Whether we admit it or not, we always try to induce our potential buyers. We want to show them the salient features and all the great things about the property we are selling. There is nothing wrong with that. After all, we are just doing this not to deceive but to attract the prospect to make the purchase.
However, despite the beautiful things and advanced features of the property, we cannot disregard the fact that every single property contains some quirks, defects, and other types of issues. These issues roughly give a series of headaches to its future owners and often decreases its actual value. As agents, our primordial duty is to ensure that our buyers are fully informed and aware of the property's problems before we close out specific deals. With this, the real estate disclosures will come into the scene.
Before going deeper, we first need to know what a real estate disclosure is. A real estate disclosure is a kind of revelation but in the real estate sense. It is a statement that sellers make regarding the issues the property may have that could affect the property's value. A real estate disclosure protects the interest of the buyers by obliging the seller to sign a sheet where all the information about what structural and other features the property contains and their condition are enlisted. Through the real estate disclosures, the buyers are aware of the possible problems and issues that are not visible during the actual walkthrough. For instance, the property that you are selling has a leaky roof. Even if your potential buyers did not see it during the home tour, you still need to disclose to your customer that you have a leaky roof.
Property disclosures vary from state to state. Some states have many requirements regarding the content of disclosures – what must be disclosed. While few states don't require any disclosure, they are also called "caveat emptor" or "buyer beware" state. However, even in the places classified as "buyer beware," the sellers cannot tell any lie or mislead their buyers when the potential owner asks about the home's current state.
There are also instances when an individual buyer doesn't seek guidance from a real estate professional. In these cases, you should do your diligence to, at least, be familiarized with the laws of your state with regards to the real estate disclosures so that you can still be protected legally and financially.
Are inspection and disclosure the same?
Real estate disclosure is different from inspection. The former is something that the seller gives to the buyer. It is a written document that includes the seller's knowledge of the property's condition. In comparison, the latter is conducted by a third party. This examination reveals hidden damages that even the seller is not fully aware of.
While all the defects and issues the sellers know about the home must be disclosed, they need not look for problems. The general rule is if issues are not known, there is no need to disclose it. The seller simply needs to check the particular wording of the state's laws where the seller belongs.
If you are a buyer, you are the sole responsible for the inspection of the property you will buy before closing the deal. You might want to consider seeking assistance from a professional, in this case, of an inspector. The inspector is responsible for checking all the components and systems from the roof up to the basement. Most of the time, the seller hires an inspector before going to the market to sell their property.
Since every state has different governing real estate laws, the disclosure always varies according to each state. Of all the states, California has the most stringent law concerning the requirements of property disclosure. Its laws require the seller and their agents (if they have) to complete and sign multiple real estate documents. The documents are as follows: Local and State Transfer Disclosure Statements, Advisories about Market Conditions, Megan's Law Disclosure, and Natural Hazards Disclosure Statement.
Real estate disclosures usually come in boilerplate forms; these were gathered together by the real estate agent or the local association. In this series of documents, the sellers answer open-ended questions regarding their home and their experience while living in the said property. Besides, the sellers must present documented communication between the previous owners, the sellers or agents, and even the neighbors. The document contains an actual item or defect that might cause a change in the property's value.
Liability of up to 10 years awaits a seller who fails to disclose a defect in the house or includes a house feature in the listing description that is not truly present in the property they are selling. Again, this still depends on which state you are in as of this moment. In this aspect, if you are a seller, you should always be cautious. If you know that something should be written in the disclosure, write it down. Because if you try to hide something, this may have a significant effect on you. Being dishonest will always haunt you in the form of a legal battle. So, you choose which is which.
As we can see, the real estate disclosure is designed to protect both the property owners and home buyers. The buyers can prevent costly after-sale repairs while the sellers are protected from legal suits. The seller must shoulder the damages that resulted from a lack of transparency. For example, if there was an unwritten health hazard, the seller must pay the victim's medical bills as well as the repairs. Even if the deal was already closed, you, as a seller, will still be required to compensate for the cost of repairs when an undisclosed defect surfaces.
What sellers usually write or disclose to their potential buyers?
As a seller, you should document all improvements, renovations, and upgrades as these are the typical data asked by the disclosure. Conditions that could cause harm to the health and safety of the occupants are one of the usual items that need to be made known when selling a house. You will commonly see mold disclosure as well as radon and asbestos disclosures. The age and condition of the HVAC, water, sewer, and appliances and structural defects, such as issues with the foundation or roof, are often disclosed. When a home had water damage in the past, either brought by natural calamity or due to plumbing issues, it has to be included in the disclosure. During house renovation, whether a permit was secured or not should be indicated.
If you are a buyer, always cross-examine the seller's disclosure with the zoning reports and city building permit. Why? Because if a particular project or work was completed without any license or approval from the municipality, it might have violated the building code. This may result in further problems such as fire or other health hazards.
Aside from the given facts, other disclosures also include pest problems (termites and rodents, to name a few). Also, the neighborhood's nuisances, the history of disputes in the property, and nearby sex offenders. Square-footage discrepancies, property line or zoning disputes, nearby toxic materials (contaminated soil), defects and malfunctions of major systems and appliances. Also, real estate disclosure documents ask the seller if they are involved in any bankruptcy cases and the likes.
When does the buyer receive the disclosure documents?
The disclosure documents are given to them once their offer has been accepted by the seller in most markets. In addition to the inspections, they also can review the disclosures provided by the seller. In this aspect, the buyer can always terminate the transaction when they found something negative about the property.
However, in some real estate markets, the sellers provide their buyers with the disclosure documents before the offer. These smart sellers inform their buyers ahead of time of everything they needed to know.
