If you are trying to sell your home in the Tar Heel State, you may 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 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 any transfer of residential property (including leases with an option to purchase), whether or not a licensed real estate agent or broker is involved.
Specifically, the statute says that “a seller transferring residential real property shall disclose, in writing, to the buyer, agent and subagent, as applicable, all material defects of that property that are known at the time the property is offered for sale.” The law also requires that sellers“provide the buyer with any information on radon from tests or inspections in [your] possession, and notify the buyer of any known radon hazards.”
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 into the home.
The North Carolina Real Estate Commission provides the approved form—a four-page document—that contains all of the necessary information. You must fill it out and provide written copies of this form 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 the statement, the buyer can rescind his or her offer of purchase by written notice within three days of receiving the disclosure. Avoid any instinct to give your buyer the disclosure at the last minute, before the purchase contract is supposed to be signed. This might seem like a smart strategy if you assume that the buyer won’t have the time to read the statement or investigate the conditions before signing the contract. But North Carolina intentionally gives the buyer a few days to back out of the deal, if he or she sees something troubling on the disclosure.
North Carolina’s disclosure statement asks you 37 questions about various aspects of your home. Some of the questions are simply informational. For example: What is your address? When was the home constructed? Some of the questions are more ‘legal’ in nature: Are there any liens against the property? Are there any lawsuits involving the property? Is there a homeowners’ association in the neighborhood that restricts any of your rights?
The vast majority of the questions touch on specific elements of the home: Are you aware of any leaks in the basement? Are you aware of any problem with the water supply source? Are all of the appliances in good working order? Question #37 asks you to identify any additional fees that the homeowner can expect to pay. For example, is there a trash removal fee? Maintenance payments for a private road? These are the sorts of additional costs about which a buyer would want to know.
For each of these questions, you must answer “Yes,” “No,” or “No Representation.” “No Representation” simply means that you are not making any statements in one way or the other about the condition of the property. Keep in mind, this might raise some red flags in the eye of the buyer—especially if it’s an element of the home about which you would probably know.
Importantly, as the form reminds you, “you are only obligated to disclose information about which you have actual knowledge.” Actual knowledge means that you yourself actually possess information about that particular condition.
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 “Purchasers 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: “[T]he owner may discharge the duty to disclose… by providing a written report… [by an] engineer, land surveyor, geologist, pest control operator, contractor, home inspector or other expert, dealing with matters within the scope of… the expert’s license or expertise.” The statute further states that you “shall not be liable for any error, inaccuracy, or omission of any information” in such a report.
Finally, North Carolina G.S. 47E-4.1 provides for a further disclosure relating to mineral, oil, and gas rights, which is somewhat unique to North Carolina. The statute itself, here, has a series of six questions that you must answer on a separate sheet of paper—all of which can be included with your primary disclosure form. (Not surprisingly, most real estate transactions do not involve minerals or gas rights, so these questions may seem irrelevant.)
You have a nice home in Charlotte, which you want to sell as quickly as possible. Upon first glance, this lengthy disclosure form may seem like a significant burden. Why would your elected representatives in Raleigh force you to accentuate bad qualities of the property to buyers?
There is no disputing the fact that the information set forth in your disclosures may scare away some buyers, or result in a lower purchase price. Some buyers may 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 common in real estate sales) turns up defects or repair needs.
A thorough disclosure can also save you from significant headaches down the road. If you disclose a known defect, the purchaser cannot turn around months after the transaction has closed and sue you for fraud, misrepresentation, or breach of contract. After all, the form gave the buyer full notice of the defect before he or she bought the property.
For example, imagine that you know that there is asbestos in the ceiling tiles that has never been removed, and so you answer “Yes” to Question #25 on the form. A buyer who purchases the house regardless, and then tries to sue you for the cost to remediate the asbestos, will be unsuccessful. After all, the buyer had actual notice of the condition before agreeing to purchase the home. The disclosure form insulates you from this sort of liability, which could otherwise cause stress long after the closing.