5 Things You Need to Know About Real Estate Disclosures

Disclosures are one of the most important parts of any real estate transaction — and they matter whether you're selling a home or buying one. In most parts of the country, sellers (and their agents) are required to document any known defects, current or past, so buyers know exactly what they're getting.

Done well, disclosures protect everyone: Buyers get a clear picture of the property, and sellers shield themselves from future legal headaches. Whether you're listing a home for sale or in the market to purchase, here are five things you should know about real estate disclosures.

What is a real estate disclosure?

A real estate disclosure is a document or set of documents in which the seller shares what they know about a property's condition and history. It's the buyer's opportunity to learn as much as possible about the home and the seller's experience living in it.

Disclosures can cover a wide range of issues, such as:

• Leaky windows or other defects
• Work done without the benefit of a permit
• A major construction or development project nearby

Disclosures do more than inform buyers; they also protect sellers from future legal action. They're the seller's chance to reveal anything that could negatively affect the value, usefulness, or enjoyment of the property.

How does a seller make a disclosure?

Disclosure laws vary from state to state, even down to the city and county level. California, for example, has some of the most stringent disclosure requirements, where sellers (and their agents) complete or sign off on dozens of documents, including: 

• Natural Hazards Disclosure Statement
• Local and State Transfer Disclosure Statements
• Advisories about Market Conditions
• Megan's Law Disclosures

Disclosure typically comes in the form of a templated document, often put together by the local or state real estate association, where the seller answers a series of yes/no questions about their home and their experience there.

Sellers must also present any documented communication (between neighbors, previous owners, the seller, or the agents) about a substantial defect or something that could have an effect on the home’s value.

Depending on where you live, sellers can be on the hook for what they disclose (or fail to) for up to 10 years. The best rule of thumb: If you know it, disclose it. Being upfront helps you avoid the potential for costly disputes down the road.

What do you have to disclose when selling a house?

Exactly what you need to disclose depends on your state, but common disclosures include:

• Previous improvements, renovations, or upgrades — and whether the work was permitted
• The existence of pets
• Termite problems
• Neighborhood nuisances
• Any history of property line disputes
• Defects or malfunctions with major systems or appliances
• Bankruptcy proceedings or liens on the property

Buyers should cross-check the seller's disclosures against city building permit and zoning reports. Work completed without a permit or municipal approval may not have been performed to code, which could result in a fire or health hazard.

Is a disclosure the same as an inspection?

No. A disclosure is what the seller provides based on their own knowledge of the property. An inspection is an independent evaluation by a third party — and it may uncover defects the seller wasn't even aware of.

Buyers should always complete a full property inspection before moving forward with a purchase. The inspector checks every system and component, from the roof to the basement.

When does the buyer receive disclosure statements?

In most markets, buyers receive disclosure documents once the seller has accepted their offer. In addition to their inspections or loan contingency, the buyer has an opportunity to review the seller’s disclosures. If the buyer discovers something negative about the property through disclosure, they can usually back out.

In some markets, sellers provide these disclosures to the buyers before an offer, in an effort to save everyone time, hassle and expense by preventing deals from falling apart.

Buyers must sign off on all disclosures and reports, so it's worth reviewing them carefully and asking questions. For sellers, full disclosure is the way to go: laying your cards on the table gives buyers a sense of comfort and peace of mind, and protects you from the possibility of legal action if you neglect to disclose something you know.