Deception in Disclosure Statements in Real Estate Negotiation

Abstract: This study examined how sellers write disclosure statements in real-estate negotiations and how buyers react to those statements. In the first phase, using a scenario method, in response to a property description that detailed noise issues, business students, in the role of seller, wrote disclosure statements. There was remarkable variance in the statements, with about 14% reflecting complete honesty and 86% involving some element of deception. In the second phase, we used an actual seller’s disclosure statement (obtained via LexisNexis) that in real life led to a multimillion-dollar civil lawsuit that, after a year, settled in mediation prior to jury trial. Thirty-two participants (44%) judged this seller’s statement to be a highly satisfactory disclosure statement. This suggests that sellers generally are not good at knowing what sort of disclosure statement will keep them out of litigation.

Keywords: real-estate negotiation; disclosure; deception