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What Is a Home Seller’s Disclosure?
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When you make an offer on a home, one of the first pieces of paperwork you’ll get is a seller’s property disclosure. Also known as “property disclosure statement,” “home disclosure” and “real estate disclosure form,” this document contains a list of known problems with the home.
Although seller disclosure laws vary from state to state, most require some kind of seller’s disclosure statement. All have the same goal: to make real-estate transactions more transparent.
How does a seller’s disclosure work?
Typically you’ll get a home disclosure form once your purchase offer is accepted; however, a seller disclosure before offer is not unheard of. Again, your real estate agent can tell you the disclosure law in your state.
Even a property being sold “as is” still needs a seller’s disclosure if it’s required in that state. However, it’s unlikely the seller will fix any additional issues uncovered by a home inspection. This means you need to cover the renovations yourself if you buy the home.
In some states, no seller disclosure is required. Additionally, a residential property disclosure might not be required with estate sales and foreclosure sales conducted by court or sheriff. In these instances, the state’s real estate disclosure laws would specify what is required.
Common types of property disclosures
The answer to “What is a property disclosure?” is, “That depends.”
“The United States of America has 51 sets of rules,” says Mindy Jensen, a real estate agent in Denver.
For example, the state of Colorado mandates only six disclosures, such as the home’s source of drinking water and whether the property has ever been used as a methamphetamine lab. (Federal disclosures, such as the presence of lead paint, would also have to be noted.) While the state does provide a property disclosure form on its website, no Colorado law requires sellers to fill it out.
Suppose you live in a state where a seller’s disclosure isn’t required? The fact that a seller doesn’t offer a property disclosure statement on their own “tells me for sure that you need a home inspection,” Jensen says. (More on that below.)
In states that do require an in-depth seller disclosure form, a seller is typically expected to disclose past or current issues in these categories:
That last is very important, according to real estate attorney Laura Bramnick, who practices in Scottsdale, Ariz. She’s seen cases where people didn’t check the HOA rules before buying properties as real estate investments. “Then they find out that the condo can’t be rented,” Bramnick says.
5 things to look for on a seller’s disclosure
The seller’s property disclosure statement might seem a bit overwhelming, so ask your agent about anything that isn’t clear to you. In particular, watch for these important issues on a residential property disclosure form:
→ Mold or water damage. A plumbing problem or water coming in from outside the house can set the stage for mold or mildew. Both can spread into wallpaper, rugs, drywall and ceiling tiles. Depending on the laws in your state, a seller might be required to list these issues on the home disclosure form – if they know about them, that is. “You might have a compromised roof and the seller doesn’t know because it hasn’t started leaking,” says Anthony Kirlew, a real estate agent in the Phoenix area.
→ Termite treatment or damage. Left unchecked, termites can seriously damage a home’s structure – and standard homeowners insurance policies typically won’t cover this.
→ Lead-based paint. Lead is toxic and can lead to serious health issues, especially in children. The U.S. Department of Housing and Urban Development (HUD) requires disclosure of lead-based paint being used in a home built before 1978.
→ Floodplain location. Not every state requires sellers to disclose that their property is part of a floodplain as designated by the Federal Emergency Management Agency (FEMA). However, you can check this yourself using the FEMA Flood Map. Depending on what you learn, it might be necessary to get flood insurance; mortgage lenders often stipulate this.
→ Other natural hazards. A seller might have to disclose the fact that a nearby river floods seasonally, or that the property is near a fault line. For example, in California, a seller’s disclosure notice must include whether the property is within a “designated hazard area.”
Seller’s disclosure vs. home inspection
A real estate disclosure form lists known issues with a home, such as a nearby fault line or a cracked foundation that has been repaired. A home inspection is a report written by a professional inspector, detailing the home’s overall condition.
The homebuyer, not the seller, hires and pays the inspector. In return, they get an objective report on the condition of the home.
Again, some sellers honestly don’t know about current or pending home issues. For example, Bramnick knew people whose plumbing developed a small leak behind the laundry room. There was no indication of a problem, until “one day they walk in and there’s a flood,” she says.
Here are some examples of home issues that an inspector might find that a seller might not know about.
|Component of home||What a home inspector might find|
|Structure||Foundation cracks, settling cracks|
|Roof||Roof at the end of its lifespan, or roof damage not visible from the ground|
|Exterior||Grading issues, drainage problems|
|Plumbing||Leaks, faulty seals, evidence of past repairs|
|Electrical||Electrical panel access issues, broken ground fault circuit (GFI) outlets, insufficient wiring|
|Exhaust systems||Insufficient ventilation in bathrooms, laundry room, kitchen or attic|
What happens if the seller lies on their property disclosure?
If you think the seller lied on the real estate disclosure statement, you have several options. First, start by asking your agent to talk to the seller’s agent. If they can’t fix the issue between you and the seller, you should speak with a real estate attorney.
Not every such case winds up in court. For example, Arizona law requires mediation first for buyers and sellers who used a standard real estate contract. But, according to real estate attorney Bramnick, most cases she sees settle out of court with both parties splitting the cost of the mediation.
Although this typically runs from $300 to $500 an hour, mediation is usually a benefit. Going to court could cost “tens of thousands of dollars,” with no guarantee of success. “My experience has been that the cost of a lawsuit is a lot more than fixing the damage,” Bramnick says.
If mediation doesn’t work for a residential property disclosure statement dispute, then a lawsuit might be the next step. Should the seller lose the case, the court has several ways of making things right for the buyer: