If you're selling a home in Minnesota, you'll soon learn that, like in many parts of the country, your state's law requires sellers to reveal various problems that could affect the property's value or desirability. For example, a seller cannot fraudulently conceal major physical defects such as a shoddy roof or a structural weakness in the foundation, but rather must tell prospective buyers about them.
If selling your Minnesota home, what exactly must you disclose, and when? We'll get into the details here, including:
Minnesota's legislature outlined what a Minnesota real estate seller's disclosures must include, starting with this simple statement: "Before signing an agreement to sell or transfer residential real property, the seller shall make a written disclosure to the prospective buyer." It says the disclosure needs to include all "material facts" known by the seller that could "adversely and significantly affect" either an ordinary buyer's use and enjoyment of the property, or any intended use of the property that the seller knows about. (See Minnesota Statutes § 513.55.)
Further, the law requires such disclosures to be "made in good faith and based upon the best of the seller's knowledge at the time of the disclosure." This signifies the legislature's intent to prevent sellers from engaging in unscrupulous conduct or misstatements. You should not, for example, use sneaky wording to cover up the existence of a defect. Such tactics could expose you to liability if and when they're later discovered by the buyer.
To comply with the above, the most obvious path is to fully fill out the seller disclosure form described next. However, there are two other options.
The first is to supply the buyer with a professional home inspection. In this case you'd mainly need to fill out the portion of the disclosure form that mentions any information in your possession that contradicts what the inspection found (or didn't find). (See Minnesota Statutes § 513.56.)
The second option is for home buyers and sellers to mutually agree to waive the disclosure requirements. (See Minnesota Statutes § 513.60.) It might be appropriate with, for example, a friend who once shared the home with you and knows its issues. But asking a buyer to agree to this could also raise red flags. This option is mainly useful in unusual transactions, such as as-is sales of fixer-uppers, or where the seller has never actually lived in the home.
Minnesota's disclosure requirements apply to residential real estate transactions of homes or properties in common interest communities (such as condominiums) that occur by sale, exchange, deed, contract for deed, lease with an option to purchase, or any other option. (Minnesota Statutes § 513.52 and § 513.53.)
Exceptions to the law do exist, however, excusing seller disclosures in the case of foreclosure sales, transfers to an existing tenant, transfers to heirs, transfers to a spouse (or soon-to-be ex-spouse, in a divorce), parent, grandparent, child, or grandchild of the seller, and more. (For a complete list, see Minnesota Statutes § 513.54.)
The Minnesota Bar Association has created a standard disclosure form that complies with state law and covers the three options described above. Your real estate agent can get you the latest version.
You'll see that the prospective home buyers must actually fill out a section of the form, to make sellers aware of any uses they have in mind for the house. That way, you can tell the buyers whether, for example, adding their hoped-for pool would be especially difficult given the location of an underground storage tank.
In one of the early sections of the form, you'll see the portion to fill out if you're giving the buyer a home inspection report instead of preparing the whole disclosure form. Again, you must disclose whether you possess any contradictory information.
Moving on to the more standard seller-disclosure portion of the form, you're given an open-ended prompt to disclose all material facts of which you are aware "that could adversely and significantly affect: (1) an ordinary buyer's use and enjoyment of the property; or, (2) any intended use of the property of which the seller is aware."
The form then asks numerous specific, but optional and "supplemental" questions. For example, you are asked to state the year you purchased the house; whether pets have lived there; and whether there have been any structural replacements. Further questions address nearly every aspect of the home, from its tiling to air conditioning to roofing.
The form also asks for various environmental disclosures, such as whether there is known asbestos in the home, or mold, water, or air contamination, or local noise or air pollution. You are asked about past insurance claims you've made, as well (which could affect the buyer's ability to buy or afford future insurance).
You won't be asked about to reveal or mention everything. For starters, not every fact will be considered "material" enough to affect the buyer's use or enjoyment of the property. So you can safely omit small issues, like faded drapery or scratches on the floors. Moreover, you are required to disclose only items that you knew about when making the disclosure. You are not required to hire inspectors to check every last inch of the home for defects. Many home defects are in areas that are difficult to spot, such as in the attic or underground pipes.
In addition, the Minnesota disclosure form explicitly allows you to remain quiet about whether the property was or is:
(See Minnesota Statutes § 513.56.)
These exclusions are, in most cases, meant to either protect privacy or avoid rumors. Regardless, buyers could easily find information about some of these details online, including with databases showing the addresses of sex offenders. Be prepared to answer (or explain that you cannot answer) questions about these issues, if they apply to your property or neighborhood.
Because Minnesota's disclosure form must be delivered to prospective buyers (anyone negotiating or offering to purchase the property) before the seller signs the purchase agreement, the exact timing depends on the buyers' actions. You have a choice of giving it to the buyers themselves or to their real estate agent.
In addition, Minnesota sellers who later learn that anything on their disclosure form was inaccurate must notify the buyer in writing as soon as reasonably possible, but definitely before the closing.
Federal law requires disclosure of potential lead paint hazards, as described in Seller Responsibility to Disclose Lead-Based Paint Hazards.
Before putting your home on the market, it's wise to consult an experienced real estate attorney for further information about state and federal real property sale disclosure requirements.
You might think: Isn't it in my best interests to make any defects sound minimal, or to hide them? In the short term, this strategy could result in a quicker offer on your home. But in the longer term, it could expose you to buyer anger if the issues turn up in an inspection report before the closing, or to later legal liability if the buyer finds problems and realizes that you were not entirely honest.
Imagine, for example, that in selling your Minneapolis townhouse, you claim on the disclosure form that there's no issue with the HVAC system. Two months after closing, the buyer tries to turn on the air conditioner and it fails to work. When he calls an electrician, the electrician tells him that there was clearly a great deal of work done on the HVAC system over the past few years, but that now it needs a full replacement. The buyer will not be pleased. He purchased the townhome with the belief that the HVAC system was working. He might seek reimbursement from you for the costs of repair.
Indeed, Minnesota law specifically allows home buyers to sue sellers for any such misrepresentation or omission: "A seller who fails to make a disclosure as required by [the statute] and was aware of material facts pertaining to the real property is liable to the prospective buyer. A person injured by a violation of this section may bring a civil action and recover damages and receive other equitable relief as determined by the court." The buyer would have two years after the closing in which to take such action. (See Minnesota Statutes § 513.57.)
When in doubt about whether to disclose an issue, honesty remains the best policy. Litigation after the closing would be costly and time-consuming. You will want the transaction behind you by then. While there is no need to hire inspectors to expose every flaw in the home, or reveal minor issues, providing solid information to the buyer will lead to smoother negotiations and greater peace of mind in later years.