If you are trying to sell your home in the Tar Heel State, you might have heard about the required disclosures you must make to potential buyers. North Carolina law mandates that sellers identify any known defects in their property before a purchase contract is signed. The purpose of this is to make sure that buyers are not surprised with a problem when they move into the home: a busted air-conditioner, a termite infestation, a flooded basement, and so forth. A secondary purpose of the requirement is to shield you, the seller, from litigation. If you’re preparing to sell your North Carolina home, what exactly must you disclose, and how?
The Residential Property Disclosure Act, codified as North Carolina G.S. 47E, requires the seller of residential real estate (one to four dwelling units) to complete a form—known formally as the Residential Property and Owners’ Association Disclosure Statement—disclosing conditions and defects with the property.
The statute applies to most transfers of residential property, whether or not a licensed real estate agent or broker is involved. There are exemptions, however, such as for transfers between spouses; see North Carolina G.S. § 47E-2
The idea is to compel you to detail any facts of which you are aware that negatively affect the property. This could cover a wide variety of defects in your home, ranging from the condition of the roof to the condition of the gas tank. The legislature’s broader goal, of course, is to prevent the buyer from having any nasty surprises after moving in.
The North Carolina Real Estate Commission provides the approved form, which contains all of the necessary information. You must fill it out and provide written copies to potential buyers.
The timing of your disclosure is important. According to North Carolina G.S. § 47E-5, you must give the disclosure “no later than the time the purchaser makes an offer to purchase, exchange, or option the property.”
If you fail to deliver this statement, the buyer can rescind the offer of purchase by written notice within three days of receiving the disclosure or signing the purchase contract. Avoid any instinct to give your buyer the disclosure at the last minute!
North Carolina’s disclosure statement asks you numerous questions about various aspects of your home.
Some questions are simply informational, asking, for example, for your address and the year when was the home was constructed, and what type of sewage system it has. Some are more legal in nature, asking whether there are any liens against the property, or lawsuits involving it, or whether there's a homeowners’ association in the neighborhood that restricts any of your rights. Some are environmental, such as noise hazards, or ask about the presence of pests.
The vast majority of the questions touch on specific elements of the home, covering everything from leaks in the basement to problems with the water supply source to non-functioning appliances.
If the property is governed by a homeowners' association, you'll also need to quantify the fees and assessments that owners are expected to pay.
For each question, you are given a choice of answering “Yes,” “No,” or “No Representation.” “No Representation” simply means that you are not making any statement one way or the other on this issue (and doesn't imply no knowledge on your part). Overuse of this choice this might raise red flags in the eye of the buyer—especially if it’s an element of the home about which you would probably know. On the other hand, it could avoid liability for outright fraud, as in for saying no defect existed when a buyer later discovers that it did. Smart buyers will, at a minimum, ask the home inspector they hire to look extra hard at whatever part of the home you chose to make no representations about.
Importantly, you are only obligated to disclose information about which you have actual knowledge. You are under no obligation to hire a home inspector to verify or shed light on any answer in the disclosure statement. To the contrary, the form specifically warns that “Buyers are strongly encouraged to obtain their own inspections from a licensed home inspector or other professional.”
However, the legislature does give you the option to hire your own inspector, if you so choose. In fact, pursuant to North Carolina G.S. 47E-6, you can simply hire an inspector to write a report, in which case you no longer need to fill out the disclosure statement: You cannot, according to the statute, be held legally liable for any "error, inaccuracy, or omission” in such a report.
Finally, North Carolina G.S. 47E-4.1 provides for a further disclosure relating to whether any mineral, oil, and gas rights come with the property, which is somewhat unique to North Carolina. The statute itself sets forth a series of questions that you must answer on a separate sheet of paper—all of which can be included with your primary disclosure form.
Upon first glance, this lengthy disclosure form can seem like a significant burden. Why would your elected representatives force you to accentuate bad qualities of the property to buyers?
It's true that some buyers might not be interested in purchasing a home that will need to be repaired. But what should also be taken into account is that honesty and openness in the negotiations leading up to the sale will increase buyer confidence, and avoid awkwardness when the home inspector hired by the buyer (as is likely in most real estate sales) turns up defects or repair needs.
A thorough disclosure can also save you from legal hassles down the road. If you disclose a known defect, the purchaser will have a tough time turning around months after the transaction has closed and suing you for fraud, misrepresentation, or breach of contract. After all, the form gave the buyer full notice of the defect.