By Christopher Murphy

Congratulations! You just made one of the biggest and most important decisions you will ever make during your lifetime. You’ve saved up some money, interest rates are at historically low levels, and you’re ready to purchase your first home. The home purchase process is a daunting process at best, but you have a great realtor and are now ready to go house hunting. Your realtor shows you some listings from the Guam Multiple Listing Service, most of which indicate that the property is being sold “as is.” So, what exactly does this “as is” mean? It simply means that the property is being sold based on the concept of Caveat emptor, or “Let the buyer beware.”

Most of us know of someone who has made a substantial investment in residential real estate, only to find out after the fact, that there was a major problem that required extensive time, effort, and money to address. Could these problems have been avoided? Maybe.

Not all buyers are real estate experts. Purchasing a property in “as is” condition places an undue burden on prospective buyers to conduct their own detailed due diligence on the property, without the aid of any information the owner may have that would assist their buying efforts and/or decisions. Unlike the majority of states, Guam does not have a Seller’s Disclosure law to ensure a more level playing field when it comes to the buying and selling of residential real estate.

To this end, Bill 29-36, co-sponsored by Senator Sabina Perez and Senator Telo Taitague, has been introduced to create a Seller’s Disclosure Statement, which will establish safeguards to ensure that prospective buyers are properly informed about the property they are considering purchasing. The law only applies to residential property (single-family to four-plex apartments) and requires all sellers to disclose known information on any material fact or defect associated with the property being sold. A material fact might be the fact that the property being purchased floods during heavy rains, while a material defect might be a serious crack in the foundation. To be clear, a material fact or defect must be known to the seller. The seller is not responsible for unknown conditions that are not readily observable or visible.

Today, most sellers sell their homes in “as is” condition. This means that they do not intend to spend any effort or money on addressing issues related to the property they are selling. Other sellers, who may be a bit more unscrupulous, attempt to hide material defects through the use of an “as is” clause, thereby placing the entire burden of investigation on the buyer. A first time or unexperienced buyer may purchase a property only to find out it has major issues, to which the seller takes no responsibility and responds, “I sold it to you in “as is” condition.”  This is not to say that all sellers are deceptive, but a Sellers Disclosure law coupled with a comprehensive Sellers Disclosure statement, will help prevent these types of scenarios from happening.

A comprehensive Seller Disclosure statement will include information on the nature of a property (legal description, type of property, type of ownership), information on the property’s various systems (electrical, plumbing, sewer, septic, air-conditioning, alarm, etc.), appliances, structural issues (walls, floors, doors, windows, ceilings, foundations, roofs, pools, etc.), construction, modifications, or repairs made without required local/federal permits, land issues (flooding, drainage, settlement, encroachments, easements, etc.), environmental issues (lead based paint, mold, infestation, hazardous materials, etc.), any existing or proposed litigation related to the property, any issues or events that stigmatize the property (suicides, murders, illegal drug activity, paranormal activity, or proximity to sex offenders, etc.), and any other condition of the property known to the seller that might materially affect its value or perceived value by a prospective buyer.

With respect to stigmatized property, ask your favorite realtor how many times buyers have inquired about murders, suicides, illegal drug activity, or paranormal (Taotaomo’na) activity related to the property they were interested in purchasing. Guam is a melting pot of different cultures, beliefs, and perceptions, which have a direct impact on the marketability of any particular piece of real estate.

The disclosure statement will allow the seller to answer questions on the above-mentioned conditions by checking a box identified as “yes,” “no,” “unknown,” or “not applicable.” There is additional space for clarification of an answer if necessary. The answers should be based on the seller’s personal knowledge of the property. The proposed law is not intended to place undue hardship on sellers by requiring them to spend money with third party professionals to conduct due diligence on information not known or visible to the owner.

It should also be noted that a Seller’s Disclosure form is not meant to replace a professional home inspection or any other due diligence a buyer determines appropriate when considering his or her purchase of a residential property. However, a comprehensive Seller Disclosure statement and a professional home inspection report may overlap in many areas, providing the buyer with valuable information to consider during the home buying process.

A sound Sellers Disclosure law and statement will raise the bar on Guam real estate practice. It will protect the general public from unscrupulous sellers, provide buyers with more information from which to make timely and informed purchases, and assist real estate professionals marketing efforts on behalf of their sellers. This is a consumer protection law that is good for the people of Guam and will enhance the buying and selling of residential real estate within our island community. mbj


— Christopher Murphy is the owner and principal broker of The Real Estate Professionals. He can be reached at [email protected].