What You Have to Disclose When You Sell Your Home
Even though you now have all the
tools to make your house the most saleable it can possibly be, you need to know
that you can’t polish out every imperfection in your home, some problems cannot
and should not be taken away by a little bit of elbow grease.
Many states in America now require
by law that the seller of a property must offer written disclosures about any
unseen physical or socioeconomically problems affecting the property and the
Once you have a potential buyer you are obligated to disclose any
major problems that may affect the property’s value.
I know it seems counterproductive to
tell a potential buyer things wrong with your home, especially being so close
to the sale, but this transparency will not only create a stronger and more
trustworthy relationship with the buyer, it will also keep you out of potential
litigation or in some serious cases, criminal charges in the future.
Why disclosing negative items actually helps you sell your home.
I know this may sound crazy. But,
it’s true. And, I have a crazy story that backs this up. A friend of mine was
selling an old used truck. It was about 20 years old and had over 200,000 miles
He put it up for sale and showed it
to someone that wanted to buy it. Now, the truck was in pretty good shape for a
vehicle with 200,000 miles. But, it did have some problems.
Now, the seller did not want to have
to worry about the buyer complaining about the problems after he had bought the
truck. And, he didn’t care if he sold it or not.
So, here’s what he did. As soon as
he met the buyer he immediately showed him all of the things wrong with the
“The passenger door window doesn’t roll up or down”
, he said. Then, he proceeded to spend the next
5 minutes telling him everything that was wrong with it.
“Look at the driver’s side door. The hinge is a little weird and
it doesn’t always shut completely. When you accelerate you have to keep steady pressure on the
accelerator. Otherwise, the truck may jump out of gear and then kick back into
The entire truck will jerk forward. It’s kind of hard on the
transmission when it does that.”
The buyer ate it up!
He bought it on the spot. He knew
that most 20 year old trucks would have problems. And, he figured that a seller
who was so upfront about the problems wouldn’t be hiding any problems from him.
Now, you would think that the guy
was selling the truck for a really good deal. Nope. He had owned it for just over
a year and was actually selling it for 30% more than he had bought it a year
No, he didn’t buy it for a really
cheap price the year before. He actually bought it from a used car dealership
for a fair price. Now, he had done a little bit of work
on the truck and fixed a few things. But, all in all, it wasn’t a bargain of
This same strategy works for selling
a home. Most buyers are not stupid. They know if they buy an older home, it is
going to have some problems.
The more forthcoming you are about
the potential problems, then the more relaxed they will become about buying
your house. Ok, let’s keep going.
If you see something, say something
One thing you should know is that in
most states you don’t have to worry about discussing issues that you have no
knowledge of. Don’t run out and hire an inspector to nit-pick every little
detail of your home with the intention of finding problems that may not even
affect the property value.
The problems you have to report are the ones that you know about.
Leaky pipes, rotting wood, basement flooding,
and basically anything about your property that has bothered you and you know
that it will bother the new residents.
However you can’t be cavalier about
the unknown issues. There are certain scenarios where turning a blind eye could
get you in some real hot water. Depending on what state you are selling you
house in, you may be held responsible for not discovering any unknown potential
It’s very important to educate
yourself about the specific disclosures that your state requires. Some states
are very strict while others are more lenient. To get a decent idea of what you
may be up against, let’s take a look at all the regulations in California, one
of the most stringent disclosure report states in the nation.
The Basic Disclosure Requirements:
*Any significant defects regarding walls, ceilings, floors, roofs, windows, doors, foundation, fences, driveways, plumbing and electrical systems.
*Lack of compliance with child safety standards.
*Additions or modifications to any rooms in the house.
*Use of Hazardous substances on property.
*Regular neighborhood noise disturbances.
*Any features on property shared with neighbors.
*Damage to property from fire, earthquake, floods, or landslides.
*Deaths on Property (within three years).
*The location of any publicly registered sex offenders or at least ensuring the buyers have knowledge of the sex offender database.
