Learn the basics of seller disclosure laws, including what you're legally obligated to tell buyers.
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.
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).
See disclosure statement requirements for each state.
Here are four things you need to know about property disclosure statements.
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.
As with all documentation related to the sale of your home, real estate disclosures must be submitted in writing.
Disclosure statements are always required, but not all sellers do a pre-inspection, and not all buyers choose to do a home inspection.
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.
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.
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.
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.
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.
There are two times during the listing and selling process when it may be appropriate to provide disclosures, before listing your home or after accepting an offer.
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.
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.
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:
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.
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.
Seller disclosure laws exist at both federal and state levels which is why it's important to understand your specific obligations before completing a generic real estate disclosure.
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:
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.
Sellers in California must disclose, in writing, a long list of specific types of disclosures, including:
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 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:
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.
