What two things must a listing agent disclose to all parties involved in a real estate transactions?

A disclosure document can be important for both home buyers and sellers. When an owner sells a property, they are typically required to disclose information in a written document. The requirements vary based on state and local laws.

In general, a disclosure document is supposed to provide details about a property's condition that might negatively affect its value. Sellers who willfully conceal information can be sued and potentially convicted of a crime. Selling a property "As Is" will usually not exempt a seller from disclosures. 

Disclosure rules can affect anyone selling a home. Still, they're especially likely to affect property flippers, who buy properties to upgrade them and resell them for a quick profit. Property flippers often deal with properties in poor condition.

Key Takeaways

• Property sellers are usually required to disclose negative information about a property.
• It is usually wise to always disclose issues with your home, whether you are legally bound to or not.
• The seller must follow local, state, and federal laws regarding disclosures when selling their home.
• Buying a home "as is" may speed up the homebuying process.
• Check with the appropriate planning departments in your town or city for details about disclosures.

How Local Laws Differ

State and local laws differ in their disclosure provisions. A seller should check into the requirements for the location they're considering.

There's another critical thing to check: Some local disclosure laws have loopholes. For instance, New York State law requires that specific problems be disclosed to a purchaser in a statement unless the seller opts to pay a $500 credit to the buyer at closing. According to Nolo, an online legal library, many if not most sellers pay the credit rather than providing the form.

If you're a buyer, don't just check the local disclosure laws. Check for loopholes in the local disclosure laws.

The local legalities can usually be obtained from local and state real estate planning departments. A real estate attorney might also be consulted. Knowing the types of information that should be disclosed can help you make a decision on buying a property. If you're the seller, it can save you from a lawsuit.

Here are eight common real estate seller disclosures to be aware of, whether you're on the buyer's side or the seller's side.

1. Death in the Home

Some buyers have concerns or superstitions about purchasing a home in which someone has died. Disclosure might be required. "Each state will have slightly different requirements for disclosure," said Jim Olenbush, a Texas real estate broker. "In Texas, for example, deaths from natural causes, suicides, or accidents unrelated to the property do not have to be disclosed."

However, "a seller is required to disclose deaths related to the condition of the property or violent crimes," Olenbush added. If a previous occupant's child drowned in the swimming pool because the pool didn't have a safety fence, for example, the seller would need to disclose the death even if the safety issue has been remedied. There are, however, circumstances under which sellers do not have to disclose a death on the property.

"There are no states in which there is an obligation to disclose the death of a person who has deceased under natural conditions," said attorney Matthew Reischer, CEO of LegalAdvice.com. "However, some states impose a duty [to disclose] on a stigmatized home or apartment in which there has been a suicide or murder. Some states even go so far as to impose an affirmative duty on a seller if they know that their real estate is being haunted by the dead."

Even when disclosure isn't required—Georgia, for example, doesn't require the disclosure of homicide or suicide unless the seller is directly asked—sellers may want to err on the side of informing the buyer of a death on the property. "If a seller is concerned about liability, the best advice is to go ahead and disclose everything upfront, even if it is not required by law," Olenbush added. "Buyers will always hear about things from the neighbors, and the surprise could cause them to back out of a purchase contract or wonder what else the seller is not telling them."

2. Neighborhood Nuisances

A nuisance is often a noise or odor from a source outside the property that could irritate the property’s occupants.

North Carolina requires sellers to disclose noises, odors, smoke, or other nuisances from commercial, industrial, or military sources that affect the property.

Michigan requires sellers to disclose farms, farm operations, landfills, airports, shooting ranges, and other nuisances in the vicinity, but Pennsylvania leaves it up to the buyer to determine the presence of agricultural nuisances.

These are the rules for just three states. Make sure you know what your state law requires regarding neighborhood nuisance disclosures.

3. Hazards

If the home is at an increased risk of damage from a natural disaster or has known or potential environmental contamination, you may be required to disclose this information to the buyer.

Texas law requires sellers to disclose the presence of hazardous or toxic waste, asbestos, urea-formaldehyde insulation, radon gas, lead-based paint, and previous use of the premises for the manufacture of methamphetamine.  Missouri also requires disclosure of a former meth lab in a home but neighboring Kansas, like most states, does not.

New York State’s Property Condition Disclosure Act requires sellers to notify buyers about whether the property is located in a flood plain, wetland, or agricultural district; whether it has ever been a landfill site; if there have ever been fuel-storage tanks above or below ground on the property; if and where the structure contains asbestos; if there is lead plumbing; whether the home has been tested for radon, and whether any fuel, oil, hazardous, or toxic substance has been spilled or leaked on the property. 

States may also require disclosing mine subsidence, underground pits, settlement, sliding, upheaval, or other earth-stability defects. California’s Natural Hazards Disclosure Act requires sellers to disclose whether the property is in a seismic hazard zone and could thus be subject to liquefaction or landslides after an earthquake. 

