Walking into a home, potential buyers tend to notice the aspects of the home that have been improved, remodeled, or glossed over. A new coat of paint, new countertops, and updated bathrooms are nice, but are there hidden bigger problems like water leaks or mold?
If you, as a seller, have knowledge of a serious issue regarding the property, you may be required to disclose this to potential buyers in a document commonly known as the seller's disclosure.
What Is a Seller's Disclosure?
A sellers disclosure is a statement about current owner's knowledge of the property and its history. A disclosure is an opportunity for a buyer to learn things about a property that may not be readily available. Every state requires some form of disclosure, but what is required can vary from county to county within any given state.
All questions regarding seller disclosures should be directly to your agent, attorney or legal representation. Seller disclosures are very important and often cause the most confusion and questions regarding the buying and selling of real estate.
A sellers disclosure may be as simple as a series of yes/no questions that the seller answers. Other forms are more detailed that span several pages. While most disclosure regulations are set by the state in which the property is, some disclosures, such as the disclosure of any lead-based paint in the home, are required by federal law.
As the seller, the disclosure for your home is your responsibility, not your real estate agents. Your agent may supply you the form and assist with explaining the form, but all of the answers should be yours as the seller of the property. Expect to answer questions about your home to the best of your ability.
Depending on the laws in your area, you should be prepared to disclose some or all the following items to a potential buyer:
- the existence of lead-based paint or asbestos in the home
- the condition of appliances that stay with the home
- information about the mechanical systems of the home including heating, cooling, water and sewer
- any problems with the foundation
- hidden defects that are not readily apparent from a visual inspection such as faulty wiring or water leaks
- prior experience with flooding
- previous improvements and upgrades performed by the seller, including whether or not the work was permitted
- problems with pests such as termites
- any neighborhood nuisances or if the home is in an HOA
The disclosure is not limited to these items. Oftentimes, if you have knowledge of a problem with the home that is not on the list, you may be legally liable to disclose the matter. Any questions regarding whether you as the seller should disclose an item should be directed to your real estate agent or attorney.
What Impact Can a Disclosure Have on Negotiations?
In most housing markets, a buyer receives a seller's disclosure after an offer has been made and accepted on the property. However, in some states, the disclosure is available before an offer is placed.
A seller's disclosure is only one tool that a potential buyer has when purchasing a home that may affect price negotiations. Because a disclosure typically only covers issues known to a seller, expect that your buyer will hire a home inspector. A thorough home inspection may uncover additional issues or problems with the home that you may be previously unaware of.
Once your buyer is fully informed about the property, he or she may use this information to ask for concessions, repairs, or a reduction in price. If the deal falls through, you should expect to update your seller's disclosure based on information gained from the buyer's home inspection.
The bottom line is that a seller's negotiation, while a tremendous help to the buyer, is meant to protect you as the seller as well as the buyer. Making sure to carefully follow disclosure laws is in your best interest. A buyer may bring a lawsuit against a seller who kept a home's defects to themselves prior to the sale. However, a properly conducted disclosure means that the buyer bought the property with full knowledge of its known issues, which protects you from future legal action years after the sale is completed.