When you sell a house, you are legally obligated to disclose anything that would negatively affect the value of the property or a buyer’s interest in owning it. So, if you’re selling your home, you probably have quite a list to compile.
In Mendocino County, real estate agents typically use an 11-page document that covers a wide variety of issues. In addition, sellers must also complete a Transfer Disclosure Statement (TDS) that includes anything he or she knows (or should have known) about the property.
Typically, disclosures fall into three main categories. Property-specific disclosures include things like a leaky roof, a well that runs out of water each September, a septic system that has a swamp over it, or an addition for which there is no building permit. Proximity-specific issues can include things like whether a property is at the bottom of a hill with erosion problems, near a Superfund contamination site, or within earshot of a popular shooting range. And finally, regulatory disclosures include zoning and other issues. For example, is the property zoned for its current use or within 300 feet of land zoned for agriculture? These issues can affect how the property can be used and the owner’s quiet enjoyment of it.
If your head is already spinning, hold on because we’re not done yet. Some local sellers (especially in Willits) must also complete the Alquist-Priolo disclosure that warns buyers that the property is close to an active earthquake fault. And, your realtor must do a diligent visual inspection of all visually accessible areas (so, not necessarily the attic or under the house, but everywhere you can easily see).
After the visual inspection, the realtor has to describe the property in detail. The report doesn’t have to include explanations regarding the cause of the problems, just that they exist. For example, the realtor’s report may state, “There is a stain on the ceiling,” but not, “Looks like a leaky roof.” Or it may state, “The lawn over the septic system is green and soggy and smells like a sewer,” but not “The septic system clearly needs attention.”
If the sellers don’t hire a realtor, they must complete the disclosures on their own, so be sure to get all the appropriate forms. On the upside, this process is an excellent way to make sure you haven’t overlooked common issues. On the downside, it is time-consuming and a legal liability probably better handled by one accustomed to completing it.
There are a few exemptions, folks who do not have to complete some of the disclosures, most notably people who acquired property by foreclosure are exempt for the TDS requirement. If the owners did not have problems disclosed to them, they may have no way of knowing a problem exists. However, to the extent that the post-foreclosure owners knew or should have known about problems, they are on the hook. For example, if a neighbor repeatedly sends letters concerning a property line discrepancy and those letters are tossed in the trash, a judge will likely rule that the owner should have been aware of the problem.
If you’re trying to decide whether to disclosure something, your decision should basically come down to three rules:
- If you wonder, “Gee, should I disclose this?” The answer is almost certainly YES.
- If you would want to know about the problems, you should disclose it to the buyer.
- If you picture yourself in front of a judge explaining why you didn’t disclose something, is the judge likely to rule in your favor? If not, disclose.
Here’s the thing. When a potential buyer is walking around the empty living room picturing her couch next to the fireplace and her kids squealing with delight as they run around the backyard, that’s the time to disclose issues. Be up front. If you mention a minor issue that isn’t really material, no harm is done because the buyer will recognize it as minor. If an issue is material, then you are legally obligated to disclose it. So, just err on the side of caution. After all if the disclosure is going to kill the sale, wouldn’t you rather have it die before escrow closes than six months later when you hear from the buyer’s attorney?
I hope you are enjoying the holiday season. I wish you and your loved ones a happy and prosperous new year.
Next time I’ll write about some of the highlights from 2013 as we plunge into 2014. If there’s something you would like me to write about or if you have questions about real estate or property management, feel free to contact me at firstname.lastname@example.org or visit our website at www.realtyworldselzer.com. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.