Disclosure Requirements for Home Sellers Under State Laws
A homeowner preparing to sell their home generally will need to provide a buyer with a report that discloses any material defects and hazards on the property. Even if your state does not legally require disclosures, they are often expected and should be taken into account. Handling disclosures smartly and thoroughly is an important part of building a strong relationship with the buyer, allowing the deal to proceed smoothly and preventing complications later.
What You Need to Disclose
A disclosure form usually consists of a set of boxes in which the seller checks off the existence of features on the property and reports conditions related to them. These may include several categories, such as utilities, environmental conditions, land use issues, and improvements. Some states only require a seller to provide basic statements about the age of the house, access to plumbing and water sources, and safety features. Other states provide forms that cover the condition of various appliances in detail. You may even need to disclose information about criminal activity or other problems in the neighborhood. The forms may cover “psychologically impacted” property, which is property where a murder, suicide, or other unsettling event has occurred.
Some disclosures relate to common interest developments and homeowners’ associations. This may result in additional contingencies in the purchase and sale agreement, such as providing the buyer with the documents related to the development or association. For example, a buyer may want to investigate the financial situation of the development, any litigation involving the association, or the requirements in its CC&Rs (Covenants, Conditions, and Restrictions).
If you are not sure whether you are legally required to disclose a certain issue, you should avoid the risk and disclose it. A thorough disclosure will boost the buyer’s trust in you and facilitate negotiations, while also avoiding liability for any omissions down the road. You can disclose anything that does not fit into one of the categories on the form under an “Other” box. Sellers do not need to disclose tiny defects because they are not material under the requirements of the law. However, if you are unsure about whether something is material, you should err on the side of disclosing it unless your state’s law specifically allows you to omit the disclosure for privacy or other reasons.
Real Estate Agents and Disclosures
In addition to the seller, a real estate agent has a duty to tell buyers about problems with the home that they have observed. They may have a separate form, or they may fill out a section of the seller’s form. In states that do not specifically impose this duty, real estate agents usually will want to disclose any problems anyway to avoid liability for fraud. Agents do not need to inspect the property in any greater detail than the homeowner, but their more experienced eye may reveal problems that the homeowner did not notice. They likely will bring these problems to their client’s attention as well so that they can decide whether to repair them.
Liability for Inadequate Disclosures
A legal claim may arise against a seller after the transaction if it turns out that they omitted or misrepresented material defects in the property. This is true even if your failure to disclose was careless rather than deliberate. Causes of action in these cases may include fraud, misrepresentation, or simply failure to disclose. One of the main reasons why you should disclose anything that you suspect may be required is that the cost of liability in these cases can be immense. Courts sometimes will award damages that greatly exceed the cost of repairing the condition, in addition to the plaintiff’s attorney fees and court costs. In extreme situations, a court might reverse the transaction entirely and return the defective property to the seller while refunding the buyer, but this is unusual.
Lead Disclosure Rules
Under the Residential Lead-Based Paint Hazard Reduction Act of 1992, a federal law, you must meet specific requirements if you are selling a house that was built before 1978. In addition to disclosing lead-related hazards, you will need to provide a buyer with an EPA pamphlet on lead hazards in the home, provide warnings in the purchase and sale agreement, and give buyers 10 days to test the home for lead. You also will need to provide signed statements to verify that these requirements were met and keep them for three years. Failing to meet the requirements under this law can result in liability for three times the actual damages suffered by the buyer.
