Real Estate 101

What are Real Estate Disclosures?

posted by Matt November 26, 2016 0 comments

While not exactly a glamorous topic, real estate disclosures are an exceptionally important part of the home buying process. Whether you’re buying your dream home or selling someone else’s, it’s a good idea to educate yourself on the topic of disclosures.

A real estate disclosure is, at its most basic, the seller telling the buyer what might be wrong with their home. This does not just cover the building itself. A disclosure tells the potential buyer if the local sewage treatment plant is within whiffing distance or if packs of wild dogs are likely to run off with your house cats.

Purpose of Disclosure

The basic purpose behind the disclosure is to protect the buyer. If you’re about to buy a home, you want to know if it’s prone to earthquakes or noisy trains, and the seller has to tell you that. The seller is obligated by law to tell you about any downsides to your home that they know. But the exact things to disclose vary from state to state. Pretty much every state wants the buyer to know if their home has foundation damage, a leaky pool or crumbling brickwork. The differences are in the details, but the object is the same.

Buyers can come back and sue sellers many years after they move in. But if the seller produces a disclosure receipt, the buyer won’t have a leg to stand on. The more a seller discloses, the better the protection, should the buyer take issue with the state of the home.

Lastly, a disclosure avoids the deal going bad. When the deal falls apart, it can cost both sides a lot of time and money, so offering the disclosure ahead of time can just be good business.

What Gets Disclosed

The most obvious things to disclose about a home are material defects. The home buyer wants to know about leaky faucets, flickering lights, or noisy water heaters. These aren’t necessarily deal-breakers, but a savvy buyer will want to know what’s wrong with the place.

The laws vary from state to state. Nearly anywhere, you have to disclose if someone was murdered in your home. If someone died in the house from something that was wrong with the house – that’s also pretty obviously something a buyer would want to know.

An honest seller will tell you if your house rattles every time the train goes past, but not every state is going to make you disclose that.  If your state laws require you to disclose a frequent noise nuisance. And you could end up sued if you try to hide it. Depending on the state, you may even wind up with a criminal record.

Environmental and natural hazards are yet another reason you’re going to have to talk to your realtor. Some states are rigid about making you disclose nearby toxic waste, buried fuel-storage tanks, or underground mining. Others are less strict. Your realtor should know what you have to disclose, and if they don’t, get a different realtor.

Homeowners associations might be great for some people and absolutely hated by others, so it’s a good idea to let a potential buyer know whether the home is part of an HOA community. This should be pretty blatant, but people have been sued for neglecting to mention it.

Buyers also want to know if you’ve done significant repairs to the home. Did a fire require replacement timbers? Did a car hop the curb and wind up in your basement, requiring loads of poured concrete and replaced beams?

Kitchen appliances, air conditioners, rain gutters, and lots of other things are generally assumed to come with a home. If yours doesn’t, you have to tell the buyer. There are other disclosures, of course. It all depends on where you live. Pending litigation. Weird zoning. Boundary disputes. The list keeps going, and it’s not the same everywhere.

What to Look For

If you’re selling a home, you’ll need to fill out a pretty good-sized pile of disclosure forms. The forms will walk you through the whole process. Most states will have the forms available for free online, and your realtor will definitely have them.

The first thing, of course, is the form itself. It’s not rude to ask the seller for the disclosure before you make an offer. Many sellers actually have the forms available online with the house listing, sitting in stacks in the living room or otherwise immediately available. It just speeds up the whole process.

Keep in mind that not everything is a deal-breaker. You might see electrical repairs, sticky doors or rickety fences, but here’s some bad news – every house needs work. And if you’re being honest, you can probably live with most of them. Some big factors should definitely throw up red flags, though. Foundation issues are serious, and many lenders will deny a mortgage for bad foundations.

Tips to Keep In Mind

So you’ve been over the disclosure and you’re happy with everything. Well, don’t get too comfortable – you’re not out of the woods yet. Sellers have to disclose everything they know about, but they won’t know about everything. Even if you’re OK with everything in the disclosure, you will need an inspection.

Read that document closely, and ask for clarification on anything particularly worrying. The seller probably has more information, especially if they’ve been living in the home. You probably haven’t made an offer on the house yet (you haven’t, right?), so feel free to ask some questions and see if there’s anything you can’t live with.

Get written receipts for any work done as part of the negotiated sale. If there’s a warranty issue two years down the road, you want to contact the people that fixed the problems.

The Short Version

Real estate disclosures can seem like a daunting part of the process of selling or buying a home. Still, it’s important that they are done correctly. As with nearly every other phase of the exercise, it’s an excellent idea to bring in a realtor, since it’s the realtor’s job to know stuff you don’t. The realtor will also be able to help you decide which parts of the disclosure are cosmetic or nuisances, and which are good reasons to back away from the sale. Don’t assume that a good disclosure means a good house – get an inspection so you can make informed decisions.

What other parts of buying or selling a home are mysteries to you? Tell us in the comments, and we’ll see if we can address them in a future article. 

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