For home buyers, the seller’s disclosure statement is an essential tool for understanding what exactly they’re buying. And for sellers, the form is a way to document their knowledge of the home.
The disclosure document outlines the benign, like the appliances that come with the house, as well as the potentially concerning – like whether the water heater is 20 years old and needs replacing, or roof leaks are observed.
Every state has its own laws and regulations around disclosure and what sellers are required to tell buyers. Both sides should go into the process knowing what to expect.
What is the seller’s disclosure document?
The disclosure statement, or document, outlines the home’s condition and describes any significant flaws or material defects that could impact its value. The document is for buyers to understand what to expect, but also helps sellers limit their liability.
Badly applied paint in the living room, for example, wouldn’t be noted in the disclosure statement because it’s not going to impact the home’s value in a significant way. On the other hand, foundation issues – or flood damage – are likely to impact the home’s value and should be noted.
The disclosure document is not a warranty, nor is it the same as getting a home inspection.
“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,” explains Annie Butler, a California-based Trelora Realtor.
If you’re a seller, the disclosure statement can help you reduce the likelihood of a buyer backing out of the deal. If someone finds out there’s a roof leak before making an offer on your home, they can make a decision as to whether that’s something they feel comfortable with.
Conversely, if the buyer doesn’t discover the issue until after they’ve made the offer and have the inspection, they might back out – which means you’ve lost valuable days or weeks on market in the interim, and which may spook future buyers who notice the sale didn’t go through.
What happens if you’re a seller who lies on the Disclosure Document?
If you do lie and the buyer can prove it later on when something goes wrong after move-in, you may have to defend yourself in court. Real estate lawsuits are increasingly common and can prove expensive to fight, regardless of the outcome.
“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. Disclosure rules can affect anyone selling a home,” notes Butler. “They’re especially likely to affect property flippers, who buy properties to upgrade them and resell them for a quick profit.”
What if I didn’t know about a defect?
Your obligation is only to inform the buyer about the defects you’re aware of (past or present). So if the washing machine breaks down the third week after the new owners move in, that’s simply bad luck for them – so long as it was working fine when you sold it. On the other hand, if water pools on your basement floor every time it rains, that’s something you would have noticed while living in the house – which means it should be on the disclosure form even if, when you’re selling the house, the floor is dry as a desert thanks to sunny weather.
Home inspections, for this reason, are an important part of the home buying process because they can reveal to homebuyers things the homeowner may have overlooked or been unaware of.
What about a home sold as-is?
If you opt to sell a home as is (despite the drawbacks to doing so) you still need to disclose known defects. The “as is” part of the sale means that any buyers submitting an offer for your home will be buying the home based on the condition that is reasonably observable by them – and that they will not be negotiating the price with you further based on the result of the inspection.
“Selling a property ‘As Is’ will usually not exempt a seller from disclosures,” emphasizes Butler.
The buyer is still entitled to receive notice of visible defects, and in most cases, they can still walk away from the deal if the inspection reveals worse issues than they initially anticipated.
Further Resource: Does the “As Is” Clause and California’s Disclosure Exemption Protect an REO Sale From Non-Disclosure Liability?
Every part of the CA Seller’s Disclosure, explained
So what exactly is on the California seller’s disclosure document? Here’s what is covered. Note: if a defect is not covered on the list, you are still supposed to mention it. The list merely covers the most common issues.
- Environment
Hazardous substances on your property need to be documented. Inside the home, this can refer to asbestos, lead-based paint, and radon gas. Outside the home, this can refer to chemical storage tanks or contaminated soil.
- Land Use
If your property shares a fence, wall, or driveway with another property, you’ll need to note it here. This includes noting any shared maintenance areas.
- Encroachments
Encroachments and easements should be noted for #3. An easement is an agreed-upon overlap into a neighboring property – like if you’ve extended your driveway to include an extra car, and it overlaps their yard. An encroachment, on the other hand, exists without your neighbor’s authorization or compensation – such as improperly building a back patio that overlaps onto their backyard.
- Additions Without Permits
When you add significant structures to your home (like an addition, a major repair, or a modification to the overall structure) you typically need to seek a permit from your local municipality first. If you have not done so, it’s necessary to note it here (and you may have to resolve it before the home is sold, or provide additional compensation to the buyer).
