Seller’s Disclosure: What Is It and Why Does It Matter

So, you’re selling your house. You’ve put it on the market, cleaned it, staged it and found a knowledgeable real estate agent to help you through the process. As a seller, you may think you have checked everything off your to-do list, but there’s something remaining: You should create a Seller’s Disclosure.

Today, many states require sellers to draft a Seller’s Disclosure, a document that details any possible problems with a property or home. Maybe there was a bad hailstorm and the roof needs repair, or maybe there’s an issue with a leaking faucet. Perhaps the foundation is a little shaky.

Whatever the problem, a Seller’s Disclosure details the home’s issues and helps ensure transparency during the home sale. This disclosure form allows a prospective home buyer to gain insight into a property and make an informed decision while protecting the seller from a potential lawsuit for hiding known problems with the property.

What’s Included In A Seller’s Disclosure?

A Seller’s Disclosure form varies from state to state, but generally includes the following information:

• History of repairs and renovations: If you refinished the basement or put in a new bathroom, it goes here. This form includes disclosure of past repairs and renovations, detailing the property's maintenance history and potential issues that you addressed. Buyers may request a copy of the Comprehensive Loss Underwriting Exchange that details every claim made to the homeowner’s insurance over the past 7 years. There, they could see that there was a foundation issue that has been repaired a number of times, for instance, or that there’s been a break in the plumbing system. The seller should also provide a list of all home renovation work that was completed and whether necessary permits were acquired.
• Structural components: Sellers are obligated to disclose any known defects or issues in the roof, foundation or other structural components, informing buyers about potential structural vulnerabilities that could affect the property's integrity.
• Mechanical systems: Any issues with the plumbing, sewer system or septic system could be expensive to fix and lead to costly water damage. This issue can damage the structural integrity of the home and possibly create a health hazard by causing mold growth. This will usually come up in a home inspection, but the seller is required to include this information in the Seller's Disclosure. This crucial property disclosure provides insights into the functionality and maintenance needs of these critical systems.
• Hazards: The form requires disclosure of hazards including lead-based paint, termites, asbestos, mold and radon, as well as natural hazards such as potential earthquakes, flooding and trees that could pose a risk to the property or inhabitants.
• Stigmatized property: Remember the movie “Poltergeist,” the one about a family whose suburban home is haunted by evil forces? That would most certainly be known as a stigmatized property, or a home that carries a stigma caused by emotional or psychological damage. Similarly, a home that is considered haunted or has known paranormal activity would be considered a stigmatized property, and this classification can also include homes where a death, murder or suicide took place. Criminal activity is also considered a stigmatized property – for example, it must be known if a home was used to make or distribute drugs. (Also, if methamphetamine was produced within the home, that could also create a health hazard.)
• Zoning and liens: Sellers must reveal information about the property's zoning regulations and any existing liens, ensuring buyers understand legal limitations or financial obligations related to the property.
• What stays with the house: Sellers must disclose which fixtures, appliances or furniture are included with the property sale, offering clear transparency into what non-property-related goods buyers can expect to remain on the premises. For instance, while you may be attached to the light fixture you waited for months to go on sale, you must clarify if it’s staying or going with you. The same goes for any appliances (refrigerators, microwaves, washers and dryers, etc.). Essentially, you must be clear from the start if the items are going to stay with the home or if you’ll be taking them. Many of these items have high value, and a buyer should know whether they need to purchase them.
• Homeowners Association: Sellers must provide information about the property’s homeowners association, as well as the related rules, fees and regulations. After all, HOA documents usually include fees and restrictions that may impact a prospective buyer’s decision to purchase the home. This part of the form provides insight into a community's governing body, as well as any associated obligations or restrictions.
• Neighborhood nuisances: A nuisance is anything that causes an inconvenience or annoyance – maybe a house is located near a factory or garbage facility that creates a strong odor. Or your neighbors have a chicken coop next door that creates a noisy and often smelly situation. A home could also be on the flight path for a major international airport, which means loud planes are flying above at all hours. Basically, consider a nuisance to be noises, odors, smoke or other disturbances that would interfere with a potential buyer’s enjoyment of the property. Here are some more examples of nearby nuisances that should be included in the Seller’s Disclosure:
  
  
  • Farm operations
  • Commercial and industrial operations
  • Military operations
  • Landfill
  • Shooting range 

What’s Not Included In A Property Disclosure?

