In order to protect buyers, selling a home in the United States requires that specific details be disclosed to potential homebuyers; however, exactly what information has to be disclosed can vary by state. In California, the specifics are outlined in the Department of Real Estate’s “Disclosures in Real Property Transactions,” document, which includes disclosures required by both state and federal law and regulations.
It is imperative to note that there is a legal obligation to disclose the information we outline in this article to buyers – It is not optional. However, there is an advantage for the homeowner that comes with disclosing all pertinent information: The owner removes the risk of a lawsuit and all future liability with their properties after they sell. These are the responsibility of the seller to disclose but can also be disclosed through the seller’s agent. Now, let’s review some of the most common disclosures. It is best to obtain a receipt from the buyer to ensure proper documentation that they received the following.
Disclosures Upon Transfer of Residential Property
The California Civil Code outlines the disclosures that are required by sellers: “These requirements apply when real property of 1 to 4 dwelling units is transferred by sale, exchange, installment land sale contract, ground lease coupled with improvements, lease with an option to purchase, or any other option to purchase.” As always, there are exemptions to this rule, and they are outlined in CAL. CIV. §§ 1102, 1102.2, 1102.3.
Real Estate Transfer Disclosure Statement (TDS)
The TDS is the most general disclosure form related to the sale of a home. It is broken up into five sections, three of which are the responsibility of the seller:
- Section I provides space to list additional existing disclosure reports that the seller may have in his or her possession such as property inspection reports, pest reports, geologic reports, or property insurance claims.
- Section II contains a vast checklist of items describing the property such as pool, sump pump, hot tub, etc. and has yes/no questions regarding any defects to the property. There is additional space provided for the seller to disclose any other material items that may affect the value or desirability of the property. This section will also cover the following:
- If a death has occurred in the home within the past three years. Additionally, if a buyer asks whether or not a death has ever occurred, a homeowner must answer to the best of their knowledge.
- A statement stating that the property is compliant with California law regarding smoke detectors.
- Neighborhood nuisance problems.
- Section III is to be completed by the listing agent and requires that they complete their own inspection of the home and report any issues the seller neglected to report.
- Section IV is to be completed by the selling agent, if the agent who has obtained the offer is different than the listing agent. It again requires that they complete their own inspection of the home and report any issues the seller neglected to report.
- Section V is designated for signatures.
The TDS is required by law and can only be waived by the buyer. According to TDS law, “if a seller willfully or negligently violates any of its provisions, the seller will be liable to the buyer for any actual damages that result from such a violation. If the licensee responsible for delivering the disclosure statement cannot obtain it, that licensee must advise the buyer in writing of the buyer’s right to receive the statement. Furthermore, the California courts have held that if the seller does not provide a TDS, the buyer, before close of escrow, may cancel the purchase contract.”
Seller Property Questionnaire (SPQ)
The SPQ is designed to help seller’s disclose information about a property’s condition that might affect a buyer’s decision to buy. Although not required by law, it is included in the pre-printed C.A.R. Residential Purchase Agreement, a common purchase agreement used in California transactions.
The primary use of the questionnaire is to educate the buyer and help guide them in their due diligence – It can help them determine what type of inspections to have, what kind of repairs to request, and whether to remove certain contingencies or cancel a contract.
The SPQ is beneficial to the seller because it provides them an opportunity to disclose all known issues with the home, protecting them from future liability.
Natural Hazards Disclosure (NHD)
The seller must order an NHD from a qualified company, and the report will then be provided to the buyer. Governed by California Code Section 1103, the law specifies that the buyer must be informed if the property is in a special flood hazard area, if there is potential for flooding, or if the area is a designated high fire hazard severity zone, a designated wildland area, or an earthquake zone or seismic hazard zone.
Lead Based Paint Hazard
In 1978, lead-based paint was banned for residential use in California. However, today, many homes that were initially painted with lead-based paint still stand, which can lead to severe consequences. For example, children who ingest lead-laced chips or dust “may result in learning disabilities, delayed development, or behavioral disorders.” As a result, all homes built before 1978 must disclose to buyers the potential hazard of lead-based paint.
In addition to the above information, homeowners must also disclose the following:
- Whether a property has been used for or located within one mile of a site that was used for military training and which may contain live ammunition.
- Whether or not window security bars are mandated and, if so, what the safety release mechanism is.
- Whether a property has potential methamphetamine contamination.
- Whether a property is located in a historical district (this can make it difficult for homeowners to make repairs or alterations to a home).
The above categories cover the basic disclosures required by a homeowner looking to sell their home. However, there are additional disclosures that may be required when a buyer is financing a property or when a buyer is purchasing a home from a new development. These disclosures are more specific to the individual transaction but should be reviewed by both parties if any of them apply.
If a buyer would like to terminate the sale of a home after receiving one of the aforementioned disclosures, they have “three days after delivery of the disclosure in person or five days after delivery by deposit in the United States mail to terminate the offer or the agreement, and they must do so by delivering a written notice of termination to the seller or the seller’s agent.”
What Must a Real Estate Agent Disclose?
For every transaction in which an agent represents a homeowner, they must also disclose specific details to the buyer. These include the following:
- Visual inspection dedicated to disclosing all material facts affecting the property’s value, desirability, and intended use. It is necessary to note that this is actually part of the TDS.
- The agency relationship disclosure, which outlines the agent’s relationship to seller, buyer, or both.
- The commission the agent will receive upon the close of the sale.
Closing a Transaction
It is always in the homeowner’s best interest to be open and honest during a home sale. A lawsuit as a result of poor communication or deception can be costly and timely and can simply be avoided by being upfront. Some sellers are nervous about disclosing information about their home if they fear it will lower their chances of selling or their sale price, but the potential fallout and cost is not worth leaving out information to force a sale. If a buyer backs out of the sale after learning something important through one of these disclosures, don’t panic. It is always best to accept the withdrawal offer and focus your time and energy on identifying a buyer who fully understands and accepts the deal being offered.