What are Real Estate Disclosures and How Can They Affect You?
In most parts of the country, sellers and their agents are required to document any known defects—current or past—to potential buyers. But some sellers don’t play by the rules and will try to slip one past a buyer. So exactly what are real estate disclosures? And how can they affect you?
What are real estate disclosures?
Disclosure statements can come in a variety of forms. They’re the buyer’s opportunity to learn as much as possible about the property and the seller’s experience in it.
Potential seller disclosures range from knowledge of leaky windows to work done without permit to information about a major construction or development project nearby.
Not only do disclosure documents serve to inform buyers, but they can also protect the sellers from future legal action. It’s the seller’s chance to reveal anything that can negatively affect the value, usefulness or enjoyment of the property.
How do sellers make a real estate disclosure?
Disclosure laws vary from state to state, even at the city and county level. California has some of the most stringent disclosure requirements. The law requires that sellers (and their agents) complete or sign off on dozens of documents, such as a Natural Hazards Disclosure Statement, Local and State Transfer Disclosure Statements, Advisories about Market Conditions and even Megan’s Law Disclosures.
Disclosure typically comes in the form of boilerplate documents (from the local or state real estate association), where the seller answers a series of yes/no questions about their home and their experience there.
Additionally, sellers must present any documented communication (between neighbors, previous owners, the seller or the agents) about a substantial defect or item that could have an adverse impact on value.
Depending on where you live, sellers can be on the hook for what they disclose (or fail to) for up to 10 years. Sellers should err on the side of caution. If you know it, put it out there. If you try to hide something, it can come back to haunt you in the form of an expensive lawsuit.
What should sellers disclose?
Previous improvements, renovations or upgrades done by sellers are typical disclosures, as well as whether work was done with or without permits.
Buyers should cross-check the seller’s disclosures with city building permit and zoning reports. Work completed without a permit, or approval by the municipality, may not have been performed to code, which could result in a fire or health hazard.
Other standard disclosures include the existence of pets, termite problems, neighborhood nuisances, any history of property line disputes, and defects or malfunctions with major systems or appliances. Disclosure documents often ask sellers if they are involved in bankruptcy proceedings, if there any liens on the property, and so on.
Is a real estate disclosure the same as an inspection?
Disclosure is something given to the buyer by the seller documenting their knowledge of the property. It is not the same thing as an independent inspection by a third party. An examination may reveal defects that the seller may not have been aware of.
The buyer should always do a full property inspection, before moving forward with the purchase. The inspector checks all systems and components from the roof to the basement. Often, in the interest of the ultimate in full disclosure, a seller hires a property inspector before going on the market and supplies the written report to the buyer.
When does the buyer receive real estate disclosure statements?
In most markets, real estate disclosure documents are provided to buyers once the seller has accepted their offer. In addition to their inspections or loan contingency, the buyer has an opportunity to review the seller’s real estate disclosures. If the buyer discovers something negative about the property through disclosure, she can usually back out.
In some markets, sellers provide these disclosures to the customers before an offer. Smart sellers let buyers know everything they need to know up front. This saves everyone time, hassle and expense by preventing deals from falling apart in escrow.
Buyers must sign off on all disclosures and reports. So it’s important to review real estate disclosures carefully and ask questions. Providing full disclosure can help a seller. By laying their cards out, sellers can give buyers a sense of comfort and peace of mind, making their home more desirable than a competing one.