What Is a Property Disclosure Statement?

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 What Is a Property Disclosure Statement?

As part of the home buying and selling process, the seller has a legal duty to disclose defects in the property of which they are aware to any prospective buyers. Often, this is done using a property disclosure statement. Property disclosure statements inform buyers of known defects to the home. A disclosure statement can protect sellers from liability for problems they let buyers know about before the sale is finalized.

Property disclosure statements detail any defects a home seller and their real estate agent are aware of. Basically, any defect or problem that could negatively affect the home’s value should be disclosed. In addition, a prospective buyer wants to know about problems that might be costly to repair if they should buy the property or affect its value.

The law in many states requires these disclosure statements. The goal is to inform buyers fairly so they are fully aware of a property’s good and bad points before they make an offer or before they close on the purchase of the property. A seller and their real estate agent can be liable for losses caused by their failure to disclose.

The exact information that must be disclosed varies from state to state. Each state has its own form with questions for the seller to answer regarding defects, major repairs, and other issues that might affect the home’s value or otherwise be of interest to a buyer.

Different types of properties may have different disclosure requirements specific to a certain type of property. For example, a single-family residence might require other disclosures than a condominium or a townhouse in a community with a homeowners’ association.

The seller’s duty to disclose usually extends to issues they are aware of. While a seller cannot legally conceal defects they know of, they do not have to pay for their own property inspection or do their own investigation into possible issues that the house might have. Of course, a buyer should always get a home inspection before purchasing.

Arguably, a seller might want an inspection before putting their house on the market, even though the law does not require it. They might want to do this because the buyer is likely to have a home inspection at some point before a sale closes, and the seller might want to avoid unforeseen problems.

A few states take a “buyer beware” approach to the issue. They require sellers to disclose very little or no information about a property to a buyer. The required disclosures are often limited to items that present a serious health and safety concern, such as lead-based paint or asbestos. It is up to the buyer to find out if there are any problems with the property.

What Types of Defects Must Be Disclosed?

There are a number of questions included in most property disclosure statements that must be answered. In terms of defects, sellers typically must disclose “material (significant) defects” that affect the home’s value or would influence a buyer’s decision to purchase the property. Usually, these are defects that the average buyer might not recognize through a visual inspection of a property.

Some of the disclosures included in a property disclosure statement address the following:

  • Any construction that has been done on the property without a permit.
  • The presence of possible zoning violations.
  • Repairs or renovations to the home that were not done to code, such as wiring or plumbing.
  • Leaky windows, doors, or a leaky roof
  • Plumbing leaks
  • The existence of lead-based paint.
  • Termites or other pests
  • The presence of mold
  • Problems or defects with any systems, such as the heating, ventilating, and air conditioning (HVAC) systems.
  • Issues with any appliances that are to be included in the sale of the property;
  • Any payments to homeowners’ associations or condominium associations, especially if they are past due.
  • Liens against the property
  • Disputes over the property line or boundaries.
  • The existence of any easements on the property.
  • The presence of wild animals on the property.
  • Information about the utilities for the property, e.g., whether it is connected to a sewer system or has a septic tank.
  • Noises or construction near the property.
  • Whether the property is in a flood zone.
  • Whether there exist any environmental hazards, such as radon.
  • A few states require you to disclose any deaths on the property, especially if it was a murder.
  • Some states include a question about whether registered sex offenders live in the area; Whether the property is considered a dangerous property.

Thus, many types of disclosure issues can arise in relation to the property. Different jurisdictions may have varying laws when it comes to the particular kinds of disclosures that are required. Contacting a real estate attorney may be needed if there are questions about whether a specific type of property issue should be disclosed.

The federal government has its own required disclosures, which must be made in all states. The federal government requires the disclosure of the presence of lead-based paint, asbestos, or other clear health and safety risks.

As noted above, however, states and counties also have their own particular laws regarding disclosures that must be made. Not all states require all of the disclosures above.

For example, some states require sellers to disclose nearby sexual offenders, while others do not. Some require a death on the property to be disclosed, especially if it was a murder, while others do not require disclosing this information.

When and How Does a Seller Make a Disclosure?

Sellers will generally complete disclosure statements at the request of their real estate agent when they list their property for sale. Many states have standard forms that a real estate agent often provides the seller with and assists in filling out. Often these consist of simple yes-or-no questions or boxes to check. The form may include space to elaborate or provide more details regarding the disclosures. Some states have separate forms that are to be used to address such specific items as lead-based paint or termites.

Laws vary as to when the statement should be delivered to a buyer. In most states, buyers receive property disclosure statements after a seller accepts their offer. That way, buyers can review this paperwork when they hire a home inspector to inspect the property for defects.

The disclosure statement can direct the inspectors attention toward areas of a home where the seller admits there are issues. So, a buyer would want to share the disclosure statement with their inspector.

In some states, a seller might even give a buyer a disclosure statement before the buyer even makes an offer. Arguably, this would be the most useful time for the buyer to get it.

In any event, the disclosure statement should be provided to the buyer soon enough in the transaction so that the buyer has time to do their due diligence and see issues that could make them reconsider whether the property is right for them.

What Are My Remedies if a Buyer Does Not Disclose a Defect?

In states that require a disclosure form, a buyer is usually given the right to back out of a purchase of real property without penalty if they learn about a defect before the closing or are not provided with a disclosure form. As a practical matter, this means that the buyer would keep their earnest money deposit.

If a buyer purchases a property and then finds a problem that would be expensive to repair or renovate, and the defect was not disclosed, they may file a civil lawsuit in a court of law. If the buyer did not disclose the defect on a required disclosure form, this should help their case. But even if the state does not require particular disclosures or a particular form, the buyer can still look to common law to establish liability on the buyer’s part.

Even in a state that does not require a particular disclosure form, tort law still makes fraudulent misrepresentation a civil wrong. If a buyer can prove that a seller knew of a substantial defect or problem and failed to inform the buyer, the buyer might have a cause of action for negligent or intentional misrepresentation. They would seek an award of compensatory damages to reimburse them for their economic and non-economic losses.

Should I Need a Lawyer for a Property Disclosure Statement Issue?

If you sold your home and did not disclose a known defect to the buyer, or you are a buyer who has purchased a home and thinks the seller failed to disclose a defect, you should consult an experienced real estate attorney.

Your real estate lawyer could inform you about your state’s property disclosure law and recommend possible defenses if you were the seller. Or, if you were a buyer, your lawyer can inform you of possible remedies based on the facts of your particular case. A skilled and experienced attorney can also represent you during any litigation if necessary.

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