Understanding Seller’s Disclosures in Real Estate

Clear and accurate communication protects buyers and sellers during a real estate transaction. A Seller’s Disclosure is a key document that helps facilitate that back-and-forth communication. The disclosure – which is completed by a seller and their agent – outlines information about the property that could affect a buyer’s decision to purchase the home. 

While requirements around what goes into a Seller’s Disclosure will vary from state to state, they typically include information about the property’s condition, known defects or needed repairs and outstanding liens or encumbrances on the property. 

Seller’s Disclosures are important because they can help build a foundation of trust with prospective buyers. We can show you how to comply with your disclosure requirements and gain the kind of trust that can earn you a sale. 

How Do Seller’s Disclosures Work in Real Estate?

Sellers must fill out a Seller’s Disclosure as a part of the selling process. The Seller’s Disclosure alerts buyers to any known problems with the property while minimizing a seller’s legal risk after the sale. The seller and buyer can feel more confident about the transaction when the seller supplies a thorough disclosure.

Seller Disclosures typically contain information about known hazards or problems with the home, but disclosure requirements vary by state. It’s important to familiarize yourself with your state’s requirements. 

By the way, if you’re thinking about listing your home for sale by owner (FSBO), you’ll still need to handle this part of the process. 

Seller’s disclosure forms

Think of the Seller’s Disclosure as a formal way to pass along important information to buyers who are seriously considering purchasing your home. Sure, you may be able to share some of this information during informal conversations – and there’s certainly nothing wrong with that. But is every issue in your home top of mind? 

A disclosure protects you and the buyer because everything is laid out clearly in writing. Potential buyers receive it upon request or acceptance of their offer.

What Should You Include in a Seller’s Disclosure?

Typically, a Seller’s Disclosure is relatively short and straightforward. You’ll complete a series of categories, each with accompanying questions.

If there are no known issues, you can usually check a box that says so and move on. If there is an issue with a part of the house, you may need to write a sentence or two explaining what’s wrong. Issues like pests may require a separate disclosure form.

You typically must declare if there are any known issues with the following topics: 

• Environmental and natural hazards
• Deaths on the property
• Faulty systems and property repair history
• Neighborhood nuisances
• Outstanding liens or encumbrances

It’s important to answer these questions as accurately and thoroughly as possible. If you’re not sure about something, check with your real estate agent or speak with a real estate attorney familiar with your local disclosure requirements.

Federal requirements

Some of the questions on a Seller’s Disclosure are required under state law or your local real estate commission, while others are required under federal law. 

One federal disclosure requirement is the Real Estate Notification and Disclosure Rule. ^[1] This rule requires sellers to give buyers notice about certain lead-based paint and lead-based paint hazards if the home was built before 1978. 

The rule also requires sellers to supply buyers with a lead-based paint disclosure form. ^[2] The form must include: 

• Information about any known lead-based paint and lead-based paint hazards in the home 
• Any information you have about lead paint in the home, such as test results or reports 
• An EPA-approved pamphlet on lead poisoning prevention ^[3]

Examples of Seller Disclosures

Seller’s Disclosures can cover just about any property defect, such as mold, electrical problems, prior flooding or structural damage. 

Here are some of the most common property disclosures:

Environmental and natural hazards

When you’re selling a property, you must disclose any known environmental or natural hazards to a buyer. A misstatement or omission here can have significant implications for the home’s new owner. Some of the hazards you must disclose include:

• Asbestos
• Termites
• Infestations
• Radon
• Lead paint
• Wildfires
• Floods
• Earthquakes

As the seller, you must disclose all conditions that can affect the health and safety of anyone living in the home. Does your basement have a recurring flooding problem? Maybe your home sits in an earthquake zone. Has excessive radon (which has been linked to a higher risk of lung cancer) ever been detected? 

These and other hazardous conditions still need to be disclosed in the Seller’s Disclosure even if the issues were resolved.