This is indeed a smart move as it saves everyone's time. It lessens the hassle, and of course, the expenses by preventing deals from falling apart once all they are in escrow.
The buyers are supposed to sign all of the disclosure documents and reports. So, it is essential to review those documents carefully. Signing these agreements is not similar to agreeing to the terms and conditions of social media sites like Facebook and Twitter when you sign up for an account. These agreements could either make or break your newly purchased home experience.
The buyers are also encouraged to ask questions if something confuses them. Providing all the disclosure can help the sellers. Putting down all their aces, the sellers give the would-be homeowners peace of mind and comfort. Also, it makes the seller's home more desirable compared to other homes available in the market.
Federal Real Estate Disclosure Laws
Surprisingly, there are few federal laws with reference to real estate disclosure. Across all 50 states, the only applicable rule is the requirement to make the presence of lead paint known. Here are some details you need to be familiar with:
- Title X of the Residential Lead-Based Paint Hazard Reduction Act of 1992 requires homeowners a lead-based paint disclosure if the home was erected before 1978.
- A booklet discussing the hazards of lead paint should be given to buyers.
- In the real estate contract, a warning language should be added if you know that lead-based paint was used in the house you're selling.
- Ensure that all the documents pertaining to the transaction are signed, especially if the disclosure statement includes lead paint. The copies of the signed statements should be kept for at least three years.
- A 10-day period to test for lead paint should be given to the buyers.
- Sellers who fail to disclose if lead paint is present in their home can be held liable for up to 10 years. The buyers can sue them for triple the cost of damages suffered. Hence, the information must be presented to the next owners.
There are instances when a seller's property disclosure can be left out. Though it could only happen in sporadic cases. On occasions such as bankruptcies and estate sales, the property disclosure process can be skipped. It could also be disregard in cases where a family member offered the house as a gift to another relative or has transferred its ownership to another family member. Other examples are homes owned by a bank, foreclosures, transfer between spouses in a divorce, and business transfers, usually when two or more investors co-own a rental property. Again, this has to be consulted on your own state laws as it may vary.
What Sellers Need To Know
Everybody clamors for a peaceful life. Nothing is more gratifying than having a great sense of peace and tranquility. In this present situation, the things that we usually do are prohibited, and our movements are limited; remaining calm seems to be a hard thing to do.
Life in the real estate industry is burdensome yet enjoyable. Most of the time, especially when you are just starting in this industry, you feel that the knowledge you have is not yet enough, that you are not capable of being right, so on and so forth. However, despite the hindrances you continuously feel, the happy and enjoyable moments are still there to keep you from moving forward. Because the presence of the struggles in our daily doesn't defy the essence of life, these struggles are just pieces of evidence that we all are imperfect human beings who need to be guided and corrected. That is why, for us not to be drowned in the pit of misery, we should remember these few tips to avoid real estate disclosure disputes.
- Disclose everything, whether it's minor or major issues. Indicate problems that you think might affect the home's value or impact its usefulness and enjoyment of the property.
- All the signed documents should be set aside for safekeeping for a minimum of three years after closing the deal.
- If there were renovations and repairs, supply all the necessary receipts and job orders to the buyers for them to know how a particular issue was addressed.
- Talk to your agent or to a real estate lawyer to reduce the risk of adverse outcomes in the disclosure process.
- Before the property hits the market, do your diligence to inspect the property. This will give you an idea of what repairs are needed before it goes live. In this case, you can make the necessary updates should your budget warrants. The additional issues you will discover has to be disclosed to the buyer.
What Buyers Need To Know
Purchasing a home is apparently the most important investment one could ever make in their life. And most homebuyers are somehow inexperienced at buying homes because this is something that you don't do within a 5 to 10-year period. Usually, a buyer would only make about three or four homes in a lifetime, and perhaps not even as many as that. Thus, a buyer must check all the details of the transaction so that he won't regret making the sale. Of course, who would want nasty surprises to happen?
As a buyer, you can demand transparency. If you have seen any problems that need the seller's attention, it is best to deal with it beforehand. You should review all the documents you are signing and seek more clarity if unsure. Gather all the necessary information and discuss it with your agent or consider seeking legal advice if need be. If you think that there are still areas that need clarification, you should talk to the seller. If your offer did not work out fine, and you and the seller did not achieve a consensus, it may already be the time to walk away from the transaction.
Even if you really like the property, you need to withdraw if there are specific topics that you can't settle with the owner. Think of the time you could be using to search for other properties in the area. Continue searching for other homes. Who knows, there might be better choices out there.
Well-documented transactions can save you from future harm. That is the reason why documents must be kept. In investment, especially in disclosure, you need to keep things like seller's disclosure, home inspection report, and closing disclosure documents organized in one place. Why is that?
You should keep the seller's report for future references. For example, suppose significant problems come out in your home after your transfer. In that case, the disclosures you have can become references for the future when filing a legal case to the seller. If you lose these documents, you might end up getting nothing because you don't have standard pieces of evidence that could make the seller accountable.
A copy of the home inspection report should also be secured. The home inspection document is said to be the most detailed report that the inspector finds and listed. Most often, the paper's information includes photos of the areas where there's a defect or problem. When you keep this report, you will record the property's repairs that you need to prioritize shortly.
Lastly, it is essential to keep the closing disclosure safe because this can still be used in the future. The closing disclosure is a document containing all the expenses related to closing and the mortgage. A closing disclosure document is also needed when you file your taxes. The form is useful for this because you can take deductions for things like mortgage points.
Whether you are the buyer or the seller, you must remember the mentioned things above because we don't want any future problems. Life is a handful; we shouldn't be making any additional burdens to ourselves. Keeping these things in mind will save you time and money and will surely keep you from the stress of costly hospital bills, unplanned repairs, and unending legal battles.
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