Dealing with Disclosures for Buyers, Sellers and Agents

When you're searching for your dream home, you're going to find listings that detail all the things that make a house great: charming neighborhood, nearby amenities, or a lovely breakfast nook. But that is only part of the story of any house. While you have to find a home based on these rosy descriptions of a home, you will get to know a house's secrets before you actually commit to buying your home.

"Buyer beware" isn't a phrase most first-time homebuyers want to hear, and buyers receive a lot of protection through required disclosures from sellers. Rules vary from state to state, but sellers are required to disclose anything that could potentially affect the home's value or desirability – from a cracked foundation to a past plumbing leak.

Below, you'll find the basics of disclosures for buyers, sellers and real estate agents.

Common Disclosures

Disclosure reports vary significantly in each state, and even down to the local level. 47 states have disclosure rules of some kind (Alabama, West Virginia and Wyoming require no disclosure), but all parties should research disclosure requirements before entering a sale. Here are the some of the most common required disclosures:

• Lead Paint: This is a federally required disclosure for homes built before 1978, no matter what state you're in. The EPA offers full guidelines on lead disclosure here.
• Repairs: Sellers should mention any repairs or additions made to the home, even if they weren't properly permitted. Repair disclosures are often brief descriptions of the problem and the work done to fix it.
• Water or Storm Damage: Plumbing and leakage issues of any kind should be reported, including problems with outdoor drainage on the property. Most former damage will be found during an inspection, but sellers should be sure to disclose water, flooding, or mold damage as water damage is one of the most common causes of disclosure-related lawsuits.
• Pest Infestations: Termites and rodents are the chief pest disclosures to make since they can cause significant damage to a property.
• Criminal Past: Many states require disclosure of illicit activity or crimes, or even alleged haunting. Even if it's not required, some sellers choose to share this information.

While these are the most common disclosures, there are some more esoteric disclosure requirements you may run into, such as issues with a property line or even disputes with a neighbor. California, for example, has very rigorous disclosure rules that require sellers to mention if a home is in a disaster area, or even if the neighborhood is occasionally affected by bad odors.

Buyers

Typically, you'll receive seller disclosures once you make an offer on a property and enter into escrow, although some sellers may offer disclosures upfront to ensure a speedy sale. If you're uncomfortable about anything listed in the disclosures document, you can typically back out of an offer without losing your escrow deposit.

It's important to realize that a disclosure statement is not the same thing as inspection. Disclosures only include problems or issues that the seller is aware of at the time of the offer. Buyers should always make a property inspection a contingency during negotiations since an inspection can identify unknown issues and validate the seller disclosures.

You'll be required to sign off on any disclosure report, so make sure to read them thoroughly.

Sellers

Sellers should take their responsibility for disclosures very seriously. While disclosure documents are primarily to inform buyers of potential problems, they also protect sellers from future legal action if buyers discover a problem with the home in the future. Most sellers don't want to think about their old homes after a sale, and proper disclosure is the easiest way to ensure a smooth sale.

Luckily, disclosure forms are typically very straightforward for both sellers and buyers. The most important thing is to be fully honest with your answers. If you feel uncertain or uncomfortable about disclosing certain information—like certain health conditions of family members—you should consult your real estate attorney to provide an answer.

An Agent's Responsibilities

Some states make the seller's agent partially liable for a failure to disclose problems they were made aware of, but this is usually fairly minor. For buyers, an agent is primarily responsible for alerting them of any disclosures a seller may have made prior to an offer. An agent can also work with the seller to address any problem areas on the disclosure report. Agents should make sure that their buyers acknowledge receipt of the disclosure form to protect their rights during a negotiation.

If you're buying in a state that does not require disclosures, you should consider making a disclosure report a condition in your offer, in addition to an inspection. Most sellers will be willing to work in good faith, and it gives you an extra layer of protection when making an offer on your potential dream home!