The Seller’s Property Disclosure (SPD) is an important disclosure form for the real estate broker to discuss with their respective client. Both the seller and listing broker have obligations concerning the use of this form, and the buyer and buyer’s broker need to have an understanding of what this form represents by way of disclosures.
The SPD form is referenced in the Contract to Buy and Sell (CBS) in section 10.1:
“10.1. Seller’s Property Disclosure. On or before Seller’s Property Disclosure Deadline, Seller agrees to deliver to Buyer the most current version of the applicable Colorado Real Estate Commission’s Seller’s Property Disclosure form completed by Seller to Seller’s actual knowledge and current as of the date of this Contract."
The three (3) applicable Seller’s Property Disclosure (SPD) forms can be found on the Division’s website under Commission Approved Contracts and Forms.
Explaining the Seller’s Property Disclosure to a Client
- Working with a Seller
Brokers working with a seller should have a conversation with their seller very early in the real estate transaction regarding property disclosures in order to properly prepare them regarding completing the SPD form and to avoid disclosure issues from arising during and after the transaction. When explaining the SPD form to a client, a mutual understanding of the form’s terminology and context is critical.
A good place to start is with the introductory paragraph of the SPD form on page 1. The very beginning of the form states: “Seller states that the information contained in this Disclosure is correct to Seller’s CURRENT ACTUAL KNOWLEDGE as of this Date.” In explaining this to the seller, it should be clear that the seller could not disclose what they do not know. Current actual knowledge is simply “as far as the seller knows.” In addition, the seller’s disclosures must be truthful.
The next sentence of this introductory paragraph states: “Any changes must be disclosed by Seller to Buyer promptly after discovery.” The common definition of “promptly” means without delay, very quickly or immediately. Therefore, once it is discovered that a particular matter needs to be changed in the form, it should be disclosed to the buyer without any delay.
Another important statement in this paragraph states that: “Seller's failure to disclose a known material defect may result in legal liability.” Factual information is material when a reasonable person would have ascribed actual significance to the information. Undisclosed facts are ‘material’ if a consumer’s decision might have been different had the truth been disclosed. Then, if that material information is contrary (“adverse”) to the interest of one of the parties, it must be disclosed.
Another section of the form to discuss with the seller is on the last page (page 8) in the section titled Advisory to Seller. The broker should take some time to advise the seller that the broker has the obligation to disclose to any prospective buyer all adverse material facts actually known by the broker. If an adverse material fact is known by the broker it MUST be disclosed by law, regardless if it harms the party, the broker, or both.
Also, when filling out the SPD form it is important for the seller to know the distinctions of “EVER EXISTING” and “NOW EXISTING.” This is important because not all of the sections require past existing conditions to be disclosed.
- Working with a Buyer
Brokers working with a buyer also need to make sure that the buyer has an understanding of the form’s terminology and context regarding its disclosures.
Some common aspects that may confuse a buyer regarding the SPD form are:
- What does it mean when there’s no check mark?
- Does it mean that it doesn’t exist, there is no problem, or the seller didn’t fill it out completely?
The buyer should understand that any item without the “yes” box checked is an affirmative statement that the seller has no current actual knowledge.
On the last page of the SPD form (page 8), it is well advised to discuss with the buyer that property inspection services may be purchased and are advisable, and that this disclosure is not intended as a substitute for an inspection of the property.
It may be wise to discuss with the buyer the principle of “Caveat Emptor”, meaning “Let the Buyer Beware.” A buyer should not solely rely on what the seller tells them. They should also use some due diligence in finding out about the condition of the property.
Also on the last page of the SPD form (page 8), the broker should take the time to go through the section titled Advisory to Buyer, to make sure that the buyer truly understands the context of the seller’s disclosures, the options available to them to thoroughly inspect the property, and to obtain information about the property from various agencies and sources.
- The broker should not take a “hands off” attitude concerning the SPD form.
- Review the SPD form for completeness before disseminating it.
- Having viewed the property, inquire to the seller as to any apparently missing or contradictory information.
- The seller should be encouraged to fill out the SPD form. Even if the seller lives out of state or has not been in the property, the seller usually knows something about the property.
- In most cases, the more transparent a seller is concerning issues with the property, the easier the transaction will be for all parties.
- The broker should never fill out this form for the seller, however, the broker should review the form to make sure it is accurate to the broker’s knowledge.