Seller’s Disclosure: Defined And Explained

Congratulations! You just had your offer accepted on a house. Soon, it’ll be time to start the closing process.

There can be a great deal of documentation that goes into closing on a property. The Seller’s Disclosure is a statement that outlines any known problems and need-to-know information about the property.

Let’s discuss the types of information this document typically contains and what disclosure requirements can look like in different areas of the United States.

Seller’s Disclosure Definition

A seller’s disclosure is a document provided by the seller to the buyer. It discloses any issues with the property that the seller is aware of that could hinder the new owner’s enjoyment of the home. This is called a Seller’s Disclosure Statement and is required for many real estate transactions. You may also see this called a Seller’s Disclosure form or a property disclosure statement.

The buyer typically receives a Seller’s Disclosure Statement as part of closing. Once your offer is accepted, you have a few days to review the information the seller disclosed. Then, you can usually back out of the offer if unknown negative information is revealed. This may depend on local law and provisions in your purchase agreement.

Keep in mind that sellers can only disclose information they know in a Seller’s Disclosure – it’s important to get a home inspection in case the seller is unaware of a major issue. If you have concerns about the property, you can ask to include a home inspection contingency in your purchase agreement.

Who Determines The Requirements For A Seller’s Disclosure?

There are different federal, state and local requirements involved with Seller’s Disclosures. Federal regulations, for example, require sellers to disclose the potential presence of lead paint in properties built before 1978 and give buyers 10 days to have a lead-based paint inspection done.

Disclosure laws and the items that must be disclosed will vary from location to location. Make sure to check with your real estate agent for their thoughts on any additional inspections you may need.

What Information Is Included In A Seller’s Disclosure Statement?

There is a substantial amount of important information that can be outlined in a Seller’s Disclosure statement. Let’s discuss some of the most common categories.

Repairs Made And Repairs Needed

In addition to discussing renovations or remodeling projects that have been completed, Seller’s Disclosure statements often contain a report of all of the repairs that have previously been made on a given property. This information can include the history of:

• Roof cracks or leaks
• Roof replacement
• Foundation problems
• Flood damage
• Electrical system repairs

Disclosure statements also disclose the current condition of the property, including all of the existing damage in or around the home that the new homeowner may need to address. For example, this could include:

• Broken or missing appliances
• Cracks in walls
• Problems with windows or doors

It's crucial for sellers to disclose these kinds of issues to buyers. That way they are financially prepared to make necessary repairs before moving in. Or, if the repairs are too costly, they can choose to walk away from the transaction.

Property Defects And Threats To Homeowner Safety

Another important set of disclosures that tend to be made in a seller’s statement are any issues with the property that could pose a threat to the safety of its new tenants. Some examples are homes built in areas with common hazards such as:

• Flooding
• Earthquakes
• Sinkholes
• Other natural disasters

New homeowners need to know about these issues upfront so they can take out proper insurance or make action plans. For example, in some areas, it may be essential to know your floodplain and check your flood map in case of an evacuation.

Seller’s Disclosures should also include the home’s history with pests or other infestations and their treatment. Including but not limited to:

• Termites
• Bed bugs
• Mice
• Cockroaches

If the property contains hazardous or toxic materials, this will also be included in the Seller’s Disclosure Statement. Common disclosures include:

• Asbestos
• Radon gas
• Lead paint
• Mold

Anyone new to the property needs to know about existing issues so they can formulate a removal plan to protect their health.

Missing Essentials

If a given real estate property is lacking a home system that would be considered “essential” for a typical modern-day residence, like a furnace or water heater, that would typically be included in the Seller’s Disclosure. If the home is missing a key feature, like an appliance, some locations obligate the seller to disclose that information in their statement as well.

Land-Use Limitations

Seller’s Disclosure statements often provide details surrounding any restrictions or limitations on the property that the new homeowner will have to deal with and abide by. Examples of land-use limitations include:

• Outstanding liens
• Easements
• Zoning regulations
• Restrictive covenants

HOA Guidance And Neighborhood-Related Issues

A Seller’s Disclosure statement can include information regarding problems the seller encountered with the surrounding neighborhood while living on the property. These can include local issues like:

• Property line disputes
• Sources of loud noises or bad smells
• Other nuisances caused by residential, commercial or industrial properties

If a property is subject to homeowners association (HOA) rules and regulations, a seller may also disclose details about the types of governance the new homeowner will have to follow.

Deaths On The Property

Finally, a Seller’s Disclosure can include details of deaths by natural causes, accidents, suicides or homicides that have taken place on the property. Some home buyers have genuine superstitions about purchasing a potentially haunted property or have concerns about the notoriety of the property from a recent high-profile death.

Knowing about loss of life on the property could be an important factor in an interested buyer’s decision on whether to complete the purchase. This is important for potential buyers since a death on the property could impact the property’s resale value.

What Are Caveat Emptor States?

Certain states are known as “caveat emptor” states. This phrase – Latin for “let the buyer beware” – means sellers are not required to produce a formal disclosure during the closing process. In caveat emptor states, it is up to the buyer to assess the property they’re interested in to determine whether it’s a suitable purchase for their needs.

That said, property owners in caveat emptor states are still expected to disclose anything they know of that’s wrong with the property in good faith before selling it to a prospective buyer. This includes any federally mandated disclosures.

The following are caveat emptor states:

• Alabama
• Arkansas
• Georgia
• North Dakota
• Virginia
• Wyoming

For potential home buyers in caveat emptor states, you need to do your due diligence. This means doing a thorough home inspection and any additional research your real estate agent recommends.

You might want to consider getting a home warranty. Especially if they agree to cover your essential home systems like your air-conditioning, HVAC, and electrical systems.

Consequences For Failing To Disclose Issues With A Property

If the seller knowingly withholds information in a Seller’s Disclosure that they’re legally required to disclose, there could be consequences. The buyer could cancel the sale or even take legal action against the seller if an issue comes up after the sale closes. The seller should be honest in their Seller’s Disclosure with any and all details about their home that they’re required to disclose.

How To Read A Seller’s Disclosure

If you received a Seller’s Disclosure as a buyer, it’s important that you know how to read the document so that you don’t miss any important information. Here are a few tips for reading your seller’s disclosure:

1. It may be a good idea to go over the disclosure with your REALTOR^® or a real estate attorney. They’ll be able to help you understand the information in the form and alert you to anything you should pay attention to.
2. You may also want to cross-check the disclosure against public records. Major changes to the property like property line disputes or title changes might be publicly accessible through your local government.
3. Consider hiring your own home inspector to evaluate the issues listed in the disclosure.

Once you gather all the information you need, you can make an informed decision on how to move forward.

The Bottom Line: Seller’s Property Disclosures Matter

At the end of a real estate transaction, it’s important for the home buyer to feel confident in their decision to purchase the property. By reviewing all of the information provided in a Seller’s Disclosure statement, buyers can move into their new home with peace of mind. Or, they can walk away if the home they made an offer on is ultimately not worth the investment or the headache.

Ready to start your home buying journey today? Apply for a mortgage online and take the next step toward becoming a homeowner.