November 21, 2011

5 things to know about real estate disclosures

By Brendan DeSimone for Zillow

It’s standard practice in real estate to give a home a fresh coat of paint before putting it on the market. Nine out of 10 times, the intention is to show the property at its best. But every so often, the seller paints the house in hopes of covering something up.

That’s why I always triple-check the disclosure documents of newly painted houses, to ensure there were no recent leaks or other damage. It’s the seller’s obligation to disclose these kinds of issues. And it’s the buyer’s responsibility to be completely aware of past problems before signing on the dotted line.

Whether you’re a buyer or a seller, here are five things you should know about real estate disclosures.

1. What is a disclosure?

Disclosure statements, which can come in a variety of forms, are the buyer’s opportunity to learn as much as they can about the property and the seller’s experience in it.

Potential seller disclosures range from knowledge of leaky windows to loud neighbors to information about a major construction or development project nearby. Not only do disclosure documents serve to inform buyers, they can protect the sellers from future legal action. It is the seller’s chance to lay out anything that can negatively affect the value, usefulness or enjoyment of the property.

Leaking windows — bad coincidence?

I once had a buyer call me after the first rainstorm of the season. The windows in the master bedroom were leaking. We checked back on the disclosure documents from the sale and there wasn’t any mention of the leaks. Nothing showed up in the property inspection report at the time of escrow, either.

Unfortunately for the buyers, I said, this is part of homeownership. This could be the result of something that was building over time. I thought that was the end of it. The same client called back a few weeks later. They had workers out to check on the siding. That prompted their neighbor to inquire what they were up to. According to the neighbor, the previous owner of my client’s property had the same siding issues and had discussed it with the neighbor.

Given this new information, it was clear the previous seller had not properly disclosed. I had the buyers do more investigation, get bids and understand what the issue was. Armed with the knowledge of the neighbor and the approximate costs, we went back to the seller, through his agent. Though it did not turn into a lawsuit, the seller took responsibility and the situation was resolved quickly and fairly.

But too often, the lack of proper disclosure can result in a lawsuit. I heard of a story in which a buyer bought a house, with the seller disclosing that a kitchen renovation was done without permits. A few years later, that buyer went to sell the property but didn’t disclose that the previous owner had renovated the kitchen without a permit. The new buyer wanted to do some electrical work with a permit. The city inspector discovered that some things had not been done to code. The inspector dug deeper and realized that much of the kitchen renovation (both plumbing and electrical) was not to code. The new buyer was on the hook for ripping out the kitchen and doing it over. A lawsuit arose between the current owner and the second seller for not disclosing. The original sellers had covered themselves, but the second seller had not.

2. How does a seller go about making a disclosure to the buyer?

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