Property Condition Disclosure Statement: Definition & Examples

Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

Sellers must disclose any known issues with the property before a real estate sale is completed. Let's look at sellers' and their agent's responsibilities and liabilities with disclosing common defects or issues.

Seller's Property Disclosure Statement Definition

Sam has received an offer on his house for sale and is happy to accept. At this time his listing agent reminds him that they need to complete a few disclosure forms. What is a disclosure? The seller's property disclosure statement identifies any known information that would affect the buyer's decision if they knew about it. This information is collectively known as material facts.

What this means for Sam is that he has to tell his buyers about any known issues with the property. Perhaps that window leaks when it rains, but it's not immediately clear to the buyer or inspector. Sam and his real estate agent have an obligation to let the buyer know. However, Sam does not have to go out of his way to find problems to disclose by hiring his own inspector.

Sam should be very careful though to not 'conveniently forget' or plead ignorance for things that he would reasonably know about. If there was a problem in the future, and it can be proven that Sam actively hid that knowledge he and his agent could be found liable.

The law permits a degree of latitude when it comes to latent defects. A latent defect is a condition that wouldn't present itself under normal circumstances or following a through home inspection. For example, a seller may not be aware of radon gas exposure or mold if finding it required knocking down walls or tearing up the floor. Mold can grow anywhere moisture is present and can cause a variety of respiratory illnesses. Radon is a radioactive gas that can accumulate in a building to dangerous levels if there is exposure to the ground soil. In these circumstances the buyer will generally not be able to hold the seller liable unless they can prove prior knowledge of contamination.

Typical Disclosures

It's illegal to purposely avoid telling a buyer about known physical problems that affect the house. Known damage or defects such as a cracked foundation or a basement that floods on a regular basis are the kinds of problems that might not be immediately obvious to a buyer but the seller is probably already aware of the issue.

Since Sam's house was built before 1978, he is required under federal law to comply with lead paint disclosure laws. Sam must disclose any known instances of lead paint in the home, as well as any remediation efforts. Additionally, the buyer needs to receive a government-mandated pamphlet called Protect Your Family From Lead in the Home to inform them about the possibility, hazards, and remediation of lead since that style of paint was common prior to 1978.

Individual states may set other required disclosures. Some common disclosures include:

  • Presence of radon gas
  • Earthquake, flood, or high fire risk
  • Recent deaths on the property
  • Known water leaks
  • Out of code electrical circuits and outlets
  • Proximity to registered sex offenders

When in any doubt, it's in Sam's best interest to disclose anything that might affect a buyer's decision. Being upfront and honest about the property reduces the chance of the buyers feeling that Sam is hiding something. The disclosure gives a clear buyer beware message and prevents the buyers from claiming in the future that Sam lied or cheated them by withholding information about the house.

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