If selling a home in the Bluegrass State, you'll need to be mindful of Kentucky's disclosure requirements. Sellers of residential property are required by state law to disclose to prospective buyers certain defects with their home that could impair its value. These disclosures must be made in writing before any purchase contract is signed.
The law in question is Kentucky Revised Statutes § 324.360, which requires sellers of single-family residential properties to make certain disclosures to potential buyers. This law applies regardless of whether a licensed salesperson or broker is involved in the transaction. The statute refers you to a form created by the Kentucky Real Estate Commission, titled "SELLER'S DISCLOSURE OF PROPERTY CONDITION."
The form breaks down its questions into twelve categories covering various elements of your home. They include: (1) Preliminary Questions (such as whether you've lived in the home and whether it's been used as a rental or for non-residential purposes); 2) House Systems (such as plumbing, electric, heating, and so on); (3) Building Structure (whether, for example, there are any known leaks or pest infestations or rot); (4) Roof (whether there have been any recent repairs or problem spots); (5) Land/Drainage (in particular, whether there are any flood zones on the property); (6) Boundaries (whether, for instance, there are any known easements on the property or encroachments); (7) Water (your source, and whether the drinking water has ever been tested, for example); (8) Sewer System (whether there is a septic tank system on site, when it was last inspected, and so on); (9) Construction/Remodeling (such as whether there have been any structural additions or changes to the home); (10) Homeowners' Association (HOA), (covering whether the new owner will be subject to any rules and regulations by a community governance association); (11) Hazardous Conditions (such as abandoned wells, underground storage tanks, hazardous waste, or meth lab usage, and disclosing the possibility of lead and radon gas); and (12) Miscellaneous (such as mold, fire damage, and threatened legal action).
Importantly, the "Miscellaneous" section includes a catchall question: "Are you aware of any other conditions that should be disclosed to the buyer?" That's your cue to come up with any concerns that the form neglected to ask about, based on the unique features of or issues with your property.
This form should allow you to give potential buyers a fairly comprehensive snapshot of any known defects with your property. The form also gives you additional space to explain any of your responses to those questions in greater detail, and encourages you to attach pages if necessary.
You will be required to sign the bottom of the form, which reminds you: "As Seller(s) I / we hereby certify that the information disclosed above is complete and accurate to the best of my / our knowledge and belief. I / we agree to immediately notify Buyer in writing of any changes that become known to me / us prior to closing." The buyer will also be required to sign the form to acknowledge receipt.
The disclosure form is clear that you are under no obligation to verify any of your disclosures with a formal inspection or engineering report. You need only disclose defects or conditions about which you actually know, based on your observations and having lived in the property.
In other words, you are under no affirmative duty to, for example, hire a mechanical engineer to ensure that your sewage system is working correctly before submitting the form to a potential buyer. If you do not know about a problem, you do not need to investigate that area of the property prior to sale. That burden is on the buyer.
Needless to say, this is beneficial to you as a seller. It insulates you from liability for defects that might exist, but about which you have no actual knowledge.
It might seem silly to disclose anything at all. Can't you just deny knowledge of any problems, and then convince the buyer to sign the purchase contract? There are, however, significant benefits to filling out the Kentucky disclosure form honestly. Doing so can put a potential buyer at ease and avoid liability down the line.
When making your disclosures, avoid any instinct to minimize or ignore known defects. While such a strategy could result in a quicker sale of your home, it could cause later problems if the buyers conduct an inspection and find the problems themselves. Buyers tend to get angry if they think someone is trying to pull the wool over their eyes, and negotiations could go downhill from there.
Even if the deal does close successfully, imagine what could happen later. Let's say you sell your Lexington home. On your disclosure form, you claim that there is no issue with the electric system. After closing, the buyer tries to turn on the lights and they fail to work. Any claim that you "didn't know" about the broken electrical system would be, at best, difficult to believe.
This creates a risk that the buyer could sue you for breach of contract or fraud. Fraud is often defined as an intentional misrepresentation of a material fact made with knowledge of its falsity, and made with the specific purpose of inducing another person to act, resulting in injury to that person. Your misrepresentation—that you did not know about a very obvious defect—could expose you to liability. At a minimum, it could entrap you in costly and time-consuming litigation when you would like to enjoy your new home.