Real estate is governed by a set of ethics and laws that benefits all parties. The earnest money you put down when you make an offer protects the seller from flakey buyers while protecting you from home sellers who might give the house to another bidder. Another key element of the purchase process is the seller’s disclosure, which is meant to protect the buyer from investing in a home with severe hidden flaws.
It’s easy to fall in love with homes that seem perfect on the outside. However, you need to have a realistic view of the property and what it takes to maintain it. Here’s everything you need to learn about reviewing disclosures from sellers and what to do if you don’t like what they say.
- What should you expect from the seller’s disclosure?
- Known vs. Unknown Issues
- Request a Seller’s Disclosure for Any Real Estate Transaction
- What if the seller refuses to provide a property disclosure?
- The Property Disclosure Statement Should Include HOA Information
- What does caveat emptor mean?
- Hire an Experienced Realtor to Start the Buying Process
What should you expect from the seller’s disclosure?
A seller’s disclosure is a document that highlights key aspects of the home that are important to buyers. The seller’s real estate agent will sit down with their client and ask a series of questions related to the home. The seller will need to answer truthfully and provide explanations for any potential problems.
For example, a seller might disclose that the pool has a heater but it doesn’t work. They can provide additional information as to why it is broken and even the potential cost to fix it. This way the buyer doesn’t think they are moving into a house with a functioning heated pool, only to discover the issue after they close on the property.
Most of the elements in the seller’s disclosure will be confirmed by the home inspector. However, by the time the home inspector is brought in, the buyer has already submitted their earnest money deposit and started the mortgage application process.
It’s in the best interest of the seller to be transparent about any issues that might drive buyers away. If the seller fails to disclose a known issue that the inspector discovers, the buyer could walk away and they would have to start the home sale process all over again.
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Known vs. Unknown Issues
It’s important the specify the difference between known and unknown issues, especially when it comes to reviewing a seller’s property disclosure. A seller is liable by federal law for not disclosing known issues, but they aren’t at fault if unknown issues are discovered.
Known issues are problems that the seller is aware of and may or may not have tried to address. A few examples of known issues include:
- An old water heater that is inconsistent resulting in cold showers.
- Outdated electrical wiring that the seller received estimates to replace.
- A roof that is older than 15 years.
In each of these cases, the seller has at least somewhat of an idea that there is a problem. They know the water heater and roof are old. They knew the wiring was dated because they thought about replacing it.
If a seller fails to disclose issues (and the buyer can prove the seller knew about it) then the buyer could contact a real estate attorney and make a case to sue the former owner. However, the buyer also needs to prove they had no idea about the issue either until after the closing date. If you hire a home inspector and they discover the issue, it is no longer considered hidden from you.
Unknown issues are problems the buyer was unaware of at the time when they are filling out the seller’s disclosure. These issues might be discovered during the home inspection or found by the seller when they move in. A few examples of unknown issues include:
- A hole in a relatively new roof caused by storm damage.
- A rodent infestation that hasn’t spread to the main part of the house.
- Potential sewer problems caused by an aging septic system.
If the home inspector discovers these problems, the buyer can approach the seller to renegotiate the sales contract. The buyer might require the seller to fix the problems before the closing date or request a lower sale price. If the problem isn’t discovered until the buyer moves in, they have no legal recourse. Neither the seller nor the inspector was aware of the problem.
As a buyer, you should always pay close attention to the seller’s disclosure and try to attend the home inspection if possible. Look carefully at each part of the house and ask questions about the property. This will allow all parties involved to catch potential issues.
Request a Seller’s Disclosure for Any Real Estate Transaction
Every type of home sale should come with a property disclosure statement. Unless you are buying property at a foreclosure auction, you should have time to review the property and ask questions from the seller.
A seller that lists their home as-is still has to disclose any issues with the property. Buying a house as-is doesn’t mean you are paying for a mystery box. Instead, it means that you have a clear picture of the home and don’t expect the prospective buyer to make any repairs before you move in. In fact, the seller’s disclosure and home inspection are particularly important with as-is properties to ensure transparency in the sale.
Similarly, don’t move forward with a For Sale By Owner (FSBO) purchase until you review the seller’s disclosure. There are templates they can follow online to review and submit this information. The FSBO seller should also accept your terms for a home inspection before the closing date to evaluate the property.
What if the seller refuses to provide a property disclosure?
Your real estate agent should reach out to the seller’s agent if there are no disclosures from the seller after your offer is accepted. If the homeowner refuses to provide a seller’s disclosure, you should walk away from the sale. You should be able to get your earnest money back if you already deposited it because the seller isn’t being ethical and transparent with the transaction. When in doubt, contact a real estate attorney.
Refusal to disclose any issues or discuss the state of the property is a huge warning to the buyer. You don’t know what the seller is trying to hide and shouldn’t trust them that the house is in good condition.
The Property Disclosure Statement Should Include HOA Information
If you are purchasing a condominium or a house with a homeowner’s association, the community rules and guidelines should be included in the property disclosure. Some people see buying property in a neighborhood with an HOA as an asset. They pay fees to cover maintenance costs and ensure peaceful living. However, other people don’t like the restrictions and costs that come with these associations.
The seller’s disclosure should cover whether HOA membership is required in the neighborhood and what fees property owners are expected to pay. If you are worried about the HOA in a neighborhood you want to move to, ask to see a copy of the rules. You don’t want to move into a new area and discover that your dog isn’t allowed or that your relatives can’t visit for more than a few days.
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What does caveat emptor mean?
As you review the seller’s disclosure, you might notice the Latin phrase “caveat emptor,” on some of the paperwork. This simply translates to “buyer beware” and places the burden on the buyer to do their research before moving forward with a purchase.
While it is the duty of the seller to be fully transparent about any known issues related to the house, it is up to the buyer to confirm the property is worth investing in. This is why buyers add inspection contingencies instead of trusting that the home is in good condition. Caveat emptor essentially means the seller cannot be blamed if the buyer doesn’t do their due diligence before making a purchase.
In highly competitive markets, it is more common for buyers to purchase properties in cash sight unseen. While the homeowner will still provide a seller’s disclosure, it is not their fault if the buyer has problems with the property after the closing date if the buyer didn’t feel the need to check out the house or condo first.
Furthermore, in the United States, the trend is shifting away from caveat emptor (buyer beware) to caveat venditor (seller beware). This is the idea that sellers should not try to profit from broken or defective assets, whether they are selling homes, cars, goods, or services. Sellers can increasingly be held liable for trying to mislead buyers in real estate transactions.
Hire an Experienced Realtor to Start the Buying Process
Understanding the seller’s disclosure is only the first part of the home-buying process. You will also have to be prepared to submit earnest money, work through the appraisal process, and collect the right documents to close on the house. While owning a home is incredibly rewarding, the actual buying process can be complicated and frustrating.
The best way to improve the buying process is to work with a real estate agent who you trust. An experienced agent with positive reviews can help you find a home that you love. At FastExpert, we specialize in pairing buyers with quality agents. We can reduce your real estate agent search process so you can spend more time looking at homes and less time hiring agents.
Check out our directory to find some of the top real estate agents in your area. Our service is free to use and doesn’t require any commitment from you.