Consumers rely on their real estate professionals to provide them with information they require in order to make an informed decision during a transaction and when considering/receiving real estate services. Mandatory disclosures ensure that real estate professionals protect their client’s best interests and are being fully transparent.
The Closing Disclosure is a five-page form that describes, in detail, the critical aspects of your mortgage loan, including purchase price, loan fees, interest rate, estimated real estate taxes and insurance, closing costs and other expenses. It’s important that you review it thoroughly – in fact, it’s one of the most important steps you can take while buying a house.
What Does Seller Disclosure Mean?
In real estate, disclosures refer to the seller’s legal obligation to reveal known defects about the home or property they are selling. A property disclosure statement is the actual documentation of a seller’s disclosure. It is a required form in real estate transactions and outlines any problems with a property that would impact the home’s value or safety. Sellers are legally required to disclose these issues, but by fully documenting them on the disclosure statement, sellers are better protected from future legal action.
Federal Real Estate Disclosure Laws
There are surprisingly few federal regulations related to real estate disclosure. In fact, the only law that is applicable across all 50 states is the requirement to disclose the presence of lead paint.
Here is what you need to know:
- Homes built before 1978 require a lead-based paint disclosure, on the basis of the Residential Lead-Based Paint Hazard Reduction Act of 1992 – Title X.
- Sellers or their listing agents should provide buyers with a pamphlet on the hazards of lead paint.
- If you know that there is lead-based paint in the house you’re selling, warning language should also be included in your real estate contract.
- If your disclosure statement includes lead paint, make sure the disclosures are signed, and keep copies for at least three years.
- Sellers must give buyers a 10-day period to test for lead paint.
- Sellers who know they have lead paint in their home and fail to disclose it can be held liable for up to a decade, and they can be sued for triple the cost of damages suffered, so always disclose what you know about lead paint in the home.
California Real Estate Disclosure Laws
Most states have laws related to seller requirements in disclosing what they call “material facts” about the home they are selling. But the definition of “material fact” can vary a lot with each state. Some states are incredibly strict about seller disclosures, while others have so few regulations; buyers are pretty much purchasing at their own risk.
California is one of the strictest states for Seller Disclosures. Any residential real estate transaction in California requires the seller to make specific disclosures to the buyer. Sellers must complete the Real Estate Transfer Disclosure Statement and provide it to the buyer as soon as possible before transferring the title.
The disclosures include pre-listed items that the seller will need to check off. These can include property contains, including appliances, utilities, swimming pools, rain gutters, and fire alarm, to name a few. You must also acknowledge whether anything is not in proper working order, to the best of your knowledge.
You will need to document any structural defects that you are aware of and provide an explanation. The form also asks specific questions regarding the property, including the knowledge of any structural additions to the property, flooding problems or major weather-related damage to the property. An explanation will be required for each “Yes” answer.
Sellers in California must disclose, in writing, a long list of specific types of disclosures, including:
- Certain information about the neighborhood (e.g. the land adjacent to yours may be zoned for timber production)
- The home is within two miles of an airport
- The home is within the jurisdiction of the San Francisco Bay Conservancy and Development Commission
- Natural hazards disclosures, which state if the home is in a flood zone, area of high fire risk, designated wildlife area, or earthquake fault zone.
- Property taxes
- Window security bars
- Whether the property is zoned as or affected by an industrial use facility
- Whether the property has been used as a laboratory for methamphetamine production
- Smoke detector compliance
- Lead-based paint hazards
Seller Disclosure Basics
Here are four things you need to know about property disclosure statements.
- They Vary by State
There are only a few federally mandated disclosures, but overall, disclosure requirements fall under state law, and the requirements vary state by state.
- They Must Be in Writing
As with all documentation related to the sale of your home, real estate disclosures must be submitted in writing.
- Disclosure Statements Are Not Inspection Reports
Disclosure statements are always required, but not all sellers do a pre-inspection, and not all buyers choose to do a home inspection.
- Disclosures Do Not Require Investigation
While you must disclose all defects and issues you know exist in your home, you do not have to go searching for problems — if you do not know an issue exists, you do not have to disclose it. Make sure to check the specific wording of the laws in your state.
Common Seller Disclosures
While there are a variety of issues that need to be disclosed when selling a house, here are some of the most common items, not including the federal mandate to report lead paint. These common disclosures are all related to the “real property” — the legal term for the actual physical structure and the land.
- Health and Safety Hazards
Mold disclosure is common, as are asbestos and radon disclosures. Foundation issues can also be considered a health and safety issue.
- Mechanical Issues
HVAC condition or age, water, sewer/septic and appliances
- Structural Defects
Issues with the foundation or roof
Previous water damage, either environmental or due to plumbing issues
Any repairs or renovations you have done to the home must be disclosed, whether it was permitted or not. Even if you think the work done was relatively minor, it is always best to disclose it anyway.
The existence of termites and rodents and other pest issues needs to be disclosed.
- Legal Issues
You also must report liens against the property or bankruptcy proceedings that could affect the sale.
Less Common Seller Disclosures
These less common disclosures can vary by state, but in general, they are not as common and often fall outside of the “real property” qualification.
- Property line or zoning disputes
- Square-footage discrepancies
- If the home is subject to a homeowners association (HOA)
- If the property was the scene of a crime or murder, or if it’s known to be haunted
- Bad neighbors or nearby noise
- Nearby sex offenders
- Nearby toxic materials, such as contaminated soil
Disclosures are always required, based on your state laws. Whether you are using a real estate agent or selling your home on your own, you will need to follow state and federal guidelines. However, within state laws you may find loopholes where agents are responsible to disclose more information than a for-sale-by-owner (FSBO) seller. If you are doing a FSBO listing, the responsibility to research and follow through on disclosures falls on you.
Consequences of Failing to Disclose
Disclosure laws are designed to protect buyers from purchasing a home with serious flaws and to protect sellers from future legal ramifications. So, it is important that sellers take disclosures seriously. If you attempt to hide a defect in your home and get caught, you can be sued by the buyer for nondisclosure, which can include:
- Paying for Damages Suffered
For example, if there was a health hazard, you could be required to pay for medical bills.
- Paying for Repairs
Even after closing, you may be required to pay for repairs on the property related to the known defect.
Tips to Avoid Disclosure Disputes
- Disclose everything, even if it seems minor.
- Share anything that could negatively impact the usefulness, value or enjoyment of the property.
- If you fixed something, provide receipts to the buyer to document how the issue was remedied.
- Talk to an attorney or real estate agent about how to navigate the disclosure process.
- Do a pre-inspection before listing.
- Keep all signed disclosures for at least three years after closing.
Your Time to Review
If you are the buyer, your lender will provide you with a few disclosures to help you understand the loan costs and settlement services fees. Take time to familiarize yourself with the information detailed on these important forms.
The government requires that you have at least three days to review these forms before you close. Coordinate with your lender if you have any questions about the loan or related fees. Any major changes to the mortgage, like the loan type or the interest rate, will trigger a new set of disclosures and a new three-day waiting period.
Why Choose Citrus Heritage Escrow?
When choosing an escrow company there can be many important factors to evaluate. Fees, location, staff and even recommendations from friends and colleagues are all things to consider. With Citrus Heritage Escrow by your side, you can rest assured that when you receive your settlement check, you’ve gained the maximum benefit from your home sale or purchase.
Call us today with any questions or concerns. Our professional Escrow Agents will help you through this exciting yet confusing process. (951) 335-7200