Understanding Seller’s Disclosures

You’ve been on the house hunt for a while now and you finally think you found a place that you love. You’ve done your home tour, memorized the listing and completed all the research you can on the area. It seems like everything is covered, but listings and walk-throughs don’t reveal all the truths you need to know about a home.

Thankfully, most states require a Seller’s Disclosure be part of each home sale, which will help you as the buyer understand any negative aspects about the home you’re interested in buying that weren’t mentioned in the listing and you couldn’t see in your tour.

What is a Seller’s Disclosure?

A Seller’s Disclosure is one of the many legal documents involved in a home sale and clearly states any known issues about a home and its property before a sale. Sometimes referred to as a “property disclosure,” the document requires sellers to list the negative aspects of a home so that buyers know more about what they are getting into if they choose to purchase the home.

A Seller’s Disclosure is designed so that there are no surprises near the end or after a home sale that would cause a massive delay in the purchase or cause legal action after the fact. In that sense, a Seller’s Disclosure is good for both the seller and the buyer. A seller can’t be sued by a buyer for an issue with the home if it was clearly stated in the Seller’s Disclosure. By signing the document, the buyer is legally stating that they agree to purchase the home with the previously known conditions about the home.

What should a Seller’s Disclosure include?

Most states require home sellers to complete a Seller’s Disclosure during the process of selling their home, but those requirements do vary by state. Seller’s Disclosure forms are likely given to a seller by their agent to fill out with information that they know about the house from their experience living in it. Problems listed in the Seller’s Disclosure form are not what comes up on a home inspection. It is the seller’s duty to list the issues and make them available to potential buyers before getting to the closing process.

A standard Seller’s Disclosure document will include the following detailed information:

• A list of specific issues the homeowner must check off if the home has them
• Questions about the property the seller must answer with “Yes,” “No,” or “Unknown”
• Space to provide further explanation of the issue and whether it was fixed
• Space to provide additional disclosures not listed in the document
• A list of appliances that are included with the home

How are Seller’s Disclosure requirements determined?

The laws and regulations about what must be included in a Seller’s Disclosure depend on local, state, and federal laws, meaning that some things must be included in all areas and others not. For instance, a federal law mandates that a seller must disclose if a house built before 1978 contains lead-based paint.

In general, the most important items required on a Seller’s Disclosure are called “material facts,” which means they could significantly influence a buyer’s decision on the home. Material facts are major issues whereas nonmaterial facts are generally minor and often don’t even require disclosure to the buyer.

Are there different types of Seller’s Disclosures?

So what kind of information needs to be included in a Seller’s Disclosure? Here are some of the most common issues that sellers must inform prospective buyers of about the home.

Property repair history

Major repairs made to a home or the property it lies on are common on Seller’s Disclosures. If there has been an issue that required a major repair, buyers have the right to know what the issue was, if/how it was repaired, and if the issue could come back. If the repairs must be done regularly, this could be a negative to buyers, whereas if a good repair was done and properly documented by a reputable contractor, this could be seen as a plus by a buyer.

Damage, hazards, and faulty systems

Previous major damage to the home’s foundation, or current existing damage that hasn’t been fixed, can be a major red flag to prospective buyers. Disclosing that a home has these types of issues is likely to turn off buyers, so if the issue is known to the seller, they might be better off fixing it before listing the home and disclosing that the repair was done.

Some of these major issues include:

• Water damage
• Cracks in the foundation
• Termites/termite damage
• Infestations
• Asbestos
• Radon
• Lead paint
• Damaged or malfunctioning systems, including plumbing and electrical

Death in the home

While it may seem inconsequential to some people, some states require sellers to disclose if there has ever been a death in the home. While some states, like California, require any deaths within the last 3 years to be disclosed, some states have shorter time frames or don’t require it at all. Some states require the disclosure of a murder or suicide in the home, but don’t require you to disclose if a person died of natural causes.

HOA governance

A Seller’s Disclosure usually includes mentioning whether the home is under a neighborhood homeowner’s association. HOAs typically involve a lot of rules and regulations that some people might not want to get involved in, not to mention the annual fees. While some homes are clearly within an HOA neighborhood, others might not be, so you don’t want them to find this out at the end of the process and it be a dealbreaker.

Liens on the property

If a seller has a lien on their property, they are forced to pay back that lien or give up the property to the lien holder. If there is an existing lien on a property you’re looking at, you’d be trusting that the seller is going to pay the lien with the sale of the home. However, if they don’t, the lien holder can come after your property, which is a major detractor from closing deals on a home.

Items that stay with the house or don’t

Another line that typically goes into a Seller’s Disclosure, but is not included in all states, is about items in the house that go or don’t go with the sale. The most common items in this case are appliances. More often than not, refrigerators, washers and dryers are included in the sale of a home. But, if a seller has a special attachment to an appliance that they spent extra money on, they may want to take it with them, and that would need to be disclosed.

