Soon after making an offer on a home, buyers will receive a document called a seller disclosure. Read it carefully! This is not a piece of paperwork you want to slide by with a mere cursory glance.
A seller disclosure form is basically a list of everything the seller knows about the condition of his property.
“This allows potential buyers to understand exactly what they are getting,” says Nicole Durosko of New York’s Warburg Realty. All physical defects and issues affecting a property’s value should be disclosed on the form.
But how do you know if the seller disclosure is complete—or if the sellers have something to hide? Here’s what buyers need to know.
What information do seller disclosures contain?
Disclosure documents are generally government-issued boilerplate checklists where sellers check off if their home has ever had problems like the following:
- Leaks or flooding
- Electrical or plumbing issues
- Renovations or improvements to the property without permits
- Knowledge of nearby developments or construction projects
- Presence of lead paint and other toxic materials in the home
- Cracks, sinking, or other hazardous issues in the foundation
- Issues with appliances or home systems like the HVAC
- Pest or mold infestations
- Past insurance claims
- Current liens
Keep in mind each state and county has its own laws on which issues a seller has to disclose. While one state might require a seller to list that a death occurred in the home, others don’t.
The purpose of a disclosure is full transparency to potential buyers—which essentially creates a layer of protection for a buyer against purchasing a home full of flaws.
“For most major disclosures, such as flooding and pests like termites, people might want to back out of the deal and pursue another home,” says Brian Davis at SparkRental.com.
How to tell if sellers are hiding something
“Unfortunately, it’s hard to tell if sellers are hiding information on a disclosure,” says Dolly Hertz, real estate broker at New York’s Engel & Völkers. “Not everyone is honest.”
However, since a disclosure is a legally binding agreement, a serious seller should be willing to sign a disclosure form without hassle. So a buyer should be wary if a seller refuses to complete a seller’s disclosure, which essentially allows sellers to hide what could be the negative condition of their home.
Another red flag that a seller is trying to pull a fast one? Vague information. “I don’t remember when the HVAC was put in” could mean “the HVAC is really old.”
Just keep in mind that seller disclosures represent what the sellers know about their home’s state of repairs, but there may be hidden problems (think a cracked foundation) that they weren’t aware of that could pop up without their knowing it. Plus, even if they do know, it’s often hard to prove that they did.
As such, your best protection against buying a home with problems is to do your own due diligence.
How buyers can protect themselves
Rather than relying on what sellers know (or are willing to reveal), you should hire someone to vet the house yourself. In other words, hire a home inspector to check out the house from top to bottom.
“Even if you have a seller’s disclosure, always do an inspection to verify the condition of a home,” says Shawn Breyer of Atlanta’s Breyer Home Buyers.
Disclosure statements can also help direct your inspector to parts of a home you’d like your inspector to pay extra attention to. A seller can’t remember the age of the HVAC? Have the inspector sleuth it out.
A buyer can also ask neighbors if they know of any recent repairs the seller made and then make sure they are on the disclosure. Buyers can also get something called a Comprehensive Loss Underwriting Exchange—which is a claims information report on the property—from their homeowners insurance agent. This will reveal issues such as flooding.
If you suspect a seller hid something that you discovered during an inspection, most contracts have contingencies that allow buyers to cancel them.
Let’s say it’s after closing and a buyer finds out the seller didn’t disclose a property had a bedbug problem. A buyer can contact the seller directly for monetary compensation—and if that doesn’t work, the buyer can go to court to sue for damages.
Want some help reading a seller disclosure?
“It’s the buyer’s agent responsibility to explain all the important details of the seller’s disclosure to his or her buyer,” says Joe Horan, real estate broker and owner of Wrightwood Homes in Indianapolis.
If the disclosure is incomplete—meaning the checklist hasn’t been filled out completely—the buyer’s agent should press the seller’s agent for a more complete disclosure.