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What Is A Seller’s Disclosure And Why Is It Important To Do It Right?

Samantha Bryant7-Minutes
May 25, 2021

You’ve officially put your home on the market. After preparing your home to look pristine, finding a knowledgeable real estate agent, and countless open houses, you may think you have everything checked off your to-do list as a seller. But, what about a Seller’s Disclosure? It’s important to have your Seller’s Disclosure statement readily available for any potential buyers.

In order to do that, you must know what it is and what should be included as you embark on your real estate journey.

What Is A Seller’s Disclosure?

A Seller’s Disclosure in the real estate world is required by a seller to reveal any possible downfalls about their property or home. Maybe there was a bad hailstorm and the roof needs to be repaired, or an issue with a leaking faucet. There is a required form that will need to be provided that highlights any possible problems the home buyer may experience with the home or property. This will ensure that there are no surprises once they officially call your home their own.

What Is A Seller’s Disclosure Statement Or Form?

This document is known as a property disclosure statement and it exists to make sure all are aware of anything that may negatively impact a home’s value. It’s important to know that these statements vary by state. For example, in California sellers must complete and provide written disclosures to a buyer. Your real estate agent is not legally allowed to help complete this form. Instead, sellers in California must complete it on their own. The state is very strict when it comes to what it expects sellers to disclose. It also must be provided prior to transfer of the title. Some may even prefer to have these documents completed, as well as a home inspection, before listing their home.

Are There States That Don’t Require A Seller’s Disclosure?

Caveat Emptor

You’ll find that many states require a Seller’s Disclosure, but some don’t. These states are known to use the caveat emptor rule. Caveat emptor is a principle that the buyer alone carries the responsibility to inform of any problems with a house or property – the phrase itself means “let the buyer beware.” Alabama, Arkansas, Georgia, North Dakota, Virginia and Wyoming are known as caveat emptor states.

Although these states require minimal or no disclosure by sellers, real estate agents are required to disclose any known issues with a house or property. A seller is expected to be truthful, yet real estate agents must investigate the property as well to ensure that nothing is missed. State and federal laws require real estate professionals to fully disclose everything to both parties (the buyer and seller). If a real estate agent does not fully disclose information, the buyer or seller may move forward with a lawsuit to recover damages. A caveat emptor may bring on a high level of distrust in the sales process between buyers and sellers, as sellers have to go an extra step to ensure that everything is up to par before purchasing.

Transparency

As more and more states require a seller’s disclosure, the general trend over the last 50 years proves that the key to a successful real estate transaction is transparency. It’s beneficial to be clear from the start and be equipped with the knowledge that the failure to do so will lead to more troubles in the future. This is why many realtors today will automatically have the appropriate standardized forms readily available to sellers and encourage this practice.

What Must A Seller Disclose?

Now that you know what a Seller’s Disclosure is, what exactly should you disclose? The answer is everything and anything. Now would be the time to mention the leak in your basement that happens after a heavy thunderstorm, the tree that landed on your roof during last year’s windstorm, or your nosy neighbor who complains when your guests park near their property. Nothing is off the table. 

Stigmatized Property

Remember the movie “Poltergeist”? A family whose suburban home is haunted by evil forces. That would most certainly be known as a stigmatized property – a home that carries a stigma caused by emotional or psychological damage. A home that is considered haunted or has known paranormal activity would be considered a stigmatized property. It can also include homes where a death, murder, or suicide took place. Criminal activity is also considered a stigmatized property. For example, it must be known if a home was used to make or distribute drugs. Especially if methamphetamine was produced within the home, as that would be a health hazard.

Similar to Seller’s Disclosures, states vary in their requirements to disclose events that created a stigmatized property. It’s best to check your state’s requirements in terms of stigmatized property beforehand. California requires a disclosure of death within the past 3 years prior to sale.

Nuisances

A nuisance is anything that causes an inconvenience or annoyance, and even this must be included in a seller’s disclosure. Maybe a house is located near a factory or garbage facility that creates a strong odor. Or, your future neighbors have a chicken coop next door that creates a noisy and often smelly situation. A home could also be on the flight path for a major international airport with loud planes flying above at all hours.

