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A seller's disclosure brings transparency to a real estate transaction and can protect both buyers and sellers.
In the disclosure, a seller provides written information about known issues that could hurt the property's value, such as termite damage, improper drainage or a leaky roof, as well as details like homeowners association fees and restrictions.
Proper disclosure means the buyer gets a more comprehensive view of the property, and the seller lessens their chance of getting sued by the new owner for hiding information.
» MORE: How to sell your house
What is a seller's disclosure form?
Generally sellers fill out and sign a standard disclosure form, sometimes called a notice or statement, which contains yes or no questions about the property, with space for explanations.
In some states, you may run across two versions of a disclosure form. In Texas, for example, both the Texas Real Estate Commission and the Texas Realtors association have notices that comply with state law, but the association's notice asks for more information than legally required for even more transparency.
Good real estate agents understand the legal requirements for disclosure. If you're the seller, your listing agent will provide the appropriate documents for you to fill out. If you're the buyer, your agent can walk you through the completed forms.
The purchase offer should include a deadline for the seller to deliver disclosures and the number of days the buyer has to review them. The offer should also spell out the buyer's right to revise the offer or back out of the deal based on the disclosures.
Federal seller's disclosure requirement
Federal law requires that sellers of homes built before 1978 disclose that the property may produce exposure to lead from lead-based paint, which was federally banned for consumer use in that year. Exposure can put young children at risk for lead poisoning, which can cause permanent neurological damage. The U.S. Environmental Protection Agency provides a disclosure form for lead-based paint on its website.
Sellers of homes built before 1978 must also provide buyers with an EPA pamphlet, "Protect Your Family From Lead In Your Home," give buyers 10 days to conduct a paint inspection or risk assessment for lead-based paint, and include a "lead warning statement" in the contract.
State seller's disclosure laws differ
Most states mandate some form of seller's disclosure, although the rules and specific requirements differ. For example:
In Maryland, sellers must fill out a disclosure form or state they're selling the property "as is."
California requires buyers to fill out the state Real Estate Transfer Disclosure Statement and the Natural Hazards Disclosure, which details whether the property is in a zone subject to natural hazards, such as earthquakes or wildfire. Some cities or counties may require disclosure about the neighborhood or community.
In New York, sellers must fill out a property condition disclosure statement or give the buyer a credit of $500 at closing. Some sellers choose to skip the disclosure form and pay the $500, but they can still be liable for failing to disclose defects after the sale.
Several states, such as Alabama, Arkansas and West Virginia, have "caveat emptor" rules, which essentially means "let the buyer beware." Other than abiding by the federal disclosure requirement, sellers in most cases aren't required to fill out a disclosure form in caveat emptor states.
However, there are some exceptions even in "buyer beware" states, so it's important to discuss disclosure with your agent or real estate attorney. Moreover, a seller can fill out a disclosure statement, even if the state doesn't require it.
What does a seller's disclosure include?
Seller's disclosure requirements vary by state, but here are some of the common issues that standard disclosure forms address:
Roof leaks or defects.
Water leaks or previous flooding in the basement.
Cracks or other defects in the foundation.
Plumbing, heating and air conditioning system problems.
Defects in walls, windows, doors or floors.
Septic or sewer system problems.
Wood-destroying insect infestation or damage.
Unsafe conditions related to radon, asbestos or lead.
Homeowners association fees or restrictions.
What if a seller lies on the disclosure statement?
Say, for instance, the seller reveals no defects in the home, but after moving in the buyer discovers dry rot in the attic. The buyer could sue the seller for damages, but to win the case, the buyer would need evidence that the seller knew about the dry rot and lied on the disclosure form.