If you’re thinking about selling your home, you may be wondering what to tell prospective buyers about that water leak you had last year or that DIY repair you made a while back. When selling real estate, it’s important to understand your legal responsibilities as a seller, and one of those obligations is honest disclosures.
What does disclosure mean for sellers?
In real estate, disclosures refer to the seller’s legal obligation to reveal known defects about the home or property they’re selling.
A property disclosure statement is the actual documentation of a seller’s disclosure. It’s a required form in real estate transactions and outlines any problems with a property that would impact the home’s value or safety. Sellers are legally required to disclose these issues, but by fully documenting them on the disclosure statement, sellers are better protected from future legal action (say, if a buyer was to sue the seller post-sale for undisclosed issues). Here are a few things you need to know about property disclosure statements.
1. They vary by state
There are only a few federally mandated disclosures, but overall, disclosure requirements fall under state law, and the requirements vary state by state. If you’re working with an experienced real estate agent, they should be well-versed in the disclosure laws of your state.
2. They must be in writing
As with all documentation related to the sale of your home, real estate disclosures must be submitted in writing.
3. Disclosure statements are not inspection reports
Disclosure statements are always required, but not all sellers do a pre-inspection, and not all buyers choose to do a home inspection.
4. Disclosures don’t require investigation
While you must disclose all defects and issues you know exist in your home, you don’t have to go searching for problems — if you don’t know an issue exists, you don’t have to disclose it. Make sure to check the specific wording of the laws in your state.
Federal real estate disclosure laws
There are surprisingly few federal regulations related to real estate disclosure. The only law that’s applicable across all 50 states is the requirement to disclose the presence of lead paint. Here’s what you need to know:
- Homes built before 1978 require a lead-based paint disclosure, on the basis of the Residential Lead-Based Paint Hazard Reduction Act of 1992 – Title X.
- Sellers or their listing agents should provide buyers with a pamphlet on the hazards of lead paint.
- If you know that there is lead-based paint in the house you’re selling, warning language should also be included in your real estate contract.
- If your disclosure statement includes lead paint, make sure the disclosures are signed, and keep copies for at least three years.
- Sellers must give buyers a 10-day period to test for lead paint.
- Sellers who know they have lead paint in their home and fail to disclose it can be held liable for up to a decade, and they can be sued for triple the cost of damages suffered, so always disclose what you know about lead paint in the home.
State laws for seller disclosures
On the books in most states, you’ll find laws related to seller requirements in disclosing what they call “material facts” about the home they’re selling. But what is considered a material fact can vary a lot by state. Some states are incredibly strict about seller disclosures, while others have so few regulations, buyers are pretty much purchasing at their own risk.
Since every state is different, here are some examples. Be sure to ask your real estate agent or an attorney about the laws specific to the state where you’re selling.
California: One of the strictest states for seller disclosures
Sellers in California must disclose, in writing, a long list of specific types of disclosures, including:
- A standard disclosure statement that includes anything related to the condition of the property, like HVAC, gutters, appliances, windows, sump pumps, garage doors and more
- Environmental hazards like asbestos or gas leaks
- Walls, fences or driveways that are shared with other property owners, as well as information on easements on the property
- Renovations made without permits or renovations that are not up to code
- Neighborhood noise and nuisances
- A natural hazard disclosure statement, for things like earthquake faults, drainage issues or past flooding
- Property tax disclosure
- Military bases within one mile
- Nearby sex offenders (per Megan’s Law)
- A death on the property within three years (if a buyer directly asks about a death on the property, no matter how long ago it occurred, be honest about what you know)
Maryland: One of the least-strict states for seller disclosures
On the other end of the spectrum, Maryland is an example of a state with minimal regulations related to seller disclosures. In Maryland, sellers have a choice between giving a standard property disclosure statement or selling the home with a disclaimer on the condition of the home — essentially selling the home as-is. This type of sale puts the burden of any issues on the buyer, with the exception of “latent defects” that the buyer wouldn’t see and could be a health and safety concern. So, you must still disclose things like asbestos, formaldehyde exposure, foundation problems or faulty water pipes.
Caveat emptor states
Caveat emptor means “buyer beware.” In Alabama, Arkansas, North Dakota, West Virginia and Wyoming, the seller has no legal obligation to disclose anything about the physical condition of the home, but there can be a few exceptions:
- In Alabama, it’s “buyer beware” unless there’s a fiduciary relationship between buyer and seller, the seller knows of health or safety risks, or if the buyer asks directly about something.
- In Arkansas, it’s also “buyer beware” unless the seller tells an outright lie about the home. If they use an agent, the agent should make a reasonable effort to find out if there’s anything wrong with the home to avoid misrepresentation.
