Most—but not all—American states' real estate laws require home sellers to give prospective buyers a disclosure report. (Even the states that require disclosures often carve out exceptions, however, such as for properties in probate where the original owner has died.)
Here's why it's so important that you review and understand seller disclosures; and follow up as necessary when you do your own home inspection.
Most state-required real estate disclosures are made using a standard form, on which the seller checks off features of the property and rates or describes their condition. The typical disclosure form is a few pages long and describes features like:
Some disclosure forms also cover legal issues, such as ownership problems, disputes concerning the property, and community association fees.
The forms might even require information about suicides, murders, and other deaths on the property; nearby criminal activity; or factors such as excessive neighborhood noise or other things affecting a house's desirability or value.
Sellers are basically responsible for disclosing only information within their personal knowledge—that is, they don't necessarily need to hire inspectors to turn up hidden problems. And they probably aren't construction experts, and might not have visited their own attic or crawlspace in a long time.
If you're buying a new house that hasn't yet been built, the developer obviously won't have much to disclose—but might still need to tell you about things like the type of soil; previous uses of the property; possible future uses of surrounding land; and the developer's intentions regarding existing trees, streams, and natural areas.
Disclosure requirements vary among states, from the detailed to the bare-bones. See State Disclosure Laws for examples. To find your state's law, talk to your real estate agent or state regulatory agency.
The key question is how much your state law requires the seller to disclose to buyers? If the standard form doesn't mention past flooding, for example, the seller might not have to either (but shouldn't lie if asked).
You might want to read your state's law, or at least the form, to look for holes. Some forms have an "other" category, and a requirement that sellers reveal all material defects. A seller who forgets said flooding, or is looking for an excuse not to mention it, might leave the "other" blank.
You can find your state real estate agency at the Association of Real Estate License Law Officials website. Or search online for "real estate disclosure," "disclosure form," or "disclosure statement" and the name of your state.
Even in nondisclosure states, buyers can negotiate to make seller disclosures a part of their purchase—or may get them without asking. Law or no law, your state Realtors association has probably created a standard disclosure form for sellers to use; if you can't find yours, the National Association of Realtors website has a list of associations by state.
If you are buying a house built pre-1978, federal law requires the seller to give buyers a form disclosing whether there might be lead-based paint in the home and a pamphlet called "Protect Your Family From Lead in Your Home." For more on the subject, see Seller Responsibility to Disclose Lead-Based Paint Hazards.
Exactly when you're given the seller's disclosures varies by state. In a few states, sellers must give you disclosures before you've made an offer. But most states don't require the seller to do this until after you've made an offer, often just before the two of you sign the purchase agreement.
What you read in the seller's disclosure report could affect your decision whether to make an offer. To find out more about a topic mentioned in the form, ask for it in writing. Be sure that the home inspector you will hopefully hire checks out some of these items in more detail.
If you receive the disclosure form after making an offer, you can cancel the sale if you don't like what you read.
Even after the sale has closed, if a problem pops up that you believe the seller knew about and didn't disclose, you can sue the seller on that basis. See Home Defects: Sue the Seller, Agent, or Property Inspector? for details.
Most states put some teeth into their disclosure laws, by allowing buyers to cancel the sale if the seller doesn't provide the disclosure form or doesn't fill it out completely and honestly. Some states also charge monetary penalties to sellers who violate the law, or punish sellers' real estate agents for failing to disclose problems that they observed or were told of by the sellers.
Again, however, remember that sellers aren't usually required to poke around for problems—just to tell you what they already know. A house's owners can remain blissfully unaware of many serious problems—a cracked foundation, termites deep in the walls, or a roof on the verge of leaking—and won't be held responsible.
That's why getting a professional home inspection is highly recommended. See Getting a Home Inspection for more on the subject. And be sure to do a careful review of any inspections the seller provides such as pest reports (common in California).
For more on real estate disclosures, home inspections, and other ways to check out a house, see Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, Ann O'Connell, and Marcia Stewart.