My wife and I just purchased a historic property and were wondering how we could trace its history. It was a foreclosure, and the seller provided absolutely no information.
As it turned out, we needn’t have worried. Within days of our purchase, as we stood out front, a steady stream of curious neighbors emerged from neighboring houses to see if we were the new owners. We quickly discovered two things: The house, built in 1928, had quite a storied history, and everyone was eager to tell. All of which demonstrated an age-old truth: When selling, make sure you disclose everything. If you don’t, the neighbors will.
Failure to adequately disclose can lead to serious legal issues and potential penalties. Historically, buyers did not have a lot of recourse when buying a home, leading to the term “caveat emptor,” meaning “let the buyer beware.”
As a result of significant abuses, Realtor associations have taken steps to protect buyers by instituting disclosure laws and providing forms to help sellers make the process as easy as possible.
Although disclosure laws differ from state-to-state, there are three overlying principles:
- If you have specific knowledge, you must disclose: If you know, they will be building a new freeway a block away in the next three years, that is a known fact that you must disclose. If you can see your driveway has cracks, disclose. Have an unpermitted mother-in-law suite (ADU) on the back of your property? Disclose. Have you done any upgrades? Disclose in detail. We tell our sellers to go through the questions on the disclosure forms and answer each as truthfully as possible.
- If you are confident the answer to a question is NO, say so: If the disclosure forms ask a question and you know the answer is “no,” simply check the box and move on.
- If you genuinely do not know an answer, state, “Do not know”: For example, if the forms ask if you are aware of any asbestos in your listing and you genuinely do not know for sure (but might suspect), then you can state, “Do not know.”
You are not required to go out and do research — you are only required to disclose what you actually know.
Here are the top 10 categories that sellers must disclose:
1. What comes with the property?
Frequently, buyers will tour homes with the seller still in residence. It might be hard to figure out what stays and what the sellers will be taking with them.
For example, in our market, the range and any other built-in appliances typically stay, but freestanding refrigerators, washers and dryers are usually negotiable. Is that bookshelf unit attached, or will it go? How about the gazebo in the backyard?
2. What features does the property include?
A few years back, I bought a home in a state with substantially lower disclosure requirements than I had previously experienced. It was an upscale home in a well-established city neighborhood, and in doing my own due diligence, I figured I had covered all the bases.
I was therefore surprised to receive a notice from the property management company that the tenant had reported a failed septic tank pump. Septic tank? Who knew? It turns out it was not a mandatory disclosure, and I missed it.
I had assumed it had a standard sewer connection. It was an embarrassing oversite due to the fact that I was used to California disclosure laws, which require us to disclose all known features of the house, including the utilities.
3. Are there any significant defects?
Whether walls, floors, windows, foundations or any other structural parts of the home, the seller should be disclosing any known defects or items in poor condition.
Pets might fit into this category if they significantly damaged any part of the home, such as flooring. Some states also require you to disclose active infestations of wood-destroying pests, flood damage, past insurance claims and so on.
4. Are there any hazardous materials or conditions?
Most disclosure forms ask if there is knowledge of any materials that are considered environmental hazards. For example, many homes built before the late ’70s contained asbestos. Frequently, sellers have no idea whether their home contains asbestos or not. The same would apply to formaldehyde, radon gas, lead-based paint, mold, chemical or fuel storage tanks, contaminated soil or groundwater, and so on.
5. Has there been a death on the property?
Some buyers are opposed to homes in which someone has died. Many states do not require this disclosure, but we are required to disclose any death on the property within the past three years in our state.
In some cases, keeping in mind the neighbor’s propensity to “disclose on your behalf,” it might be wise to disclose violent deaths that occurred outside the three-year statute of limitations.
6. Are there any disputes with neighbors or local municipalities?
Are there disagreements over the condition or location of fences, proximity of sheds to the property line, trees with overhanging branches, unpermitted additions or renovations, and the like?
7. Are there any neighborhood noise problems or nuisances?
If that loud, continually barking dog who annoys everyone in your neighborhood is yours and will be moving with you, there’s no need to disclose. However, if your next-door neighbor has three pit bulls that bark and rattle the fence separating your homes, you had better put that fact in writing.
The same applies to:
- Busy intersections
- Airplanes flying overhead
- School drop-off zones
- Proximity to venues that hold community events such as concerts or fireworks
- The frequent heavy metal parties down at the end of the block
- The licensed marijuana dealer three doors away
- The family with 12 cars that take up all the parking spaces on the block
There is one caveat here: If you suspect an issue but do not have proof, then do not disclose it. For example, a neighbor told our sellers that their neighbor was a registered sexual offender. We questioned a real estate attorney as to whether or not to disclose.
We learned that disclosing an unfounded claim could be categorized as slander. We also learned it was not up to the seller to investigate an unsubstantiated claim but that the burden of investigation, in this case, would be on the buyer.
8. Are there any organizations that have authority over your property?
If you are selling a property that’s in an HOA, co-op, designated historic neighborhood or that has an architectural review committee or any other organization with any authority over your listing, you must disclose. And you must provide all pertinent documentation, CC&Rs, HOA disclosure package and the like.
You must also detail any potential limitations to upgrades imposed on your property by these organizations or local building authorities.
9. Are there any entities close to your property that might affect the value?
Think airports, industrial zones, military bases, training areas or munitions storage facilities, refineries, major trucking routes, Amtrack stations, rivers that occasionally flood, and so on.
10. Can you think of anything else the buyer should know?
This one is a catchall category that includes any-and-all information the buyer needs to know. If there is no specific question in the disclosures that covers an issue you know of, it’s best to put it here.
Additionally, if you received the home in a trust or are a landlord who has never personally lived in the home, you can declare that here as well. Some states limit the disclosures required if the home is in a trust or is a probate sale and the person who lived in the house is now deceased.
Although these 10 categories do not cover everything, they are a good start. The adage still applies: When in doubt, disclose. A few minutes of writing it down can save you serious amounts of time and expense in court. And you can guarantee one thing with absolute certainty: If you do not disclose everything, your neighbors certainly will.
Carl Medford is the CEO of The Medford Team.