Disclosures in real estate: What are they and what are the best ways to use them?

What are Disclosures?

Real estate disclosures are an important part of buying and selling real estate, as they provide homebuyers with pertinent information about the condition of the home they are interested in purchasing. Whether you're a first-time homebuyer or a seasoned real estate investor, understanding the different types of disclosure documents in a real estate transaction is crucial for making an informed decision on your home purchase.

If you have to ask whether or not to disclose something, you should probably disclose it

A general rule of thumb with disclosures and home inspections is: if you have to ask your agent or advisor whether or not to disclose something, you should probably disclose it.

The majority of legal issues that arise after a home sale stem from non-disclosed items. 

Sellers should also refer to their state’s Department of Real Estate guidelines for disclosure and inspection requirements for their area. This is an area where sellers want to be very thorough with their documentation. 

As a seller, one of your goals should be to give the buyer a chance to write the cleanest offer with as few contingencies as possible. 

Disclosing all pertinent information and inspections upfront shows a buyer that the seller has nothing to hide and makes for a much smoother transaction. Buyers today often expect to see inspections upfront, so be prepared - make a list and be sure to check off every item. 

One of the disadvantages for sellers is that they wait until after an offer comes in to present your disclosures and for a buyer to conduct inspections without any knowledge of the property. They will have the option to conduct their own inspections during the transaction, but by providing reputable inspection reports prior to going into contract, issues will be discovered and presented to a buyer so that they can factor them into their offer. When this doesn’t happen, buyers can use it to their advantage and create more leverage by asking for credits, reducing the sale price, or even backing out of the contract if there are material items that would have prevented them from offering in the first place. 

With disclosures. sellers should consider more than just the property itself and share any material  information about living in the home and the neighborhood. Maybe you’re a dog lover and don’t mind your neighbor’s puppy party every Tuesday night, or maybe you live near a school and find the sounds of the playground endearing. These nuances may not be important to you, but could be deal breakers for a buyer. If you want to avoid a potential dispute after the sale it’s imperative to disclose issues like this upfront. 

It's important to note that while real estate disclosures are required by law in California, they don't guarantee that a property is free of defects or issues, which is why it is always recommended to get a home inspection.

How are disclosures and home inspections related?

Disclosures and home inspections are closely related in the real estate transaction process. While disclosures provide information about the property's condition and any known issues, home inspections go a step further by conducting a thorough examination of the property to identify any potential problems or deficiencies.

Both disclosures and inspections provide buyers with valuable information for their decision-making during this large transaction.

A Realtor or buyer’s agent will suggest getting a home inspection to confirm the information provided in the seller’s disclosures or to identify any issues not yet disclosed. It is important to note that a Realtor should not have a conflict of interest when it comes to suggesting a home inspector, as the brokerage should not have any financial ties to the inspector to ensure an unbiased opinion on the condition of the property.

Additionally, both disclosures and home inspections can play a role in sustainability by identifying issues related to energy efficiency and zoning compliance.

Types of Disclosures: State Law

One example of a disclosure form that is required by state law is the Natural Hazard Disclosure (NHD) statement. This specific disclosure is typically required to be provided to potential buyers before they enter into a purchase agreement and finalize pricing.

The NHD disclosure statement provides information based on zoning and information from the EPA (Environmental Protection Agency) about any known natural hazards that may affect the property, such as floods, fires, and earthquakes. These disclosure requirements can be crucial for buyers who are concerned about the safety and stability of the property, and can help them make an informed decision about whether or not to proceed with the purchase.

Types of Disclosures: Federal Law

One example of a public disclosure that is required by federal law is the Lead-Based Paint Disclosure. This disclosure must be provided to potential buyers of residential properties built before 1978 as required by the Residential Lead-Based Paint Hazard Reduction Act (Title X). 

The disclosure contains information about the presence of lead-based paint and/or lead-based paint hazards in the property, including any known lead-based paint hazards, and any records or reports available to the seller regarding lead-based paint and lead-based paint hazards in the housing.

Other common disclosures in real estate

Such disclosures are an essential part of the buying and selling process that provide important information about the condition of the property, its hazards and risks, and any known defects or issues.

Other examples of common disclosures include termite and pest disclosures as well as financial disclosures. Ask your lender about financial disclosures and if they are needed in your real estate transaction.

As a buyer, it's important to understand these disclosures and take them into consideration when making your decision. 

It's also important to work with an experienced real estate agent, real estate attorney, or other legal providers who can help guide you through the full disclosure process and answer any questions you may have.

We recommend that buyers contact their local city planning office and review the home inspections and disclosures on file. Direct and transparent communication pays off in the long run. Take those necessary steps to prepare your home for the best possible end result. 

If you have any questions about disclosures please share them with us at hello@aalto.com. If you’re interested in learning more head to aalto.com.