While most disclosure requirements are governed by the states, the federal government mandates one: the disclosure that lead-based paint may be present on any property constructed before 1978. 

4. Homeowners' Association Information

If the home is governed by a homeowners' association (HOA), you should disclose that fact. Associations generally impose monthly fees on homeowners, and they can impose rules on their membership that a prospective buyer might or might not find acceptable.

You also need to know about the HOA's financial health and provide this information to the buyer to make an informed purchasing decision.

"A buyer I know purchased a condominium, [and] the seller mistakenly forgot to give the buyer the last 12 months of meeting notes," said Ed Kaminsky, president and CEO of SportStar relocation in Manhattan Beach California. "Seven months later, the buyer was assessed $30,000 for property improvements. The seller was subsequently sued by the buyer for not disclosing these important notes."

5. Repairs

What have you repaired, and why? Buyers need to know the home's repair history to have their home inspectors pay extra attention to problem areas so that they're aware of probable future issues.

Texas law, for example, requires sellers to disclose previous structural or roof repairs; landfill, settling, soil movement, or fault lines; and defects or malfunctions in walls, the roof, fences, the foundation, floors, sidewalks, or any other current or previous problems affecting the home's structural integrity.

You may also want to disclose electrical or plumbing repairs and any other problems you would want to know about if you were going to buy the home and live in it.

6. Water Damage

When water gets in where it shouldn't, it can damage personal possessions, undermine the home's structure, and even create a health hazard by causing mold growth. Sellers should disclose past or present leaks or water damage.

Michigan, for example, requires sellers to disclose evidence of water in a basement or crawl space, roof leaks, significant damage from floods, the type of plumbing system (e.g., galvanized, copper, other), and any known plumbing problems.

"There are many risks involved in a house closing where some work is needed on the property that wasn't obvious on walk-through, particularly in winter or during a dry spell," said Bill Price, an Illinois business lawyer. "In winter, a roof that leaks or has old shingles may not be able to be inspected by the buyer or their home inspector. Similarly, a dry spell can conceal problems with a leaking basement."

In situations such as these, check to see how much protection your state's laws offer from disclosing information you would have had no way of knowing.

7. Missing Items

Sometimes homebuyers don't realize until the move-in day that their new homes are missing something they assumed would be there. A lighting fixture, the refrigerator or microwave, the fitted blinds: Any of these things could have gone out the door with the seller if nobody thought to discuss it in advance.

Some states' disclosure laws attempt to prevent this problem. Texas and Michigan, for example, require sellers to disclose whether the property comes with a long list of items, including kitchen appliances, central air conditioning and heating, rain gutters, exhaust fans, and water heaters.

8. Other Possible Disclosures

Buyers need to know if the home is in a special historic district because it will affect their ability to make repairs and alterations, and it might also increase the cost of those activities.

Texas law requires sellers to disclose active termites or other wood-destroying insects, termite or wood-rot damage in need of repair, previous termite damage, and previous termite treatment. Michigan and North Carolina law also requires sellers to disclose any history of infestation. Consult your state’s laws to see if you must disclose information about any pests.

You may also be required to disclose problems with drainage or grading, zoning, pending litigation, changes made without permits, boundary disputes, and easements.

How to Disclose

Some states, such as Michigan and North Carolina, require sellers to use a specific disclosure form. If there isn't a specific form, your state department or commission of real estate or state realtor's association will usually have a recommended form you can use. The form may be more or less comprehensive than what state law requires.

Be sure you review what you need to disclose and how it should be worded with a real-estate attorney. If the form isn't comprehensive enough for your situation, supplement it with a list of the additional items you wish to disclose. The seller should make all disclosures in writing, and both the buyer and seller should sign and date the document.

What Is a Seller's Disclosure?

A disclosure document in regard to real estate provides details about a property's state of condition and how it might negatively impact the value of the home. Often called a seller's disclosure, it is a legal document.

Do I Have to Tell Potential Buyers About Problems?

It depends on the problems and the rules of disclosure in your state, and if the problem is a health hazard. For example, you are legally bound by federal law to disclose information about lead paint in your home. You may not be legally bound to tell potential buyers that the back porch door squeaks sometimes when it rains.

What Happens if I Lie on a Seller’s Disclosure?

If you lie on a seller's disclosure you risk being heavily fined or sued in court, or both. Lying on a seller's disclosure is illegal, as the undisclosed hazards could cause serious damage to an unknowing buyer.

The Bottom Line

Even if a particular disclosure is not required in your area, sellers who have information about their house that could make a buyer unhappy might want to disclose it anyway. In addition to the moral reasons for being honest with prospective buyers—and the desire to avoid the expense and hassle of a lawsuit—individuals have a reputation to protect. Sellers who have any concerns about whether they’ve disclosed the property’s condition correctly should contact a real estate attorney in their state.

Which of the following items must be disclosed by a transaction broker?

What are three primary areas of disclosure?

What is a material fact that must be disclosed?

Which of the following is required in California in every transaction where one of the parties is represented by a real estate broker?