Even if your state is lax with Seller’s Disclosure forms, transparency is still crucial. If you are trying to sell your home “as-is,” you are still liable for any issues that come to light if you didn’t disclose a material fact. You may have successfully secured your list price without properly disclosing any issues, but at what cost? A lawsuit is expensive, and you may also be responsible for any repair costs.

State-Specific Seller Disclosure Requirements

As previously noted, different states have different requirements regarding what information sellers need to disclose about the house. For instance, California has notoriously strict disclosure rules, requiring the description of various property defects like roof leaks, recent deaths on-site within 3 years and even disturbances such as barking dogs in the neighborhood.

Sellers in California are also required to complete an additional disclosure form, the Natural Hazard Disclosure Statement, which specifically highlights potential risks related to floods, earthquakes, fires, environmental hazards and similar issues.

Given the complexity of these many factors, it’s especially important to find a savvy real estate agent to review all state or local requirements and ensure your Seller’s Disclosure form is properly completed.

What Does ‘Caveat Emptor’ Mean?

Several states don’t require Seller’s Disclosure documents, as they operate instead under the concept of “caveat emptor” (which is Latin for “let the buyer beware”). Caveat emptor states are Alabama, Arkansas, Georgia, North Dakota, Virginia and Wyoming.

But while these states require minimal or no disclosure by sellers – unless there are issues that pose an immediate health or safety risk – the seller’s real estate agents are still required to disclose any known issues with a house or property, and the buyer’s real estate agents must investigate the property to ensure that nothing is missed. If a real estate agent does not fully disclose information, the buyer or seller may be able to sue to recover damages.

In other words, caveat emptor could create distrust in the sales process between buyers and sellers, as buyers must go an extra step to ensure that everything is up to par before purchasing. To avoid this, it’s recommended to hire a reputable housing inspector and make sure you understand the inspection report. If something comes up, ask the inspector for their recommendation.

As previously noted, some people buy a house as-is to save money upfront. This can be economically beneficial initially but can also lead to high costs down the road (depending on the amount of work needed).

What If A Seller Withholds Information On The Seller Disclosure?

If you fail to disclose material problems with a property, you could be setting yourself up for a lengthy legal battle. With this in mind, if there is any doubt, experts typically recommend sellers should disclose more information, rather than less.

Many states allow buyers to annul a sale if the seller fails to submit an accurate and honest Seller’s Disclosure form. Some states may even impose financial penalties on noncompliant sellers or penalize real estate agents who neglect to disclose issues known to them or conveyed by the sellers.

Why Is A Seller’s Disclosure Important?

As more states require a Seller’s Disclosure, it’s become abundantly clear that the key to a successful real estate transaction is transparency. While there may be a temptation to cut corners and get away with every dime you can in the transaction, being dishonest or unethical will just cause more troubles in the future. A harmonious, honest transaction is, in the end, better for everyone – financially and emotionally.

Why It Matters For Sellers

A Seller's Disclosure is crucial for home sellers because it helps establish transparency and trust with potential buyers. It's also a legal requirement in many states, and it shields sellers from potential legal disputes by providing comprehensive information about the property's condition. Important things for sellers to keep in mind when they fill out the form include:

• Being thorough and honest when you fill out the form
• Seeking professional guidance – like a licensed real estate agent – if you are uncertain about any details  
• Triple-checking your final document because this is a legal deed that has lengthy repercussions

Taking these steps can increase buyer confidence, reduce negotiations over undisclosed issues and expedite the transaction process.

Why It Matters For Buyers

Potential home buyers should carefully review the Seller’s Disclosure, which contains information that could affect the value of the property. Indeed, if the material in the document is too problematic, buyers could simply decide not to purchase the home. Buyers should go over the disclosure with their real estate agent, because sellers may unintentionally leave out defects, which is why it’s important to schedule a home inspection to help identify underlying problems.

The Bottom Line

The selling experience can be stressful for all parties involved – nobody wants to move into their dream home only to realize it’s a money pit. A Seller’s Disclosure provides one more step to ensure the process runs smoothly with no surprises or uncertainty in a property. It allows a buyer to know the ins and outs of a home, and it creates a level of trust between a buyer and seller.

Not all states require a Seller’s Disclosure, so it’s important to be aware of local regulations and how much due diligence may be necessary. The bottom line is that all parties win with a Seller’s Disclosure, and it’s always best to reveal any known defects to ensure the selling experience runs smoothly. To ensure everything goes well in this crucial area, be sure to work with a licensed real estate professional.