Couple Reviewing Closing Document With Realtor

Understanding Seller’s Disclosures

Lauren Nowacki7-minute read

February 17, 2021

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In our information-obsessed society, we want to know everything about a person, product or service before we commit to it. It’s why we Google our dates or look them up on social media before meeting in person. It’s why we look up reviews on products and shop around for the best service provider, lender or brand.

When it comes to committing to spending hundreds of thousands of dollars on a home, you better believe home buyers are going to do their due diligence to learn everything they can about a property before they dive in headfirst.

While a home listing and walkthrough provide potential buyers with a good amount of information, they rarely show the full picture and give all of the details they’re looking for. Luckily, there’s another resource out there – and it’s required by most states. It’s the Seller’s Disclosure, and it’s used to help peel back the curtain on a home and help buyers make an informed decision on whether they’re going to make the ultimate commitment and buy it.

What Is A Seller’s Disclosure?

A Seller’s Disclosure, or property disclosure, is a legal document that sellers fill out to reveal and explain defects and conditions of the home they’re selling (or events that happened on the property) that prospective buyers may find unfavorable.

The disclosure is important for those buying a house and for those selling the property. it provides a clearer picture of the home and its history and allows buyers to make a more educated decision on whether to purchase the home, defects and all. For sellers, the document can protect them from being sued by the buyers after the sale is complete.

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How Are Seller Disclosures Made?

Most states require Seller Disclosures as part of the home buying and closing process. However, the information you need to provide to buyers will differ per state. To learn more about what you need to disclose as a seller where you live, review the disclosure requirements for your state.

States requiring disclosures will likely have a standard, multipage form that helps guide the seller and covers the required disclosures. You can get the form from a buyer’s or seller’s agent or real estate attorney.

While the documents will vary in format, they may contain the following:

  • 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 if it was fixed
  • Space to provide additional disclosures not listed in the document
  • List of appliances that are included with the home

The information you provide on the disclosure is to the best of your personal knowledge. It’s everything you know to be true of the home. You don’t need to hire an inspector or other professional to find all of the issues – disclosures are based on what you were told about the home from previous sellers and inspectors and your own experience in the home.

How Are Disclosure Requirements Determined?

Seller Disclosure requirements can be dependent on local, state or federal laws. For example, it is required by federal law that sellers disclose lead-based paint hazards in houses built before 1978.

How a state determines its disclosure requirements – or whether it even has requirements – often depends, in part, whether the issue is considered material fact or not. Material fact is believed to influence a prospective buyer’s decision to purchase the home. It’s essential to know. Nonmaterial is information that’s seen as inconsequential, with little or no impact on a buyer’s decision.

Types Of Seller Disclosures

Wondering what you might have to disclose? Here some of the common types of disclosures sellers might be required to make to a prospective buyer.

Property Repair History

Sellers may be required to disclose a list of all of the major repairs made in various areas of the property. Buyers will want to know of any past problems and how they’ve been fixed. They’ll want to know if an issue’s been fixed, if it requires ongoing maintenance or if it has the potential to cause problems in the future. Knowing that something’s been repaired can also bring peace of mind and even be a selling point.

Damage, Hazards  And Faulty Systems

Common issues that require disclosures include anything that may cause major structural damage to a property or endanger a prospective buyer or the integrity of the house. These issues and hazards include:

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

Remember, federal law requires the disclosure of lead-based paint in homes built before 1978.

Death In The Home

Most states don’t require the disclosure of a death in the home, and those that do have different rules on timelines and types of death. Some states only require a death be disclosed if it happened within the last year. California requires a death be disclosed if it happened within the last 3 years. Some states require a death in the home be disclosed if it was a murder or suicide that happened in the home.

While a written disclosure may not be required, real estate agents must disclose deaths if specifically asked by the buyer.

HOA Governance

You’ll need to disclose if your property falls under the governance of a homeowners association or condominium association. That’s because there are often fees to pay and specific rules to follow that could turn a buyer off. Either way, they’ll need to know what they’re getting into, so make sure you also include the fees and required rules to follow.

