If you have ever sold a home through an Arizona real estate agent you have probably hear the phrase; When in doubt, disclose . This helps protect you and its always best to be upfront and honest when selling a home.
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.
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?
In Arizona there are two main documents, normally refered to as SPDS and CLUE reports. SPDS stands for Seller Property Disclosure Statement and is a boilerplate document that asks the homeowner a bunch of questions regarding the property. The CLUE report is a list of all insurance claims filed on the property.
Aside from the boilerplate documents a seller is required to complete, if there is any written (or sometimes verbal) communication regarding something negative about the property, it should be disclosed to the buyer. For example, there was a property for sale with a dispute over a tree on the property line and whose responsibility it was. The neighbor faxed a letter to the seller’s real estate agent documenting the dispute. This immediately became a disclosure item that both the seller and buyer needed to sign off on.
Bottom line: Disclosure statements are legal documents that can stand up in court.
3. What do sellers typically disclose to potential buyers?
The work and upgrades sellers have done to their property are a common disclosure, whether the work was done with or without permits. If done with permits, buyers are advised to cross check the seller’s disclosure with the city building permit report. Doing work without the city signing off with a permit is a key disclosure. If the work was not approved by the city, it may not have been performed to code and may cause a fire or health hazard. Buyers should independently investigate any non-permit work that was done.
Other common disclosures include the existence of pets, termite problems, neighborhood nuisances, any history of property line disputes, and defects or malfunctions with major systems or appliances. Disclosure documents often ask sellers if they are involved in bankruptcy proceedings, if there any liens on the property, and so on. Failure to disclose can result in a messy conflict with the buyer after the sale.
Some disclosure documents are very detailed. Such as:
Is there any non-tempered glass on shower or sliding doors?
Have there been any unusual odor problems in the neighborhood?
Was there any death on the property in the last three years?
4. Is a disclosure the same as an inspection? Are the two related?
A disclosure is something given to the buyer by the seller documenting their knowledge of the property. It is not the same thing as an inspection; because there are things the seller may not be aware of that an inspection brings to light.
This is why a property inspection should always be done by the buyer while in escrow. The inspector will check the property out from top to bottom, many times verifying what the seller has disclosed but sometimes bringing to light new issues. Often, we will see sellers hire a property inspector before going on the market. It seems backwards, but this is the sellers’ opportunity to hire an independent party to inspect the property, in case they missed or were not aware of something.
5. When does the buyer typically receive a seller’s disclosure statements?
In Arizona the disclosure documents are provided to buyers within 5 days of an accepted 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, he can usually back out of the offer without losing his escrow deposit.
In some markets, sellers provide these disclosures to the buyers even before they receive an offer. Some sellers prefer to have buyers know everything they need to know up front. This is also smart because it saves everyone time, hassle and expense by preventing deals from falling apart once they’re in escrow.
Buyers are required to sign off on disclosure documents and reports. So it’s important to review them carefully and ask questions if you need to.
Full Disclosure Up Front is the Way to Go
In some ways, providing full disclosure can actually help a seller. As a Realtor reviewing disclosures with potential buyers, I like to see a comprehensive set of disclosure documents. It shows that the seller is thorough and upfront. This goes a long way toward giving buyers peace of mind, and in this market, anything you can do to move buyers off the dime is worth considering.