Disclosure: What Sellers Need to Tell Buyers

Because of stricter disclosure laws and higher expectations from buyers, sellers have more responsibility to disclose any fact that could affect the sale of the property.

States are cracking down on sellers' obligations to disclose known material facts about a property for sale, especially conditions not readily apparent to a buyer (such as a cracked foundation). A material fact is anything that could influence a buyer's decision to purchase a home or affect the sales price. The major cause of post-sale disputes and lawsuits involve defects and disclosure. Most of the cases could have been avoided if proper disclosures had been made.

Learn the law

The statutes governing a seller’s obligation to make disclosures vary by state.

State laws: A majority of states require some form of seller disclosure. The disclosure form also varies. Some states require a seller to complete a form that includes questions about the property condition. In other states, disclosures can be made verbally. In some states, seller disclosures are voluntary. The only sellers excluded from disclosure laws are banks and mortgage companies with foreclosure properties.
Federal and local laws: In addition to state statutes, some local and federal laws require sellers to make specific disclosures. Federal law, for example, requires sellers of homes built before 1978 to disclose any known lead hazards.
Real estate company requirements: Some major real estate companies require prospective sellers to complete a disclosure form before a listing is accepted.

TIP: A fact that is material to one buyer may not concern another. However, if sellers do not know if something should be disclosed, it's safe to assume that it might be material to some buyers, so the fact should be disclosed.

Hazards lurk

Structural defects such as a leaky roof are one thing. Health risks from exposure to toxic chemicals is another issue altogether. Homebuyers are becoming increasingly concerned about environmental hazards and toxic materials in houses, especially older homes built when there were fewer regulations. The most common toxic substances found in homes include lead paint, lead pipes, asbestos insulation, asbestos ceilings, formaldehyde insulation and glues, and carbon monoxide or radon gases. Unless sellers have the home tested for the substances, they may not be aware that a problem exists. More buyers are requesting tests for toxic substances, and may expect you the seller to correct the problem or offer a lower price to cover the cost of removing the substances.

Toxic Materials in the House

Lead: Potentially lethal toxic metal that builds up slowly in the bloodstream, causing damage to the central nervous system, kidneys, circulation, muscles, joints and hearing. It can be found in chipped, cracked or peeling paint (manufactured before 1978 when lead-based paints were allowed), pipes in older homes and solder joining copper pipes in newer homes. Federal law requires sellers to disclose any knowledge of lead-based paints in the home and include a federal form about lead-based paints with the sales contract (buyers have 10 days to inspect for lead and terminate the contract without penalty). You are not required either to have your home inspected for lead before you sell or to remove any lead-based paint.
Asbestos: Mineral substance that insulates and resists fire; asbestos fibers are microscopic and can cause severe lung damage. It can be found in wall insulation (mostly in homes built between 1930 and 1950), siding, shingles, vinyl floor tiles, pipe insulation (in older homes), and older textured paint and wall-patching materials (before 1977). Disclose any known asbestos. If asbestos is present, disclose the fact and do not remove the material. If asbestos is loose or crumbling, it constitutes a health hazard and you may required to remove the material before you can sell. Hire an expert to remove asbestos.
Radon: Odorless invisible gas caused by the breakdown of uranium in the soil; can cause lung cancer in concentrated amounts; primarily found in northern portion of the United States. It can be found in basements, cracks in foundation, sump pump, gaps in plumbing, wiring ,ducts and joints in parts of the house, wells. If you have had your house tested for radon, you must disclose the results. Lowering radon levels can be a simple repair job, such as covering your sump pump. It also can require an expensive ventilation system that should be installed by an EPA-certified contractor.
Carbon monoxide: Odorless invisible gas that renders the body incapable of absorbing oxygen; generated primarily by burning fossil fuels. It can be found in furnaces, stoves, space heaters, wood-burning or gas fireplaces. Disclose any previous carbon monoxide problems. Before you sell, have you’re the furnace, stove, fireplace and chimney inspected for any leaks or operating problems. Install a carbon monoxide detector on each floor of your home.
Formaldehyde: Acrid colorless gas that can irritate the eyes, nose and throat, and cause difficulty breathing; produced primarily by emissions from formaldehyde glues and resins in new building materials. It can be found in building materials (plywood, particleboard, hardwood paneling and fiberboard), glues, paints, preservatives, some gas stoves and kerosene space heaters, foam insulation (found in many 1970s homes). Disclose any formaldehyde problem they have experienced. Increase ventilation in the house to disperse fumes. Remove materials if possible. Seal new paneling with polyurethane.

Disclosure and property value

The disclosure of a defect could influence the sales price of the home. It most often depends on the market, the size or significance of the defect and the buyer. For example, in a highly desirable neighborhood or in a fast market, sellers probably can sell the home at prevailing prices, even with a leaky roof. However, in a slow market in an average neighborhood, buyers probably will expect sellers to accept a lower price to cover any needed repairs.

Defects as deal breakers

Buyers most frequently back out of a purchase because of problems uncovered during an inspection. Many sellers blanch at pre-sale inspections because they will have to disclose any problems discovered by an inspector. But weighed against failed deals and the inevitability of having to disclose a newly found defect, sellers can avoid additional problems by having the property inspected before it is placed on the market.