Disclosures that Real Estate Sellers Must Make, or It Could Cost You!
you don't say could come back to haunt you, in the form of blown sales or
By Melinda Fulmer of MSN Real Estate
days, the trend among cash-strapped home sellers seems to be to say less in
hopes of getting more at closing. But in the long run, this less-than-full
disclosure can prove costly.
Lawsuits stemming from nondisclosure of a property's problems are becoming a
bigger issue, according to respondents in the National Association of
2011 Legal Scan survey.
Of the agents who responded, about 75% ranked this issue among their "top
three current and future issues."
the rule with home buying was once "caveat
or "buyer beware," an increasing number of sellers are finding themselves on
the hook for nondisclosure.
think a lot of sellers don't have a full understanding of what the seller
disclosure statement means when they fill it out," says Illinois home
inspector Jack McGraw of
Jacks Home Services.
"You can often tell there has been work done" on a house, he says, but these
fixes don't show up anywhere on paper.
Indeed, sometimes there is a big effort to cover up any signs of trouble.
Omaha, Neb., appraiser John Bredemeyer says he recalls one home that had a
giant console television pushed up against a door angled in one corner of
the basement. Once the property was sold and the TV hauled away, the new
owners found a big surprise.
opened up the door and the foundation was crumbling," Bredemeyer says.
Ultimately, the home's original owners wound up paying to fix it.
Sellers must disclose anything that could affect the property's value or
desirability, from big problems such as a compromised foundation to — in
some states — simple neighborhood nuisances such as that dog next door that
barks every night.
Disclosure laws vary. Some states require sellers to look for and cite
certain problems even if they are not aware of them.
gets out of these disclosures: Even those marketing a home "as is" have to
obey state disclosure laws, says Ilona Bray, real-estate attorney and
co-author of "Nolo's
Essential Guide to Buying Your First Home."
As-is sellers are simply advertising that they're not going to negotiate on
price because of these issues.
are the six things that a seller must reveal about a home to avoid legal
trouble down the road.
This is a pretty broad category but one that a lot of buyers seem confused
about. If you have made repairs to your property, you should disclose them,
even if the problem has been resolved.
could be something as major as a crack you had sealed in the foundation, or
something as minor as snaking your sewer line every year to clear tree
repairs to the roof, plumbing, electrical system or heating and cooling unit
that you are aware of — including any repairs disclosed to you by previous
owners — should be laid bare, as well as any drywall or structural repairs
to remedy water damage.
you knew that there had been hail on the roof and it was leaking, you should
disclose that," Bredemeyer says. "If you knew last fall that the A/C didn't
work, that's something you should disclose to a buyer."
bottom line is that sellers should disclose anything that is not readily
identifiable by the buyer.
One such invisible problem is termites. If your home has a history of
termite infestation, especially if it has been treated more than once, it
should be disclosed to the buyer, because it can greatly affect the value of
lessen the impact of this disclosure, sellers can get another termite
inspection before listing their home that shows it to be clear of the pests.
This disclosure, along with any information about treatment warranties that
could be transferred, should be given to the buyer at closing.
If the home has had a leaky roof, a flooded basement or dampness and mold in
certain areas, these water issues must be disclosed.
home inspector can often spot the signs of water damage, even if they have
been painted or plastered over, McGraw says. But it's no sure thing. That's
why water damage is one of the biggest causes of disclosure-related
lawsuits, says Joseph Rand, managing partner and general counsel for
Better Homes & Gardens Real Estate Rand Realty
in Nyack, N.Y.
One buyer that Rand's firm represented had to call out a plumber soon after
the purchase for some serious flooding in the basement. Once there, the
plumber told the buyer, "I was just out here six months ago for the same
The sellers were successfully sued for not disclosing this fact. "It was one
of the few times that the buyer caught the seller red-handed," Rand says.
If you are selling a house built before 1978, you must comply with a federal
law that requires disclosure of all known lead-based paint and hazards in
must receive a copy of the Environmental Protection Agency pamphlet "Protect
Your Family from Lead in Your Home"
and they must be allowed a 10-day window to test the house for lead.
contract must include that warning as well as signed statements from all
parties verifying that the requirements for disclosure were met. If a seller
doesn't comply with these requirements, the buyer can sue for triple the
amount of damages suffered. More information from the EPA on lead disclosure
Some states, such as California, require sellers to disclose any risk of
natural disasters such as a flood plain or earthquake zone or susceptibility
to wildfires. This disclosure is meant to warn buyers of the financial risk
and danger they face from these catastrophes, as well as alert them to
trouble they may face in getting insurance for a home in that location.
Even a home's notorious past must be disclosed. One New York case many years
ago involved a home that reportedly was haunted and was the subject of many
articles and tours. When that ghoulish past wasn't disclosed to the new
buyer, the seller was successfully sued for nondisclosure, because that
notoriety was likely to diminish its resale value, Bray says.
same holds true for a home's criminal past. Some states require disclosure
of murders on the property, others do not. But since these horrific events
tend to lower the value of a property, most real-estate agents choose to
disclose them rather than risk legal action. In fact, the NAR even published
for agents to deal with these "stigmatized" properties.
special disclosures might include a historical designation that restricts
remodeling, or any other special zoning or local environmental concerns.
bottom line is that if there's a question in your mind about whether or not
you should disclose something, you probably should. "Anything that the buyer
would feel misled by is something that you should disclose," Bray says.
However, disclosure does not mean sellers are obligated to fix a home's
problems, Bray says. Rather, the disclosed issues can merely become a point
of negotiation between buyer and seller.
can sellers protect themselves without blowing a sale?
To find out which disclosures your state requires, you can contact its
department of real estate. Bray also suggests sellers get a home inspection
before listing the home. It's not required, but it can help you figure out
what to disclose.
If repairs must be done,
McGraw suggests getting bids from a few contractors so you can negotiate
more effectively. If a problem was fixed, disclose it and let people know
what you have done to resolve it.
McGraw suggests preparing
a binder for potential buyers of repairs, permits and warranties. It makes
you look like a conscientious seller. And if you're not disclosing something
on a form, remember to document it in writing, even it's just an email
copied to a witness, Rand says.
It might seem strange, but
sometimes a heavy dose of disclosure can actually make a buyer more ready to
act. "They will say, 'This is an upfront person that I can work with,'" Bray
In a depressed housing
market, no one wants to give up money from the purchase price, but full
disclosure is one way to make sure you're not giving up a lot more of it