03 Apr Revised, expanded PCDS required for new listings

Beginning April 1, listing agents will be required to use new Property Condition Disclosure Statement (PCDS) forms when selling residential property consisting of one to four units.

The new PCDS forms grow from three pages to eight pages and include a new form to sign, the Seller’s Statement of Exclusion.

The expanded PCDS provides more specific information about the physical condition of the property. The Mississippi Real Estate Commission believes this will allow more transparency for buyers and also be a deterrent to lawsuits, said Robert E. Praytor, MREC Administrator.

“In every one of the 50 states, the main cause of formal complaints is misrepresenting the condition of the property,” he said. “More information means fewer lawsuits, and it provides members of the public with more details of the property they might be attempting to purchase.”

The new Seller’s Statement of Exclusion makes the current exemption clause more definable, Praytor said. Certain transfers are excluded from fully completing a PCDS; however, sellers are still required to complete those sections where they have actual knowledge about the property condition.

“No one is exempt when they have actual knowledge,” Praytor said. “In the statute, sellers are not exempt from disclosing information about the condition of a property if they have actual knowledge. Sellers must complete those portions of the PCDS about which they are knowledgeable.”

While the three PCDS forms have grown in size, Praytor emphasized that nothing in the state statute has changed.

“Practically the entire document has been changed BUT the protocols and procedures that are described by the state law remain identical to those established in 2005,” he said.

Listing agents do not have wait for a completed PCDS before signing a listing agreement. However, if a property is listed before the PCDS is received and a buyer makes an offer, the transaction is potentially voidable. The buyer would be in a good position to withdraw from the contract and receive the earnest money back, penalty free.

“The PCDS must be attached to the listing agreement and must be signed by the seller at the closing when the transaction is finalized,” Praytor said.

MREC approved the changes this year after numerous requests from licensees who were raising issues regarding mechanical equipment, flood zones, foundations, easements and other sections.
“The changes should allow licensees and brokerage firms to diminish their liability in a residential transaction while providing needed information to buyers about the condition of the property being purchased,” Praytor said.

History

The Seller’s Disclosure Statement was implemented by the state legislature in July 1993 with the primary purpose of protecting the public when buying residential real estate. There have been several legislative amendments to the original statute, most recently in 2005.

In 1997, the state legislature authorized MREC to determine the structure and composition of the forms. While MREC can amend the forms, the commission does not change state statutes. In recent years, the commission has reviewed the current PCDS and examined it for clarity and completeness. Revisions were last made to the form in 2008. The revisions that take effect this year are intended to give a better explanation of residential property condition.

For sellers who completed the 2008 version of the PCDS, they are not required to immediately complete a new 2017 version of the PCDS on April 1. The 2008 version is still good for one year from its execution date.

When any PCDS expires after one year, the new 2017 version must be executed. For sellers listing on or after April 1, the new 2017 version must be used.

Completing the PCDS

Licensees are statutorily required to help sellers determine if a property is exempt from a PCDS; explain that a completed PCDS is required by state law; and explain the consequences of failing to complete one.

Licensees should also explain that if the property condition changes, the seller should amend the PCDS and make the document available to the buyer. It is permissible to attach an amendment as long as it references a specific portion of the PCDS.

For properties that are exempt from completing an entire PCDS, sellers are still required to fill out the portions that they have actual knowledge of the property condition. (For instance, an executor of an estate never lived in the house, but knows the roof was repaired recently. The executor may be exempt from a complete PCDS, but should answer Section C. Roof.)

If a seller refuses to sign a PCDS, licensees should write in that the seller refused to sign. If a seller refuses to sign, the seller could open himself or herself up to major liability.

Buyer’s agents are statutorily charged with actual delivery of the PCDS to the buyer. It should be delivered before any offer is made and checked for completion.

If the buyer’s agent is unable to obtain a PCDS from the listing agent, the buyer’s agent must detail in writing every effort made to obtain the document.

Buyer’s agents must inform their clients that a provision allows buyers to withdraw from a contract based on misinformation on the PCDS.

Buyers must sign the Informational Statement form to confirm understanding.

Both the listing agent and the buyer’s agent are required to disclose any information about the condition of property if they have actual knowledge of items on the PCDS. Failure to do so creates actual financial liability. The disclosure should be attached to the PCDS.

Neither the listing agent nor the buyer’s agent are responsible for inaccuracies or omissions, unless the licensee has actual knowledge of some information on the form.

If a licensee mishandles or does not obtain a PCDS, the licensee and the broker could both face license suspension or revocation and a shut-down of the brokerage firm until a new principal broker is appointed.

To help ensure compliance, listing brokers should not accept a listing agreement without the completed PCDS forms present in the transaction file. Further, brokers should consider not paying a licensee his or her commission until every document has been properly completed and placed in the transaction file.