What Are Property Disclosure Statements? Info Buyers Need to Know

No matter how great a home looks at first glance, a host of problems could be hiding right under that fresh coat of paint—which is why buyers will want to scrutinize certain paperwork they’ll receive called property disclosure statements.

Property disclosure statements essentially outline any flaws that the home sellers (and their real estate agents) are aware of that could negatively affect the home’s value. These statements are required by law in most areas of the country so buyers can know a property’s good and  bad points before they close the deal. Here’s what all buyers need to know about real estate disclosures.

When do buyers receive property disclosure statements?

While it varies by area, most buyers will receive property disclosure statements after their offer has been accepted, says Atlanta Realtor® Bill Golden. That way, buyers can review this paperwork at about the same time that they typically hire a home inspector to check the property for any defects. In fact, disclosure statements can help point your inspector toward areas of a home you’d like to home in on, so try to read your disclosure statements before scheduling the inspection.

In certain areas, sellers might even hand buyers disclosure statements before an offer is made. But no matter what, it should be early enough to give buyers time to do their due diligence and spot problems that could make them reconsider whether this home is right for them.

What types of flaws must be disclosed?

Sellers are required to complete a variety of disclosure documents, which are often in the form of a government-issued checklist where they mark whether their home has (or once had) a variety of problems such as the following:

  • Windows that don’t close or doors that stick
  • Faulty foundation or leaky roof
  • Problems with appliances or home systems like the HVAC
  • Repairs made on any of the above as well as insurance claims
  • Renovations completed without a permit
  • Pest or mold infestations
  • Environmental hazards in the area (e.g., floods and wildfires)

The federal government requires certain disclosures anywhere in the U.S., like the existence of lead-based paint, asbestos, or other clear health and safety risks. However, states and counties also have their own particular laws on which issues must be disclosed. For instance, some states require sellers to disclose nearby sexual offenders, while others do not. Some require a death on the property to be disclosed, especially if it was a murder, while others leave you to do that kind of sleuthing yourself.

If buyers (and their real estate agent) read a disclosure document and see nothing to worry about, they sign off on it before moving one step closer to sealing the deal. If, on the other hand, buyers spot something worrisome, it’s in their interests to delve further.

What to do if a disclosure reveals something bad

If you spot something on a disclosure statement that you don’t understand or that raises concerns, have your real estate agent bring it up with the sellers (or their listing agent). In some cases, they might have an explanation that puts you at ease (i.e., “we had bedbugs back in 2012 but hired an exterminator and have been free and clear ever since”). Or, if the issue makes you seriously question whether you want to move forward, this could be an opportunity to renegotiate the sales price to compensate for the added risk you’re taking on buying this home.

At worst, you can always back out of the deal without penalty—meaning you won’t have to forfeit your earnest money deposit. And if you happen to find a problem that should have been disclosed but wasn’t, that’s all the more reason to consider carefully whether you want to move forward. After all, if sellers covered one thing up, what else could they be hiding?

However, keep in mind that the sellers are required to reveal only all known problems. That’s key. Sellers aren’t typically held responsible for problems they aren’t aware of. And that’s just one more reason why buyers absolutely should get a home inspection to root out any potential problems themselves.

But all in all, smart sellers inform buyers of everything they need to know upfront. While property disclosures exist mainly to protect the buyer from getting a lemon, this paperwork protects the seller, too.

“If sellers disclose everything they know about the house, a buyer can’t come back to them later saying they weren’t told about an issue,” says Golden.

Property disclosure statements save everyone time, hassle, and expense by preventing deals from falling apart—and that benefits both buyers and sellers.

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