Deaths on the property

It can happen. And when it does, you’d best disclose it – although not all states require this. 

Some people are put off by the thought of living in a house where someone died. They might even worry about the property being haunted. 

But disclosing a death on the property could be beneficial. It may uncover an overlooked hazard, like slippery front steps or a wobbly banister. 

It’s not fun to think about, but if you know there was a death on your property, it needs to be disclosed.

Faulty systems and property repair history

Many homes have issues with faulty systems, such as electrical, plumbing, HVAC or the roof. 

You’ll need to disclose any known problems with these systems and any past repairs. The condition of these systems can have a major impact on the value of the property, so full disclosure is important. 

Another valuable piece of information you can share is when and where items were purchased. This is when you let the buyer know about the transferrable dishwasher warranty or the lights that flicker when you turn on the microwave.

The bigger the expense, the more valuable a transparent disclosure becomes. Roofs often come with lifetime warranties, and most home buyers can’t tell the difference between a 20- or 30-year-old shingle. If the roof was replaced during your stay in the home, include that in the disclosure.

Neighborhood nuisances

If you’re aware of any nuisances in the neighborhood that might bother a potential buyer, be sure to disclose them. That could include:

• A new development on an adjacent property: Nearby construction can affect home values and be disruptive, affecting everything from noise levels to traffic and privacy. 
• The nearest fire station closed for renovation: A fire station’s temporary shutdown isn’t in your control, but you should let the buyer know because it could affect their safety and their homeowners insurance rate.
• A nearby business emits unpleasant smells: Let the buyer know if there is a factory, an animal rendering plant or a sewage treatment facility close by that gives off an unpleasant odor. Let them know if it’s only a few weeks a year or during a particular time of day.
• Historic preservation efforts in the neighborhood: Preservation efforts may limit a buyer’s renovations or upgrades to the property.

Full disclosure is key. You may not think some of these items are important, but they could be deal breakers for some buyers.

What Happens if a Problem Isn’t Disclosed?

Is it the worst thing in the world if you forget to mention a problem in your Seller Disclosure? And what’s the penalty if you outright lie on the disclosure?

Are you tempted to leave something off your disclosure form because you don’t want a seller to ask you to make repairs? Remember, your responsibility is to disclose the defect(s), not repair it or pay for it to be repaired. If you lie or intentionally fail to disclose a problem and the buyer finds out about it after closing, they can sue you for fraud or misrepresentation or try to void the sale. 

Penalties can vary based on the nature of the omission. If you fail to disclose lead paint, for instance, you could face civil penalties of up to $19,507 per violation. ^[4]

There’s a big difference between omitting something you didn’t know and deliberately withholding something you do know. The last option is illegal. 

If you aren’t sure whether you need to disclose something, err on the side of caution and disclose it. That way, you can rest easy once the sale is complete.

What is caveat emptor?

Most states require Seller Disclosures for real estate transactions. But some states, like Alabama, North Dakota and Vermont, are caveat emptor states. ^[5]

Caveat emptor is a Latin phrase that means “let the buyer beware.” In real estate, it’s a declaration that the buyer is responsible for checking the property’s condition. Essentially, it leaves the buyer unprotected if a problem is uncovered after the home’s sale.

So what does this mean for buyers? 

Aside from any federally mandated disclosures, a seller in a caveat emptor state is not required to provide formal disclosure paperwork. However, it’s still expected that sellers disclose known defects as a matter of ethics.

It’s best to check with a licensed real estate professional for questions about a state’s caveat emptor practices regarding Seller Disclosures.

What They Don’t Know Can Hurt Them

When it comes to real estate transactions, what a buyer doesn’t know could end up costing them in repairs and potentially compromise their safety. 

Intentionally lying or leaving out information on the disclosure is a mistake that could cost you money in fines and possibly your liberty in jail time. In this case, honesty is always the best policy. If you’re worried about other common home selling mistakes, we can walk you through those, too.