If you’re selling your 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 before any purchase contract is signed.
Kentucky Revised Statutes § 324.360 requires that sellers of single-family residential properties make certain disclosures to a potential buyer. This law applies regardless of whether a licensed salesperson or broker is involved in the transaction. The statute specifically refers you to a form promulgated by the Kentucky Real Estate Commission (available here).
The four-page form breaks down its questions into ten categories covering various elements of your home. They are: (1) House Systems (such as plumbing, electric, heating, and so on); (2) Foundation/Structure/Basement (whether, for example, there are any known leaks); (3) Roof (whether there have been any recent repairs or problem spots); (4) Land/Drainage (in particular, whether there are any flood zones on the property); (5) Boundaries (whether, for instance, there are any known easements on the property); (6) Water (whether the drinking water has ever been tested, for example); (7) Sewer System (whether there is a septic tank system on site and so on); (8) Construction/Remodeling (such as whether there have been any structural additions or changes to the home); (9) Homeowners' Association (whether the owner will be subject to any rules by a local homeowners' association); and (10) Miscellaneous (such as whether there are any known environmental hazards like radon gas or asbestos).
Importantly, the "Miscellaneous" section includes a catchall question: "Are you aware of any other conditions that are defective with regard to this property?" 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.
These four pages 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: “Seller states that the information contained in this Disclosure of Property Condition Form is complete and accurate to the best of his/her/their knowledge and belief. Seller agrees to immediately notify Buyer of any changes that may become known to Seller prior to closing by providing a written addendum hereto.” The buyer will also be required to sign the form to acknowledge receipt.
The disclosure form is very 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.
As the Kentucky Real Estate Commission states: “This disclosure is based solely on the seller’s observation and knowledge of the property's condition and the improvements thereon. This disclosure form shall not be a warranty by the seller or seller’s real estate agent and shall not be used as a substitute for an inspection or warranty that the purchaser may wish to obtain. This form is a statement of the conditions and other information about the property known by the seller. Unless otherwise advised, the seller does not possess any expertise in construction, architectural, engineering, or any other specific areas related to the construction or condition of the improvements on the property. Other than having lived at or owned the property, the seller possesses no greater knowledge than that which could be obtained upon a careful inspection of the property by the potential buyer.”
To emphasize this point, the statute requires only disclosure of defects about which you know. In other words, you are under no affirmative duty to 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 language is beneficial to you as a seller. It insulates you from liability for defects that may 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 at all, and then convince the buyer to sign the purchase contract? There are, however, significant benefits to filling out the Kentucky disclosure form. 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 may result in a quicker sale of your home in the short term, it could cause problems in the longer term 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, 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 may 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 the thoughts of your old Kentucky home to be behind you.