You want to know exactly what you are getting when you make any large purchase, especially when you are buying a home – the largest purchase that many Americans will ever make in their life. That’s why a real estate disclosure statement is a fundamental part of any real estate transaction.
By law, home sellers must provide a disclosure statement in writing regarding the condition of their home. The contents of disclosure statements vary by state and municipality, but they must disclose known hazards and defects of the home, as well as any important information that may affect the seller’s decision.
As a seller, you must make sure that you compile a thorough list of disclosure items. Your agent should be able to help you determine if each item must be disclosed.
Sellers are not required to search for any unknown defects, but failing to disclose a reasonably suspected hazard may result in buyers taking legal action against the seller if the hazard results in physical or economic harm.
Hazards and defects can include structural concerns, termite infestations and their corresponding damage, mold, plumbing problems, being located in a flood plain, previous fire/smoke damage – and, thanks to Megan’s Law, even the presence of any convicted sex offenders within a certain radius.
Real estate agents and brokers have a fiduciary obligation to reveal other information that could affect the value of the home and either party’s decision to enter into the transaction. Examples include how long the property has been available, property valuations, willingness on either side to alter the offer, potential conflicts of interest from the broker, and any other offer that has been made on the property.
It’s important for all parties and their real estate agents to be thorough with their disclosure in accordance with all federal, state, and local laws. Withholding information can lead to legal actions by the damaged party, either buyer or seller.
Nolo has provided a summary of selected state laws. However, it’s important for you and your real estate agent to verify that you are aware of all the proper disclosure laws and that you are using the correct disclosure forms for your area.
Wronged buyers could receive compensation for repairs and other expenses incurred as a product of the non-disclosure, along with any extra compensation to cover pain and suffering. Sellers and agents could recover profits lost from nondisclosure. Egregious intentional nondisclosures by real estate agents and brokers may result in the awarding of further punitive damages.
What if you are on the other side of the transaction? You should understand all of the disclosure laws in your state to make sure that you know what you are owed as a home buyer. If any aspect of the disclosure is missing, make sure it is resolved before closing. Whenever possible, you should double-check the disclosure items – for example, checking building permits or zoning reports to find out if any disclosed work was completed without proper approval.
As a buyer, you can’t simply rely on the disclosure statement. A proper independent home inspection is necessary to verify the disclosure items and make sure that there are no other defects that the seller did not know about. Sellers may provide a home inspection report, but if not, it’s important for buyers to have their own inspection performed.
Proper disclosure is in the best interest of both parties – it protects the buyer from being ripped off and stuck with costly repairs or unacceptable living situations, and it protects sellers from being saddled with potential liabilities and legal concerns. With full transparency, everyone wins.
MoneyTips is happy to help you get free refinance quotes from top lenders.