Basically, consider a nuisance anything that would interfere with a potential buyer’s enjoyment of the property.

Hazards

Major health and safety hazards are very important to address in your Seller’s Disclosure. Health hazards of a home include asbestos, lead paint, radon, mold, foundation or structural issues, or electrical system issues.

Federal law requires that any building built before 1978 must provide an EPA-approved pamphlet on lead-based paint hazards. Any known information about lead paint used in a home must be disclosed as well. The EPA recommends that all houses be tested for radon, especially during a real estate transaction. It is required by most states for the seller to disclose the test results.

Pests

Nobody wants to move into a home and realize they are roommates with some mice scattering around. It’s important to disclose any known pests in a home. Whether it’s spiders, bugs, mice, termites, bats, or even squirrels in an attic. Seller’s must bring this to light and discuss any methods they’ve used to combat the pests.

Items Sellers Plan To Take With Them

While you may be attached to the light fixture you waited for months to go on sale, you must clarify if it’s staying or going with you. The same goes for any appliances (refrigerators, microwaves, washers and dryers, etc.). You must be clear from the start if the items stay with the home or if you’ll be taking them. Many of these items have high value and a buyer should know whether they need to purchase these.

Repairs And Renovations

Any homeowner will tell you that repairs and renovations come with the territory. It’s important to be transparent about them with buyers, as it gives them a picture as to what to expect. Buyers may request a copy of the Comprehensive Loss Underwriting Exchange that details every claim made to the homeowner’s insurance for the past 7 years. They could see that there was a foundation issue that has been repaired a number of times, or that there’s been a break in the plumbing system.

This is also a great opportunity to showcase any renovations that have been made to the home. Perhaps it is an addition that was added, or a renovated kitchen. Any renovations are sure to increase a home’s value and benefit a buyer.

Damage

It’s better to be upfront with any damage, as it will likely come up in a home inspection that’s done. You want to ensure that your buyer can trust you in this process. The number one damage to a home is typically water damage. This could include a leaking basement or a roofing issue. It’s important to include any plumbing issues that may have led to water damage in the home. 

Material Facts

A material fact is information that is important to decision-making. If a seller fails to disclose a material fact, they will be subject to liability because of what they may have failed to disclose. The majority of state disclosure laws legally require that material facts be disclosed. This would be any fact that would make a buyer wary of purchasing a home or request a price reduction.

What Happens If I Decide Not To Disclose?

If you have made the decision to sell your home as-is, you are still liable for any issues that come to light if you didn’t disclose a material fact. You may have successfully secured your list price without properly disclosing any issues, but at what cost? A lawsuit is expensive, and that’s what you would face. You may also be responsible for any repair costs.

Do I Have To Identify Defects?

There may be instances of defects in your home that you are unaware of and that’s where an inspection is key. A home inspection will identify any problems. However, it’s up to you to disclose any additional known defects that you are aware of as a homeowner. It’s best to create a running list of any known defects and explain them to your potential buyers.

The Bottom Line: Bring Defects Out In The Open For A Smoother Selling Experience

The selling experience can be stressful for all parties involved. Nobody wants to move into their dream home only to realize it’s a money pit. A Seller’s Disclosure provides one more step to ensure the process runs smoothly with no surprises or uncertainty in a property. It allows a buyer to know the ins and outs of a home. It also creates a level of trust between a buyer and seller. The bottom line is that all parties win with a Seller’s Disclosure, and it’s always best to reveal any known defects to ensure the selling experience runs smoothly.

If you are in the midst of selling your home, you can also learn more about how to protect yourself when selling.

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    Samantha Bryant

    Samantha Bryant is a freelance writer covering all topics related to lifestyle and homes. She is also a public relations professional and has worked with an array of clients, from retail giants, educational leaders, to culinary experts. She has worked for a nationally syndicated talk show and served as a reporter for an award-winning publication. Samantha attended the University of Iowa School of Journalism and Mass Communication. In her spare time, she loves to travel and globetrot the world with her family.