What Is a Seller’s Disclosure?

Disclaimer: PropStream does not offer investing or legal advice. This article is for educational purposes only. We recommend doing your due diligence and/or consulting financial and legal professionals before buying, selling, or working in real estate.

A property sale is a big transaction. For most Americans, it’s the largest purchase they make in their life. As a result, agents need to help buyers know what they’re getting into.

Enter seller’s disclosures. They help protect homebuyers from unnecessary surprises and sellers from avoidable legal challenges. Read on to learn what a seller disclosure is and how it works so you can better serve your clients.

Definition of Seller’s Disclosure

A seller’s disclosure (aka a property disclosure) is a legal document by which a home seller discloses important property details to a buyer. Most often, these are known issues that could negatively impact the home’s value or safety, such as damage or hazards.

The document itself is typically a standardized form with a list of questions the seller must answer with “Yes,” “No,” “Don’t Know,” or “N/A.” Ultimately, the goal is to increase transparency to help the buyer make a more informed buying decision and protect the seller from liability.

What Does a Seller’s Disclosure Include?

Seller’s disclosures can vary widely, but here are some common items they may include:

• Structural issues: cracked foundation, leaky roof, etc.
• Mechanical problems: faulty electrical wiring, broken HVAC, etc.
• Water damage: flooding history, broken pipes, mold/mildew, etc.
• Repair history: records of past repairs/renovation work
• Pest infestations: termites, rodents, etc.
• Environmental hazards: lead-based paint, asbestos, etc.
• Natural hazard risks: flood zone, earthquakes, hurricanes, etc.
• Legal issues: liens, title issues, boundary disputes, pending legal action, etc.
• Regulatory restrictions: zoning, land-use limitations, building codes, HOAs, etc.
• Nearby nuisances: noises (airport, shooting range, etc.), odors (landfill, factories, etc.)
• Death in the home

Important Seller’s Disclosure Legalities to Consider

Now that you know what seller’s disclosures can include, let’s explore some of their legalities.

Seller’s Disclosure Laws

First, seller’s disclosures are required by law in most states. Furthermore, disclosures regarding lead-based paint in homes built before 1978 are required by the federal government.

This means it is illegal for owners not to disclose certain things when selling–even when selling “as is.” Failure to make the necessary disclosures (or worse: lying about a disclosure), could allow the buyer to not only back out of the deal but they could also potentially sue you.

Of course, seller disclosure requirements vary by state, and some are stricter than others. As a rule, however, sellers are only required to disclose known issues. They’re not expected to hire home inspectors to find unknown problems. That’s usually the buyer’s duty.

Caveat Emptor

That said, some states follow a legal principle called “Caveat Emptor,” which is Latin for “let the buyer beware.” This principle requires the buyer to verify potential property issues–even those known to the seller.

However, even if a seller’s disclosure isn’t required, it’s best practice to provide one anyway. This shows you’re acting in good faith and is more likely to lead to a smooth transaction.

Why Seller’s Disclosures Are Important for Agents

As a real estate agent, it’s your job to act in your client’s best interest (aka fiduciary duty), which includes protecting them from liability and ensuring a real estate purchase is to their advantage.

To do this, you must stress the importance of the seller’s disclosures to clients. On the one hand, this can help seller clients comply with local laws and protect them from legal challenges post-sale. On the other hand, it can give buyer clients a full picture of a property before pulling the trigger. Either way, it can give them peace of mind.

How Real Estate Agents Can Guide Clients

Here are some tips for guiding clients through seller’s disclosures:

Guiding Seller Clients

When guiding seller clients, encourage them to disclose all they know about a property that a buyer would potentially want to know. It’s always better to err on the side of caution than to risk a potential legal liability. When in doubt, disclose it.

Guiding Buyer Clients

When guiding buyer clients, carefully review seller’s disclosures with them. Alert them to any potential red flags, such as missing disclosures or fields marked “no representation,” meaning the seller isn’t making a guarantee.

Additionally, cross-check disclosures with public records and any supplemental documents supplied by the seller, such as contractor receipts.

Finally, help buyer clients arrange a professional home inspection that could reveal undisclosed home issues. Help them judge the inspection results based on their risk tolerance. For example, some buyers may be open to a renovation project, while others prefer a turn-key property.