What your state expects from you
Many states share the similar strict
regulations of disclosure that I posted above. But, you’ll want to find out
specifically what is expected from you by checking with your state department
of real estate. The state department can get you all the forms and checklists
you need to make sure you’ve meet all the requirements of your home state.
It’s also very important to not just take a macro surveying of
what needs to done, you need to get micro too. Contact your city planning
department to make sure your property is up to date with all the local
ordinances, ordinances that would not be covered in the state regulations.
Overlooking issues such as misplaced land borders or an
unregulated build could scare off prospective buyers which is the last thing
you want on the eve of a sale.
On second thought, get an inspection
As you saw from the very
thorough requirements above, and all the local disclosures that may fall through the
cracks, you may want to consider hiring a property inspector even if it is not
required by your state.
While the results of an inspection
may cause unplanned investments in renovations, you will be saving money from
what could be a much more costly lawsuit in the future if undisclosed issues
are discovered after the sale.
Also, having an inspection
beforehand will also give you the upper hand when negotiating with the
prospective buyer since there will be no last minute surprises or unfounded
demands that set the sale off course.
A disclosure for all
There are some disclosures that
every home seller must know because they are required in all fifty states. The
use of lead-based paints or other hazard materials can be harmful to the
inhabitant of a home, especially if young children will be living there. If any
of these materials have been used in your home, the buyer needs to know.
The Residential Lead-Based Paint Hazard Reduction Act of 1992 (AKA ‘Title X’) states that if you are selling
a home built before 1978 you must comply with the following procedures:
*Give an EPA-approved information pamphlet on identifying and controlling lead-based paint hazards.
*Disclose any known information concerning lead-based paint or lead-based paint hazards. The seller must also disclose information such as the location of the lead-based paint and the condition of the painted surfaces.
*Provide any records and reports on lead-based paint or lead-based paint hazards which are available to the seller.
*Include an attachment to the sales contract which includes a Lead Warning Statement and confirms that the seller or landlord has complied with all notification requirements. *Sellers and home buyers must sign and date the attachment.
*Sellers must provide home buyers a ten day period to conduct a paint inspection or risk assessment for lead-based paint or lead-based paint hazards.
These requirements are very important to meet not just for the safety of your buyers but also the safety of your finances.
Title X requirements the buyer can sue you for triple the amount
of damages suffered from the exposure. To make sure you won’t have to triple pay, be sure to triple
check that you have done all you can to disclose any potential hazard materials
in your home. For more information visit the EPA website here: www.epa.gov/lead
When In Doubt, Disclose
The best way to ensure there will be
no repercussions of liability from lack of disclosure is to just sing like a
canary. There is no such thing as "to
much information" when it comes to transparency with your buyer.
They have the right to know
everything about the home they are buying and it is both morally and ethically
your responsibility to tell all
However, just because you’ve disclosed a problem doesn’t mean the problem is
yours. The buyer may negotiate the potential costs of renovations into the
deal. For example, if the cost to get the pipes fixed is appraised at five
grand, you can take that value off of the sales price and the buyer will use
the money saved to get the work done themselves.
Some eager buyers may even look the
other way on the minor issue that will not affect their quality of living in
order to get a deal done as soon as possible. Both you and the prospective
buyer will have a healthier and more productive negotiation when all the cards
are laid out on the table.
How to Disclose
Once you’ve figured all that must be
disclosed to your prospective home buyer you need to figure out the right way
to divulge the information. There are specific forms in many states the will
feature prompting questions and fill-ins that make for an easy to complete and
understand report of all the problems with your home.
These forms also feature a page that
you must sign and date to authentic all your disclosures. The buyer also has to
sign and date this form so that it officially shows that everyone is on the
Keep in mind that even if you state
does not mandate a form, in order to protect yourself in the future it’s very
important to get a receipt or legally approved document that when signed by the
buyer officially confirms that they have agreed with and have knowledge of all
the relevant disclosures.
In the end it’s all about having an
on-the-record candor that helps to ensure you make a successful sale that both
you and the buyer feel good about and nothing comes back to haunt you in the future.