California, like many states, requires its residential property sellers to disclose, in writing, details about the property they have on the market. These disclosure obligations apply to nearly all California home owners selling their property, whether it's a standalone home, a high-rise condo unit, or a manufactured or mobile home. (See, California Civil Code § 1102.)
The reason these disclosures are so important is that potential home buyers need to know as much as possible about a property in order to evaluate whether they really want to buy it and if so, how to craft their purchase offer. This includes offering an appropriate purchase price and knowing about any potential repairs or upgrades needed to areas of the home.
The disclosure obligations also remind California home sellers that they have a legal responsibility to be open about a property's condition and can be sued for hiding problems or defects.
California law requires only that sellers disclose known defects, with no obligation to search them out or get expert eyes on the house, such as by getting a home inspection. In many real estate transactions, it's the buyer who negotiates the right to conduct a home inspection after their purchase offer has been accepted but before closing.
Nevertheless, many California sellers choose to hire an inspector to evaluate the property and prepare a report ahead of time. The reason is largely twofold:
Of course, once you get the home inspection report, you will need to supply a copy to prospective buyers. And they might still want to get their own inspections done (in which case you could request that they hire an inspector only for a verbal report, so that you don't have to then supply copies of yet another written report to all your prospective purchasers).
As a broad rule, all sellers of residential real estate property containing one to four units in California must complete and provide written disclosures to the prospective buyers.
There are a few exceptions, such as for multi-unit buildings and properties that are transferred by court order or from one co-owner to another. But if you are offering your home to the public for sale, you can pretty much count on this requirement applying to you.
A California property seller needs to provide these disclosures to prospective buyers "as soon as practicable before transfer of title." That's a bit vague, as a practical matter, it usually happens early in the purchase process.
Some California sellers will line up all disclosures, inspection reports, and other paperwork prior to listing their property, so that everything is ready for serious offers to be accepted.
Other sellers will make a copy of the disclosures available within a day or two of an open house, or wait for buyers to put in an offer before providing the disclosures, with the option for the buyer to back out or renegotiate if the disclosures bring anything unexpected to light.
If you do not give the required disclosures to the prospective buyer by the time the two of you have signed the purchase agreement, then the buyer has the option to terminate the deal. (After you deliver the disclosure form, the buyer's deadline for cancelling is three days after delivery in person or five days after delivery by mail or by electronic means.)
Providing these disclosures to serious potential buyers as soon as possible decreases the likelihood of a buyer cancelling the offer later due to information found in the disclosures.
California's seller disclosure requirements are strict and thorough. California law provides a standard format, as referred to in Civil Code § 1102, which must be used by sellers in making these disclosures. The resulting form, called the "Transfer Disclosure Statement" (TDS), can be obtained from your California real estate agent. There's also a sample within the California Department of Real Estate's pamphlet for consumers about Disclosures in Real Property Transactions.
As a seller in California, you must also complete an additional disclosure form, the Natural Hazard Disclosure Report/Statement, prior to any home sale. This can be obtained from your real estate agent, and the language can be viewed within the statute.
The TDS form covers a broad range of topics, from structural information about your home such as a leaky roof to whether any deaths occurred on the property in the last three years. You will need to include information about all appliances in the home, including which are included in the sale as well as whether they are operational. You will also need to disclose any room additions, damage, or neighborhood noise problems.
In addition, you will need to certify that you've complied with various California law, such as that requiring smoke detectors as well as that the water heater has been braced, anchored, or strapped to resist falling or moving horizontally in an earthquake.
The California Natural Hazard Disclosure Statement poses several "yes/no" questions regarding things like whether your property is located in a special flood hazard area, in an area with a substantial forest fire risk, or in an earthquake fault zone. The local government of your city or county can provide you with more information about these classifications, as can your real estate agent.
Additional disclosure statements, such as those pertaining to special study zones or purchase money liens, might also be required, depending on the location and details of your real estate transaction. Your local real estate agent can help you determine whether any additional disclosures are required.
Finally, you must let a buyer know that information regarding the location of registered sex offenders is available from local law enforcement agencies and can be found online at the state-operated website.
Although some California sellers think that providing complete disclosures is a lot of work, if you don't provide a prospective buyer with the disclosure statement at all, the buyer has a right to cancel the sale agreement up to the last moment of negotiations. That would mean that your entire home sale, as well as all of the work you have put into it, could fall through. Besides, buyers tend to be happier with the deal when they've been warned of possible issues up front, rather than being surprised by them later.
While the Transfer Disclosure Statement presents a fair number of "yes/no" questions, you will need to provide details on some of your responses. That doesn't mean describing every little bit of chipped paint or every scratch on the linoleum. You are expected to disclose only "material" defects or facts. "Material" in this sense simply means something that is important for or determinative in the buyer's decision to purchase the home.
For instance, one question on the TDS asks whether there are any significant defects/malfunctions with the floors of the home. If the kitchen floor needs to be cleaned more often than the bathroom floor, this would not be considered "material" and would therefore not need to be disclosed. If, however, the floors in the kitchen were buckling, cracking, or disintegrating, this would be "material," and you would definitely need to disclose it.
A few more examples of things that are considered "material" are if the structure is in violation of any building codes (see, Pearson v. Norton (1964) 230 Cal.App.2d 1, 8-11), if the property is on land that is often flooded or has a high chance of being flooded (see, Stowe v. Nieto (1945) 71 Cal.App.2d 375,377), or if the public sewer system doesn't connect to the property (see, McCue v. Bruce Enterprises, Inc. (1964) 225 Cal.App.2d 21, 28).
Details that you do not need to disclose include whether a prior occupant had Acquired Immune Deficiency Syndrome (AIDS) or whether someone died on the property, as long as the death occurred more than three years before the current potential buyer's purchase offer. If, however, a potential buyer asks you a question about any deaths on your property, you must truthfully answer even if the answer involves an occurrence more than three years in the past. (See, California Civil Code § 1710.2.)
What if you are unsure whether you need to disclose a defect? As a rule, the more you disclose, the better it is for both you and the buyer. Remember, just because you disclose an issue doesn't mean you are obligated to repair or correct it. The buyer also has the option to correct a problem or to overlook it, if the issue is a minor one.
In fact, disclosing more than necessary can help the deal go through: The buyer's real estate agent, and therefore the buyer, will be happy to see that you have provided a fully completed TDS form. It shows that you are thorough and are taking the home sale seriously.
For further information, a local California real estate broker is qualified to advise you on real estate matters. For legal advice, consult your attorney.