Liens On The Property

A lien on a property is ownership rights given to a lender should the property owner not repay their debt to the lender. If there is a lien on the property, the seller must get the lien holder’s permission to sell the property. If it’s granted, the seller must disclose any existing liens on the property. With a lien on the property, the new homeowner could essentially lose their home to the lienholder if a debt isn’t paid back. Buying a home with an existing lien is very high-risk and typically not advised.

Items That Stay With The Home, Or Don’t

In some states, sellers are required to disclose what items come with the property and which ones will be removed when the seller moves out. These can include appliances, lighting fixtures and furniture.

Property Line Disputes

Property line disputes must be disclosed as they can cause issues with new homeowners and neighbors. If there is pending action against your property, potential buyers will need to know that the neighbor has a claim against land they’re buying.

Nearby Nuisances

Some states may require the seller disclose certain types of noises, odors and other things that may annoy the new homeowner or make living conditions unbearable. You may need to disclose your home’s close proximity to sources of such nuisances, including farms, airports, shooting ranges, landfills or military bases.

What Is The Caveat Emptor Rule?

Instead of required disclosures or a Seller Disclosure form, some states use the caveat emptor rule. Also known as “buyer beware,” caveat emptor puts the onus on the buyer to learn more about the home and anything that may affect its quality or sustainability.

If buyers live in a caveat emptor state or if they’re considering buying a house as-is, they should do their due diligence in finding out what disclosures, if any, are still required. They should also get a detailed home inspection, purchase a home warranty plan for working appliances and systems, use a knowledgeable and experienced real estate agent and consider working with a real estate attorney.

What Can Happen If Sellers Fail To Make Required Disclosures?

If you knowingly fail to disclose details about your property that you’re required to share with a prospective buyer by law, there are a few things that can happen. The buyer can cancel the sale and you could get charged a fee. Worse, a buyer can take legal action against you if an issue they believe you knew about and didn’t disclose comes up after the sale.

Tips For Buyers When Reviewing A Disclosure Document

If you’re the one purchasing a home, follow these tips once you receive a disclosure document from the seller.

Review The Document With A Professional

Consider going over the disclosures with your real estate agent or real estate attorney. Both should be working with your best interest in mind, so they should warn you of any red flags they see. They’re also more knowledgeable in the industry, so they’ll be able to define relevant terms, explain what each disclosure means and tell you what should be of major concern and what future cost or work certain issues may entail.

Cross-Check The Disclosures Against Local And Professional Reports And Documents

There are many ways to find proof of certain things, thanks to public records, contracts and reports. Cross-check the disclosures your seller makes (about things like zoning, permits, liens) against official documentation from the appropriate local offices in order to make sure the seller is telling the truth and isn’t omitting important details. If the seller says something was fixed or replaced (for example, a new roof or HVAC system), ask to see the contract, receipt or warranty that came with the work. If they’ve had an inspection completed, ask to see the report and get the contact information of the inspector.

Weigh The Risks Carefully

To consider what you’ll be ok with and what you won’t, consider the costs, time and work involved in fixing an issue. Or the costs and amount of work that could arise should the issues become a bigger problem. Is the home worth all the time, money and stress invested?

Hire Professionals To Conduct Your Own Inspections

If you wish to proceed with the sale of the home or want to learn more about the condition of the property, consider getting a home inspection, specifically evaluating those issues that were disclosed. If there are structural issues in question, consider having a structural engineer inspect the foundation and structure of the home. They can give you a better idea of the extent of the problem, how to fix it and at what cost. This will be an additional cost, which you may be able to negotiate with the seller.

The Bottom Line

Seller Disclosures give buyers a clear picture of what they can expect living in the home and protect sellers when issues arise after the sale. While there are always surprises that come with owning a house, seller disclosures help new homeowners prevent or prepare for the potentially bigger ones.

Learn more about homebuying, check out our article for buyers and sellers in the Rocket Mortgage® Learning Center.

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Lauren Nowacki

Lauren Nowacki is a staff writer specializing in personal finance, homeownership and the mortgage industry. She has a B.A. in Communications and has worked as a writer and editor for various publications in Philadelphia, Chicago and Metro Detroit.