 years. The seller's property disclosure says 'no known defects' and 'no water intrusion' - the seller filled it out in ten minutes at the kitchen table. At two showings you notice fresh paint and a faint tide mark along the basement block wall, a sump pump with a battery backup plus an older pump sitting on the floor, a dehumidifier running with a hose to the floor drain, and a crack in the furnace flue. Asked directly, the seller says, 'We've never had water - well, once in 2021 when the creek backed up, but that was a hundred-year storm, no big deal.' Your buyers are using FHA financing, want to write tonight, and the seller is demanding 'as-is' language with a five-day inspection period.
1. What are your obligations regarding the disclosure form, and what must happen before your buyers write an offer?
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The form belongs to the seller. You may explain the questions and provide the form, but you may not complete it, coach answers, or 'tidy up' a statement you know is inaccurate.
You have material facts in hand. Visible staining under fresh paint, two pumps, a running dehumidifier, and a cracked flue are exactly the kind of facts buyers cannot discover without inspection, and the seller's own admission of 2021 water directly contradicts 'no water intrusion.'
Before marketing continues:
- Tell the sellers in writing what you observed and that their answers conflict with the 2021 admission, and ask them to amend the disclosure. Their answer, not your interpretation, goes on the form.
- Disclose to your buyers what you know. Describe facts, not diagnoses: 'There is a tide mark on the basement wall, two sump pumps, and a dehumidifier; the seller mentioned water in 2021.' Do not speculate about the cause or the cost, and do not reassure them that it was 'just a storm.'
- Lead-based paint. Pre-1978 housing requires the EPA pamphlet, disclosure of known lead hazards, and a ten-day opportunity to test (or a mutually agreed period) before the buyers are obligated.
- Document everything with dates: what you saw, what the seller said, what you told the buyers, and what you recommended.
As-is does not change any of this. As-is means the seller will not make repairs; it is not a license to conceal and it does not cancel disclosure duties or the buyers' inspection rights.
2. The seller refuses to amend the disclosure and says 'as-is, buyer beware.' What are your options now?
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You cannot deliver a statement you know is false. Passing along 'no water intrusion' after hearing the 2021 admission makes you part of the misrepresentation, regardless of who signed the form.
Escalate in this order:
- Tell the seller plainly that you cannot market the property with an answer you know is inaccurate, and explain the exposure - rescission, damages, and a license complaint - not as a threat but as the reason for the request.
- Notify your managing broker immediately and get the brokerage's position in writing. This is a supervisory and E&O issue, not just a listing-agent judgment call.
- Disclose what you know to buyers if the listing continues. Many states require a licensee to disclose known material facts even without the seller's consent; where the rule is unclear, the safer course is disclosure plus broker and legal consultation.
- Withdraw from the listing if the seller insists on concealment. Terminating the representation is better than being the agent who carried a false disclosure to closing.
Keep the record: a dated memo of the instruction, your advice, and your broker's direction. If the seller later claims you knew and stayed silent, that memo is your defense.
What you do not do: you do not write 'seller makes no representations' into the contract as a workaround, and you do not tell the buyers the basement is 'probably fine.'
3. The buyers want to offer tonight with a five-day inspection and FHA financing. What do you advise putting in the offer, and why?
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Five days is too short here. It assumes a general inspector can also get a chimney sweep and a waterproofing contractor out within the window. Seven to ten days is realistic, and a longer window costs the buyers nothing but a little time.
Structure the offer to preserve options:
- Inspection contingency with a defined window and a written remedy request period. As-is language in the contract does not remove the right to inspect or to walk away under the contingency - it removes the seller's obligation to repair.
- Ask for a credit rather than repairs. Buyers control the money and the workmanship; FHA permits seller concessions up to 6% of the price.
- Keep the appraisal contingency. FHA's appraisal will note the flue crack and any evidence of moisture; minimum property condition standards can require repair before closing, and a safety issue on the flue can stall the loan entirely.
- Get specialized inspections - chimney or HVAC for the flue, and a waterproofing or drainage evaluation for the basement - before the inspection period ends, so the remedy request is based on quotes, not guesses.
Set expectations with the buyers: budget realistically for waterproofing, grading, and chimney work; check the flood determination and insurance cost, since 'the creek backed up' may affect both insurability and premium; and confirm they still want the house at this price if the seller refuses to credit anything. An FHA buyer with limited reserves needs to know that before the inspection period closes, not after.