Real estate disclosures are a way of making the sale of a home more transparent. The seller discloses issues they know about that could affect the home's value.
A seller's disclosure gives more information to the buyer and can protect the seller. There is less chance that the seller will face legal action when providing an honest statement describing known issues in the property.
But what must a seller disclose? We will look at what needs to be disclosed when selling a home.
What is a Seller's Disclosure Statement?
Typically when you sell your home, you must fill out a disclosure statement or notice. This often contains yes and no questions about the home, with space to clarify your answer. Usually, there is also a box to check if the answer is unknown.
If a disclosure statement is required in your state, there might be more than one standard form available. Perhaps one of the forms asks a few more questions than the other, but if you are unsure precisely what is legally required, your Realtor should have the answers.
When the buyer makes an offer, a deadline should be included stating the time for the seller to provide the disclosure and for the buyer to review it. The purchase contract should also give the buyer a way out of their offer should the disclosure be unfavorable.
Federal Requirements For Certain Disclosures
Disclosure in real estate is based on requirements set by federal, state, and local laws. Federal law, for example, rules that sellers with homes constructed before 1978 have to disclose potential exposure to lead paint. Lead-based paints can give young children lead poisoning, causing neurological damage.
If your home was built before 1978, the U.S. Environmental Protection Agency offers a disclosure form on its website. The buyer also needs to be given the Environmental Protection Agency pamphlet “Protect Your Family from Lead in Your Home.” This can be downloaded, printed, or ordered from the GPO Bookstore.
Lead paint must be removed when a child under six years old lives in a home where it exists. Being caught violating the lead paint law can come with serious consequences.
Another example is the disclosure of death or paranormal activity. Some states require it, while others do not. It is essential when buying a home to understand what is a required disclosure and what isn't.
These types of properties are often referred to as stigmatized. Since the specific situation can impact the market value, it is good to know the exact circumstances surrounding the stigmatization.
State Requirements For Disclosure
What is required by states can be very different, with some states not even requiring a real estate disclosure.
For instance, if you are located in New York, you can complete a property condition disclosure when selling your home. Instead, you can give the buyer a $500 credit at closing. However, even if you choose to pay instead of filling out the disclosure, this doesn’t stop you from being liable for undisclosed issues.
In California, sellers must fill out a Real Estate Disclosure Statement and a Natural Hazards Disclosure. The second disclosure requires that the buyer is informed if the home is in a zone likely to suffer from natural hazards, like wildfires or earthquakes.
Though if you are in West Virginia, Arkansas, or Alabama, you won’t have the responsibility for filling out a disclosure most of the time. In those states, they use caveat emptor rules or buyer beware, placing more risk on the buyer.
Even if the buyer has to be more careful with their due diligence, the seller will still need to follow the federal laws on disclosure.
What Has to be Included in a Seller’s Disclosure?
While state rules vary, some defects and issues will feature in standard disclosure forms. These include:
- Cracks in the foundations
- Leaking roofs
- Basement flooding
- Water leaks
- Septic tank issues
- Problems with the walls, doors, or windows
- Termite infestations
- Asbestos or radon contamination
- Boundary line disputes
- HOA restrictions and fees
In some states, sellers are not required to disclose these items voluntarily. However, if a buyer asks a question, sellers must be truthful. On the other hand, real estate agents must always disclose issues they have discovered about a property.
What Can Happen When the Seller Doesn’t Tell the Truth?
If the seller knows a problem with the home that might deter buyers, they could decide not to mention it in the disclosure statement. If, after the buyer has moved in, they find a problem with the home, the seller could face a legal battle.
The buyer could sue the seller for damages. However, the buyer must prove that the seller lied in the disclosure statement. While this could be difficult, there might be documentation showing that the issue was present in the home before it was sold and that the seller knew about it.
If you are selling your home, being honest with your buyer shows that you are trustworthy. If you don’t disclose a problem you know exists, it could be discovered during the home inspection anyway.
In some non-disclosure states, real estate attorneys recommend that sellers not volunteer problems associated with their property. Having a buyer's agent is worthwhile to help research a property for home buyers.
The take-home message here is to ensure you spend ample due diligence on any property you're interested in purchasing.