It’s also worth noting that real estate agents who belong to professional organizations in caveat emptor states (and other states) may be held to higher ethical disclosure standards, which can mean that sellers may end up disclosing issues anyway, even if state law doesn’t specifically require it.
These are just examples, so check the specific requirements for the state where you’re selling. These are also in addition to the federal lead-paint disclosure requirements.
When can a seller’s property disclosure be omitted?
The property disclosure process is only skipped in rare cases. Here are a few examples, but again, be sure to check your own state laws:
- In bankruptcies and estate sales
- Bank-owned homes and foreclosures
- Gifting or transferring of a property, usually between relatives
- Transfer between spouses in a divorce
- Business transfers, usually in cases where two or more investors co-own a rental property
How to locate a real estate disclosure form
Your state real estate association or board may have documents, often in checklist form, that list the disclosures required in your state. If you’re using an agent for the transaction, they’ll have a form for you to complete and sign. If you’re working on your own, you may have to find a form online or create it from scratch.
Common seller disclosures
While there are all kinds of issues that need to be disclosed when selling a house, here are some of the most common items, not including the federal mandate to report lead paint. These common disclosures are all related to the “real property” — the legal term for the actual physical structure and the land.
- Health and safety hazards: Mold disclosure is common, as are radon and asbestos disclosures. Foundation issues can also be considered a health and safety issue.
- Mechanical issues: HVAC condition or age, water, sewer and appliances
- Structural defects: Issues with the foundation or roof
- Flooding: Previous water damage, either environmental or due to plumbing issues
- Renovations: Work you’ve had done on the home must be disclosed, whether it was permitted or not. If you can’t decide if a remodeling project seems big enough to disclose, it’s always best to err on the side of disclosing.
- Pests: Termites and rodents, among others
- Legal issues: You also must report liens against the property or bankruptcy proceedings that could affect the sale.
Less common seller disclosures
These less common disclosures can vary by state, but in general, they’re not as common and often fall outside of the “real property” qualification.
- Property line or zoning disputes
- If the property was the scene of a crime or murder, or if it’s known to be haunted (seriously!)
- Square-footage discrepancies
- Bad neighbors or nearby noise
- If the home is subject to a homeowners association (HOA)
- Nearby sex offenders
- Nearby toxic materials, like contaminated soil
For-sale-by-owner disclosures
Disclosures are always required, based on your state laws, whether you’re using a real estate agent or selling your home on your own. However, within state laws you may find loopholes where agents are responsible to disclose more information than a for-sale-by-owner (FSBO) seller. If you are doing a FSBO listing, the responsibility to research and follow through on disclosures falls on you.
When to provide buyers with a home disclosure
There are two times during the listing and selling process when it may be appropriate to provide disclosures.
1. Before listing your home for sale
By providing disclosures before you have a buyer (like in your listing description), you benefit from knowing that any buyer that decides to make an offer is willing to move forward, even with knowledge of the defects. As long as nothing else major is uncovered in the inspection, the buyer won’t have much room for negotiation, since their original offer should have reflected repair costs.
2. After accepting the offer
Depending on state law, you typically have a set period of time to submit disclosures to the buyer after you’ve accepted their offer — it’s often between three and five days. It usually runs concurrent to the inspection period, which helps the buyer’s inspector know what to look for. Based on the disclosures, the buyer can back out and receive their earnest money back during this period.
In the case of lead-based paint, per federal law, the buyer gets another 10 days to test, regardless of the state contingency period.
Consequences of failing to disclose
Disclosure laws are designed to protect buyers from purchasing a home with serious flaws and to protect sellers from future legal ramifications. So, it’s important that sellers take disclosures seriously. If you attempt to hide a defect in your home and get caught, you can be sued by the buyer for nondisclosure, which can include:
- Paying for damages suffered: For example, if there was a health hazard, you could be required to pay for medical bills.
- Paying for repairs: Even after closing, you may be required to go back and pay for repairs on the property related to the known defect.
Tips to avoid disclosure disputes
- Disclose everything, even if it seems minor. Share anything that could negatively impact the usefulness, value or enjoyment of the property.
- Keep all signed disclosures for at least three years after closing.
- If you fixed something, provide receipts to the buyer to document how the issue was remedied.
- Talk to an attorney or real estate agent about how to avoid negative outcomes in the disclosure process.
- Do a pre-inspection before listing. Then you’ll know what issues are likely to arise, and you can repair them ahead of time. Do note that if you do a pre-inspection, you may discover additional issues that you’ll have to disclose to the buyer.
Minimizing disclosure issues
One of the best ways to avoid disclosure issues is to use an experienced real estate agent. Not only will they provide you with the correct forms according to state law, but they can also answer all your questions about what needs to be disclosed and when.