- Additions That Do Not Comply With Building Codes
If you’ve built on or modified your home without a permit, there’s a fair chance that it doesn’t adhere to building codes, either. Many building codes in California relate to fire resistance and/or quake resistance, in addition to all of the typical safety requirements adhered to by most states. This can impact everything from the building materials that are approved for construction, to fire separation distances.
- Fill
If you have a landfill or anything else like it on your property, you’ll need to note it here.
- Soil Problems
If your property has experienced settling, slippage, sliding, or any other soil problems, that’s covered under #7.
- Drainage
Flooding, drainage, and grading problems need to be noted here. If the land around your home doesn’t slope sufficiently, you may have pooling water around your property – this is often a combination of drainage/grading issues.
- Property Damage from Natural Disasters
If your home (or any structure on the property) has been damaged by earthquakes, floods, landslides, or fire, you’ll need to note it here. Even if the issue has been resolved, you should still note it – with an explanation of what you’ve done to remediate the damage.
- Zoning
If you’ve used your land improperly, either from zoning or nonconforming usage, you’ll need to note it. An example of a nonconforming usage is a home that was once legally a multi-family home, but is now zoned for a single family.
- Neighborhood Noise Problems or Other Nuisances
California is a bit unusual when it comes to disclosing neighborhood problems – to the benefit of the buyer and the detriment of the seller, who has little control over this. If your neighbors have loud dogs they never clean up after – creating a smelly, noisy backyard area for your property – legal precedent in California says you have to inform your potential buyers.
When you’re filling out the statement, you’ll note “yes” or “no” – then provide further clarity on anything you answered “yes” to.
- CC&R’s
Covenants, conditions, and restrictions are community rules that need to be followed – like those in an HOA (homeowner’s association). Any such rules, or similar deed restrictions, need to be noted here. A CC&R, for example, might limit the color you can paint your home, or whether you can install a swimming pool.
- HOAs
For #13, you simply need to note whether an HOA has authority over your property.
- Common Areas
If you and your neighbors share any common areas – or co-own areas in undivided interest – you’ll note it here. This would include facilities like pools and tennis courts.
- Citations
Any notices of abatement or citations against the property should be noted. An abatement notice is given as a warning when someone’s house has infringed upon local laws, and the owner needs to take action to correct the violation. If the homeowner rented their house out on Airbnb and neighbors had to deal with endless partying, then an abatement may have required the property owner to reduce the noise and number of people at the property.
- Lawsuits
Lawsuits, whether they are by or against the seller, need to be noted here. If you’re the seller and you sued your construction company for defects in the property when you bought it, for example, you’d need to disclose that.
Do sellers have to disclose death in a house in California?
In many states, you’re not required to disclose whether someone died in the house – in reality, it’s not that uncommon for people to die (typically of natural causes) in their own home. In California, though, sellers do need to disclose any deaths that occurred in the prior three years.
An exception is if the buyer asks about prior deaths – in that case, you need to disclose what you know, even if it predates three years.
Mold disclosure in California
There’s been a lot of discussion about mold in California thanks to a new rule in place for California landlords, who must provide renters with information about mold, and disclose and remediate any mold issues with their homes. If your home has or has had mold issues, you should note them on the disclosure form as it could be considered both an environmental concern and/or a home damage (from water) concern.
Who is exempt from the Seller Disclosure in California?
California is not a state where a home seller can opt out of the disclosure simply because they don’t want to. Even if you were renting out your home and weren’t there day-to-day, you still have to fill out the form with what you do know about the residence. You don’t get in trouble for not knowing the home’s condition – you can only get in trouble for willingly misrepresenting it.
The only exemptions are for court-ordered sales (such as probate sales, foreclosure sales, sale by bankruptcy trustee, eminent domain), sales from one co-owner to another co-owner, sale from a spouse to a lineal blood relative, or transfer of the property back to the bank because the borrower defaulted.
How long are you liable after selling a house in California?
There are several ways a buyer can sue you. One is for breach of contract, which has a 4-year statute of limitations. Although this is more likely to come up during the home sale itself, it can occur afterward if you agreed to make repairs on the home as part of the sale, and never did.
Fraud is another area of liability for sellers. If the seller fails to disclose known defects, this is considered fraud – and the statute of limitations in CA is three years. Keep in mind, though, that the clock starts when fraud is discovered – not when the home is sold. In other words, If it takes the buyer four years to realize you painted over cracks in the basement in order to hide a shifting foundation, they are still within the statute of limitations until 7 years after the sale.
