When selling your home, you may be obligated to disclose problems that could affect the property's value or desirability. In most states, it is illegal to fraudulently conceal major physical defects in your property such as a basement that floods in heavy rains. And many states now require sellers to take a proactive role by making written disclosures about the condition of the property.
What You Must Disclose
Generally, you are responsible for disclosing only information within your personal knowledge. In other words, you don't usually need to hire inspectors to turn up problems you never had an inkling existed.
Some states require more. However, some states' laws identify certain problems that are your responsibility to search for, whether you see signs of the problem or not. In these cases, or where you could have seen a particular defect but turned a blind eye, you could ultimately end up in court, compensating the buyer for the costs of your failure to speak up sooner.
California's Stringent Disclosure Requirements
California sellers must fill out and give the buyers a disclosure form listing a broad range of defects -- such as a leaky roof, deaths that occurred within three years on the property, neighborhood nuisances such as a dog that barks every night, and more. In addition, California sellers must disclose potential hazards from floods, earthquakes, fires, environmental hazards, and other problems, in a Natural Hazard Disclosure Statement. California sellers must also alert buyers to the availability of a database maintained by law enforcement authorities on the location of registered sex offenders.
Consider getting an inspection. While it's not usually required, some sellers hire a property inspector to look things over before they put the house on the market. (See Home Inspections: A Crucial Step.) The results will help you determine what items or house features need repair or replacement and will assist you with preparing any required disclosures. An inspection report is also useful in pricing your house and negotiating with prospective buyers.
Err on the side of disclosure. If you have even the faintest question about whether or not to disclose something to potential buyers, avoid the potential for liability and tell all. Full disclosure of any property defects will help increase the buyer's confidence that you're dealing fairly. And it will protect you from legal problems later, such as buyers who want out of the deal or who claim damages suffered because you carelessly or intentionally withheld information about your property.
And remember, just because you disclose a problem doesn't mean you must repair or correct it. The buyers have an interest in getting the deal closed as well, and often overlook minor issues. Or, the disclosed item can become a point of negotiation between you and your buyer.
Disclose lead-based paint and hazards. If you are selling a house built before 1978, you must comply with a federal law called the Residential Lead-Based Paint Hazard Reduction Act of 1992 (U.S. Code § 4852d), also known as Title X. You must:
- disclose all known lead-based paint and hazards in the house
- give buyers a pamphlet prepared by the U.S. Environmental Protection Agency (EPA) called Protect Your Family from Lead in Your Home
- include certain warning language in the contract as well as signed statements from all parties verifying that all requirements were completed
- keep signed acknowledgements for three years as proof of compliance, and
- give buyers a ten-day opportunity to test the house for lead.
If you fail to comply with Title X requirements, the buyer can sue you for triple the amount of damages actually suffered. For more information on lead hazards, prevention, and disclosures, contact the National Lead Information Center -- by phone at 800-424-LEAD, or check its website at www.epa.gov/lead.
How to Find Your Area's Required Disclosures
Check with your real estate agent or attorney or your state department of real estate for disclosures required in your state. Also, check with your city planning department for information on local ordinances and disclosures that affect your sale. Finally, be aware that real estate agents are increasingly requiring that sellers complete disclosure forms, regardless of whether or not it's legally required in their state.
How You Must Disclose
Most states' laws mandate that disclosures be on special forms the seller must sign and date. Be sure the buyer acknowledges receipt of the disclosures by signing and dating the forms as well. If your state doesn't require a specific disclosure form, be sure the buyer otherwise affirms receipt of your disclosures, in writing.
To learn more about required disclosures, see Selling Your Home in a Tough Market, by Ilona Bray and Alayna Schroeder (Nolo).