Property line disputes

Another common line item in a Seller’s Disclosure is about property line disputes with neighbors, the city, or the HOA. This can be an ongoing battle between the owner and their neighbor about where a property line is exactly. If there is a claim out by another party against the seller for a property line dispute, this is something that would carry over to the buyer, so it needs to be included.

Nearby nuisances

Occasionally, states require nearby nuisances to be disclosed. Such things as railroad tracks, schools, airports, or landfills could all be included on that list. Any nearby facility that is going to potentially cause a noise or smell issue with the house should be disclosed to a buyer in case it negatively impacts their decision.

What does ‘caveat emptor’ mean?

While a Seller’s Disclosure puts the responsibility on a seller to list things that could be negative about a home, some states instead exact the caveat emptor rule, putting the responsibility on the buyer. In these states, it becomes the responsibility of the buyer to look into any potential issues with the home that may impact their decision.

Some buyers choose to purchase a home “as is,” which can be risky for a lot of reasons. Regardless, it’s a good idea for a buyer to get a home inspection and look into home warranties in case there is an issue that they might not be able to figure out themselves.

What can happen if sellers fail to make a Seller’s Disclosure?

If a seller fails to mention a major item on a Seller’s Disclosure, it can result in different issues. If the sale has not yet gone through and a prospective buyer learns about an issue, they can easily back out of a sale and you could be on the hook for money already invested into the sale. If a sale goes through and the buyer finds an issue and believes you knew about it and didn’t disclose it, they can take legal action on you after the fact.

Tips for buyers when reviewing a disclosure document

As a buyer, when you’re looking at a home, it’s a good practice to carefully review the Seller’s Disclosure to help you determine if this house is right for you. Here’s a few of the things you should do when you get a Seller’s Disclosure.

Review the document with a professional

Your real estate agent is likely to be the first person to receive the Seller’s Disclosure and will give you a summary before you even see it. But read through the entire document with them and ask them to explain anything you don’t understand. It may even be a good idea to consult with a real estate attorney in case there are some special conditions, such as a pending property line dispute or lien on the home.

Cross-check the disclosures against local and professional reports and documents

While a seller may be required to complete and submit a Seller’s Disclosure, that doesn’t necessarily mean they are going to give you all the information they are supposed to, or that it will all be entirely correct. If there is a major item listed on a Seller’s Disclosure, as the buyer, it’s your job to do research on it or ask your agent if they can help.

Some things to look into are any official documentation about liens or disputes that are mentioned. The seller could be downplaying the extent of the situation. You also might want to verify distances to some of the nearby nuisances or ask for receipts and statements of work on any of the major repairs that were claimed to be made.

Weigh the risks carefully

When looking over the items listed in a Seller’s Disclosure, you might determine that you’re alright with living with some of these. Some may be less costly or bothersome than others. However, be very careful taking on a property that has major damage repairs, liens, or disputes as they can come up much later after your purchase and outside of the time frame when you can take any action against the seller.

Hire professionals to conduct your own inspections

Finally, it’s always a good idea to have a home inspection done on any home you’re considering purchasing. You should have a home inspector look for issues that they normally would that might legitimately not be known by the seller. You should also ask the home inspector to look carefully at any physical issues mentioned in the Seller’s Disclosure. Have them assess how well repairs were done or if there will be recurring issues.

FAQ

These are some of the most frequently asked questions about Seller’s Disclosures that you might still have.

Is it bad if a home doesn’t come with a Seller’s Disclosure?

If you’re considering buying a home and it doesn’t include a Seller’s Disclosure, this could be a red flag, especially if your state requires one. If a seller is intentionally leaving this out of the paperwork, they may be trying to hide something and it likely isn’t worth trying to force them to complete the document. If your state doesn’t require a Seller’s Disclosure, you should still be cautious about a home that doesn’t include one, as it is generally best practice in real estate transactions.

What are the repercussions of lying on a Seller's Disclosure?

If a seller lies on a Seller’s Disclosure, the consequences can drag on past the sale of the home. Just because you bought the home doesn’t mean they’re off the hook if they intentionally lied about an item that should have been on the document or if something was misconstrued. However, it will likely be up to you as the buyer to bring about a lawsuit to hold them liable for the repairs after the sale closes.

How can I write a good disclosure statement?

As a seller, it’s important to be completely honest in your Seller’s Disclosure so that you can be upfront with potential buyers and avoid wasting everyone’s time. Stick to what you know about your home without having to have it inspected. Fill out the appropriate form for your state and make sure you disclose any past issues and repairs or reconciliations without guessing.

The bottom line: A Seller’s Disclosure is a vital component of every home sale

A Seller’s Disclosure document helps protect both the seller and the buyer in a home purchase transaction. Designed to clearly state the history of issues with the home, this avoids costly issues and time spent on a closing process that can break down at the end.

If you’re looking to purchase a home, learn more about the home buying process and get started with an online application with Rocket Mortgage to help speed along your process of buying a home.