Imagine that you own a house, condominium unit, or parcel of land in Tennessee, and that you want to sell it. Tennessee law requires that, before you actually make the transfer to a buyer, you first give that person a disclosure statement (unless the purchaser waives this right).
This disclosure is intended to put the prospective buyer on notice of any known material defects with the property; meaning anything from an unstable foundation to a mold infestation. Making such disclosures prevents the buyer from unfortunate surprises before or after the closing, which in turn protects you from the buyer's anger and possible urge to sue.
If you're selling property in Tennessee, what exactly must you disclose, and how?
Tenn. Code Ann. § 66-5-201 to 210 broadly cover disclosure requirements for home sellers in Tennessee. As a seller of a property with one to four dwelling units, you in most situations must provide the buyer with a disclosure statement before a purchase contract is signed. (For exemptions, such as for transfers between co-owners or divorcing spouses, see Tenn. Code Ann. § 66-5-209.)
A disclosure statement is a short document in which you'll list "any material defects known to [you]" about the property. Tenn. Code Ann. § 66-5-202 requires that the statement also include a notice to prospective purchasers buyers that they might wish to obtain professional advice or inspections of the property.
The prospective buyer can, however, waive the right to receive a full disclosure statement. Buyers might do that if, for example, their intention is to demolish the entire home, or if time is of the essence in the transaction, or if the market is ultra-hot and they feel it's their best hope to compete with other bidders.
If the buyer elects this waiver, you must provide what is known as a disclaimer statement. It tells the buyer that you make "no representations or warranties as to the condition of the real property" and that buyer will be receiving the real property "as is;" that is, with all defects that might exist. Like the disclosure statement, the disclaimer must be given to the buyer before a purchase contract is signed.
Your disclosure statement must identify any material defects in the property about which you have actual knowledge. Tennessee's legislature conveniently provides a model form within Tenn. Code Ann. § 66-5-210, which fulfills all of the statutory requirements. The Tennessee Realtors Association has crafted it into a similar form, available online. Your own real estate attorney or agent can provide you with a copy of the latest version.
The form contains multiple questions about the property's features, then asks whether those have any known defects. For instance, the form asks about legal issues, such as boundary encroachments or your title to the property (as in, whether contractors have placed liens on it after a payment dispute). It asks about the condition of the roof, slab, insulation, sidewalk, plumbing and heating systems, and so on. It asks about hazardous materials, such as asbestos, radon, methamphetamine, and mold. It asks about structural problems, slippage, and rot.
You can answer these questions with "Yes," "No," or "Unknown."
There's nothing wrong with checking "Unknown" if you truly do not know. There's no expectation that you perform research on your home, either. (Tenn. Code Ann. § 66-5-201.) In other words, you are not required to hire a mechanical engineer to make sure that the HVAC system works before submitting the disclosure statement to the buyer. You merely need to answer the questions on the disclosure form to the best of your own personal knowledge.
If you do provide the buyer with an expert report, such as the inspection report of a licensed land surveyor or engineer, you are not liable for its contents (See Tenn. Code Ann. § 66-5-204).
There are certain issues Tennessee home sellers need not disclose. Like many states, Tennessee provides that home sellers have no obligation to provide information to potential buyers about whether or not prior residents had HIV or other diseases that medical evidence says are highly unlikely to be transmitted through the occupancy of a dwelling place.
Similarly, you do not need to disclose whether the property was the site of a homicide or suicide. All of these topics might spook certain potential buyers, but the legislature acknowledges that they should not be relevant to the sale, and revealing them might intrude on the privacy of former owners.
(See Tenn. Code Ann. § 66-5-207.)
Any Tennessean selling property wants the transaction to go as smoothly as possible, while also fetching the highest possible purchase price. Won't telling the buyer about defects undermine this?
Undoubtedly, Tennessee buyers will take note of major defects that you disclose and haven't repaired. It would be reasonable for major defects to influence the price the buyer is willing to pay for the home, though you'll likely have taken that account into setting the price already.
The law does, however, give you important incentives to be fully honest. First, there are strict statutory penalties against sellers if the buyer discovers an undisclosed material defect after closing. According to Tenn. Code Ann. § 66-5-208, the buyer can sue for actual damages suffered; the costs of repairing or replacing whatever the material defect was.
Note that Tenn. Code Ann. § 66-5-201 also mandates that the seller make the disclosures in good faith." In this context, that essentially means "no funny business." The legislature wants you to be open and honest, and not to try to obfuscate defects or intentionally mislead the prospective buyer.
Beyond these fears of possible litigation, the practical benefit of disclosure is simple: It creates trust. If you tell prospective buyers about a problem, they are more likely to want to do business with you. It shows that you are not trying to pretend that your property is flawless. Could this honesty lower the purchase price, or maybe even scare a buyer away? Maybe. But most Tennessee sellers know that honesty today could save them headaches tomorrow.