Indiana Home Buyers: How to Read the Seller's Disclosure Form

What Indiana law requires sellers to disclose, and how buyers can make use of the information.

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Sam and Sally are searching for their first home. They have read recent reports about the combination of low inventory and low mortgage rates creating an ideal buyers’ market. Sam is tired of Sally taking up all of the space in their one bathroom with her hair stuff and makeup. Sally is tired of fighting for space in the one closet in the bedroom of their one-bedroom apartment.

Sam and Sally's friend, Eric, is a brand new Realtor. Eric has been showing them potential homes all over the area. They just found one that is perfect. The house was foreclosed, and sold at sheriff sale to a local property investor, making it perfect for their size requirements and budget. It is close to both of their employers. But most importantly, it has a large master bathroom with plenty of room for both of them, as well as an additional full bath. The house also features his-and-hers closets in the master bedroom, along with two other bedrooms. As Sam and Sally are working through their offer with Eric, he casually hands them a stapled document.

“This is the Seller’s Real Estate Sales Disclosure,” he says. “You need to read through it.”

Sam and Sally are stumped by this document. What does it mean?

What Should Indiana Homebuyers Look for in the Seller's Disclosures?

The Indiana Residential Real Estate Disclosure Law requires certain sellers to complete a disclosure form, notifying buyers of existing problems with the house and property. Sam and Sally need to take a careful look at any potential major defects in the house. What has the seller stated about the electrical system? Is the water and sewer system in the house up to code? How recently did the seller replace the roof? How old is the house? How old is the furnace, the water heater, and any appliances that come with the house? Sam and Sally should review the information about the house foundation and find out whether the seller has had any problems with water leakage or mold. Does the heating and cooling system work?

The form asks sellers to rate the items listed on the form as being in “Defective” or “Not Defective” condition. Sellers also have the options of marking “Do Not Know” and “None.” The form states in the first sentence that it is to be completed using the Seller’s actual knowledge.

So, for example, if a seller has noticed a damp smell in the basement but has never seen actual water in the basement, the seller could state that they “do not know” whether there is a water problem in the basement. If the Seller has owned the property for a substantial period of time, the Seller may not know whether there are encroachments, violations of current zoning or building codes, or whether the use is nonconforming.

By requiring actual knowledge and allowing a seller to state lack of knowledge about certain items, the form does create a potential place for seller’s to inadvertently – or purposefully – fail to disclose information about the property.

Does the Home Seller Really Know About the Property's Condition?

Indiana law exempts certain sellers from completing the sales disclosure form. Some of these make sense, for instance when a husband is “selling” the property to himself and his wife, or to his children. Buyers, though, need to be aware of some of these exceptions in the law, and how they create a risk that knowledge about the property will not have been passed down to from seller to seller.

Sam and Sally are buying this home from a property investor who has owned the home for only a short period of time. The investor acquired the property through a sheriff sale. When homes are sold at a sheriff sale, no disclosure is required. So even though Sam and Sally’s seller is required to complete a disclosure, he did not receive one when he bought the house. There is a greater potential that there could be defects in the property that the seller is not aware of, having never actually lived there.

Another exception is when a house is sold by the trustee of an estate. Since the trustee has no personal knowledge of the condition of the house, the trustee is exempted from the law. However, this also creates a greater possibility that the buyer will come across an undisclosed defect, like a leak or a crack.

Minimizing the Risk of Unknown or Undiscovered Defects

Sam and Sally need to have a home inspection completed on the property. They may want to add a condition in their initial offer on the home stating: "the sale is subject to a home inspection.” A basic home inspection will review the structural soundness of the home, such as the foundation, the walls, and the roof. Inspectors will note any items that are not consistent with local building codes. Examples of this include having a hand rail on the front porch steps or a properly ventilated fan in the bathroom.

A basic home inspection will also check the electrical system, plumbing, condition of the HVAC system, and condition of the water heater. The buyer will be provided with a complete written report of the inspector’s findings. Most inspectors encourage the buyer to go through the inspection process with them, so the inspector can point out any defects found.

Sam and Sally may want to consider other inspections, as well. Specialized home inspections can be conducted for issues like termites, radon, and mold. There are even inspections for chemical contamination.

Having a basic inspection completed should help minimize the risk for Sam and Sally. For more on this, see the “Home Inspections and Appraisals” section of Nolo’s website.

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