In most of the United States, it's illegal for a home seller to knowingly conceal major defects from buyers. In fact, most states' laws -- such as those of California, New Jersey, and Florida -- require sellers to make formal (often written) property disclosures covering major home components, systems, and conditions. Check out the law in your state.
Burdening Sellers or Protecting Buyers?
If you're a home seller, you may view disclosure as a burden. It typically involves filling out a lengthy form, and remembering little details about your property that you long ago learned to live with.
Yet disclosure actually serves to protect both sides of a home-purchase transaction. If, after all, there's a problem with your home that the buyer isn't told about, the buyer could get angry and try to sue you after the closing. Lawyers who deal with residential real estate transactions widely report that the most common source of lawsuits is nondisclosure.
Your seller's disclosure form could help you avoid a lawsuit, showing what you know about the home's condition and putting the buyer on notice. If a buyer knows about a problem and goes ahead with the deal, you're not liable for future problems.
Providing disclosures doesn't mean you're giving a buyer guarantees about your home. You must give truthful information about defects you know about or should have known about but were perhaps ignoring.
It can be good idea to have your home inspected prior to putting it on the market and then to make needed repairs (and include in your disclosures the items you won't repair). This helps avoid surprises and thus negotiation problems once a buyer makes an offer on your house. It reassures buyers that you're doing everything possible to deliver a house that's in good condition. Making repairs may even mean you can up your listing price.
What's in a Disclosure?
Most states' laws contain a laundry list of home components and conditions that a disclosure has to cover. Either the law itself or the state association of Realtors may provide language for this, or may create actual standardized disclosure forms. Your real estate lawyer, broker, or sales agent can give you the form, or you may be able to find it online.
Typical seller disclosure forms are set up as checklists, with space for writing in details on defects or issues.
You don't have to disclose every little scratch on the floor or stain on the counter of the home you're selling. The usual legal requirement is to disclose those defects that are "material" or important enough to affect someone's decision to buy your house or how much to offer for it.
Disclosure laws and forms typically cover these major home systems and conditions:
- plumbing and sewage issues
- water leakage of any type, including in basements and around windows
- termites or other insect, pest, mold, or rot infestations
- roof defects
- heating or air conditioning system issues
- property drainage problems
- foundation instabilities or cracks
- problems with legal title to the property
- neighbor disputes or boundary issues, and
- presence of lead paint (disclosure of which is required nationwide, under the federal Lead-Based Paint Hazard Reduction Act).
In some states, you may have to disclose if certain violent crimes took place in your home, or mention environmental issues affecting the home or geographical area, such as radon gas, earthquake fault lines, and fire hazard zones.
How to Complete the Home Seller's Disclosure Form
Disclosure forms are usually in plain English and easy to fill out. Even so, read the form carefully, and give honest and accurate answers.
Don't be surprised if your real estate agent doesn't offer much help if you have a question. If you're unsure about an item, your real estate lawyer can help you interpret the question and give an appropriate answer. When in doubt over whether to disclose something, it's often better to do so and then negotiate over it than to hide the truth.
Consequences When Home Sellers Don't Disclose
A seller who doesn't disclose known defects can be sued by the buyer after the defect is discovered. This lawsuit may be based either on the state law requiring disclosure or, particularly if the state has no such law, based on fraud. If you can't reach a settlement, you'll be faced with all the expense and hassle of going to court.
If a court decides in favor of the buyer, you may be responsible for:
- paying for repairs and other damages resulting from the undisclosed defect
- paying for the buyer's attorney fees and costs of the lawsuit
- in rare situations, actually taking back the house (the legal terminology for which is that the court invalidates or "rescinds" the sale), and/or
- paying extra, "punitive" damages to punish your failure to disclose defects (usually only mandated if your act amounted to fraud).
Don't make your home sale any more challenging than it needs to be. Your accurate and honest disclosure now will save you headaches later.
Potential Questions for Your Attorney
- Do I have to disclose a past problem with my house if it has been repaired?
- Do disclosure laws cover private concerns of people who previously lived in my home, say, if someone committed suicide or was HIV positive?
- Can you help me complete the seller's disclosure form?