Sellers: 6 disclosures you must make, or it could cost you
What you don't say could come back to haunt you, in the form of blown sales or lawsuits.
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These days, the trend among cash-strapped home sellers seems to be to say less in hopes of getting more at closing. But in the long run, this less-than-full disclosure can prove costly.
Lawsuits stemming from nondisclosure of a property's problems are becoming a bigger issue, according to respondents in the National Association of Realtors 2011 Legal Scan survey. Of the agents who responded, about 75% ranked this issue among their "top three current and future issues."
While the rule with homebuying was once "caveat emptor," or "buyer beware," an increasing number of sellers are finding themselves on the hook for nondisclosure.
"I think a lot of sellers don't have a full understanding of what the seller disclosure statement means when they fill it out," says Illinois home inspector Jack McGraw of Jacks Home Services. "You can often tell there has been work done" on a house, he says, but these fixes don't show up anywhere on paper.
Indeed, sometimes there is a big effort to cover up any signs of trouble. Omaha, Neb., appraiser John Bredemeyer says he recalls one home that had a giant console television pushed up against a door angled in one corner of the basement. Once the property was sold and the TV hauled away, the new owners found a big surprise.
"They opened up the door and the foundation was crumbling," Bredemeyer says. Ultimately, the home's original owners wound up paying to fix it.
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Sellers must disclose anything that could affect the property's value or desirability, from big problems such as a compromised foundation to — in some states — simple neighborhood nuisances such as that dog next door that barks every night.
Disclosure laws vary. Some states require sellers to look for and cite certain problems even if they are not aware of them.
No one gets out of these disclosures: Even those marketing a home "as is" have to obey state disclosure laws, says Ilona Bray, real-estate attorney and co-author of "Nolo's Essential Guide to Buying Your First Home." As-is sellers are simply advertising that they're not going to negotiate on price because of these issues.
Here are the six things that a seller must reveal about a home to avoid legal trouble down the road.
This is a pretty broad category but one that a lot of buyers seem confused about. If you have made repairs to your property, you should disclose them, even if the problem has been resolved.
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That could be something as major as a crack you had sealed in the foundation, or something as minor as snaking your sewer line every year to clear tree roots.
Any repairs to the roof, plumbing, electrical system or heating and cooling unit that you are aware of — including any repairs disclosed to you by previous owners — should be laid bare, as well as any drywall or structural repairs to remedy water damage.
"If you knew that there had been hail on the roof and it was leaking, you should disclose that," Bredemeyer says. "If you knew last fall that the A/C didn't work, that's something you should disclose to a buyer."
The bottom line is that sellers should disclose anything that is not readily identifiable by the buyer.
One such invisible problem is termites. If your home has a history of termite infestation, especially if it has been treated more than once, it should be disclosed to the buyer, because it can greatly affect the value of the home.
To lessen the impact of this disclosure, sellers can get another termite inspection before listing their home that shows it to be clear of the pests. This disclosure, along with any information about treatment warranties that could be transferred, should be given to the buyer at closing.
3. Water damage/mold
If the home has had a leaky roof, a flooded basement or dampness and mold in certain areas, these water issues must be disclosed.
A good home inspector can often spot the signs of water damage, even if they have been painted or plastered over, McGraw says. But it's no sure thing. That's why water damage is one of the biggest causes of disclosure-related lawsuits, says Joseph Rand, managing partner and general counsel for Better Homes & Gardens Real Estate Rand Realty in Nyack, N.Y.
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One buyer that Rand's firm represented had to call out a plumber soon after the purchase for some serious flooding in the basement. Once there, the plumber told the buyer, "I was just out here six months ago for the same thing."
The sellers were successfully sued for not disclosing this fact. "It was one of the few times that the buyer caught the seller red-handed," Rand says.
If you are selling a house built before 1978, you must comply with a federal law that requires disclosure of all known lead-based paint and hazards in the house.
Buyers must receive a copy of the Environmental Protection Agency pamphlet "Protect Your Family from Lead in Your Home" and they must be allowed a 10-day window to test the house for lead.
The contract must include that warning as well as signed statements from all parties verifying that the requirements for disclosure were met. If a seller doesn't comply with these requirements, the buyer can sue for triple the amount of damages suffered. More information from the EPA on lead disclosure is available here.
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5. Natural hazards
Some states, such as California, require sellers to disclose any risk of natural disasters such as a flood plain or earthquake zone or susceptibility to wildfires. This disclosure is meant to warn buyers of the financial risk and danger they face from these catastrophes, as well as alert them to trouble they may face in getting insurance for a home in that location.
For every allegation a buyer makes in a lawsuit, a good attorney can argue neglegence or fraud of a seller. And a good attorney for the seller can argue the buyer neglegent or ignorant of completing their due diligence.
It's especially important to do your due dilligence prior to buying. If your serious about the purchase, but have lingering doubts, get all information you need to quell those or walk away. Unless the house is newly built, there is likely to be something to come up in a previously owned home.
Funny thing about disclosures. The laws regarding them differ from state to state and they are required of owners who lived in the property but a person who acquired a property by inheritance and did not reside there can just say they don't know. They can get away with it and so can the banks but a resident owner can get sued big time if they don't disclose issues they knew or should reasonably have known about. Tell the truth... it's something you'll never regret.
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