Top-selling Chicago real estate agent Santiago Valdez sensed something was odd about the lovely single-family house with the newly remodeled basement. “It was a huge plus, but there were inconsistencies on why somebody would spend money in the basement before updating the kitchen, for example, or other key parts of the house,” he explained.
It turned out that about two years earlier, a sewer line mishap had flooded the basement, and the sellers’ insurance company had paid for the full remodel.
The Illinois real estate disclosure form asks several questions about known flooding, leakage or material defects in the basement, but the sellers hadn’t thought to disclose the home’s history because it was a one-time incident that had been remedied.
Nevertheless, Valdez recommended the sellers spill the beans about the flooding, and the buyers of the house appreciated knowing all the details.
Valdez’s case represents the gray area that real estate disclosures often fall into. Disclosure laws in general require sellers to say upfront whether their property has certain known issues that could impact a buyer’s health or safety. Because these laws vary by state, sellers might be confused about disclosures in real property transactions, not to mention become nervous. How much should they say? And won’t pointing out a past flaw or maintenance issue scare buyers away?
When in doubt, agents advise you to disclose, disclose, disclose. Let’s explore why, and get into some of the more common disclosures in real property transactions considered to be standard in the business of buying and selling homes.
What’s the purpose behind real estate disclosure laws?
Earlier this year, homebuyers in the Oak Park area of Chicago sued a broker, accusing him of failing to disclose water leaks and damage to the home. The lawsuit states that the broker referred to a leak in the basement as a one-time problem that had been fixed, but after the purchase, the buyers found a history of flooding and leaks in the foundation.
Disclosure laws are meant to protect both sides of the home-purchase transaction, notes Ilona Bray, an attorney and author of several real estate guides. Disclosing any issues about major home components, systems, and conditions puts the buyer on notice—and prevents the seller from being held liable for future problems.
Almost all states have a disclosure form for sellers with questions addressing certain facts, such as the age and condition of the property; the source of its water supply; the nature of its sanitary sewer system; and structural defects, such as a shifting or cracked foundation or walls.
Disclosure forms also can include information about the current or previous presence of any wood-destroying organisms, such as termites, and problems with mechanical systems, such as the heating, air conditioning, and electrical system. Federal and state laws may require additional disclosures on separate paperwork.
“As realtors, we want everything disclosed,” said Paul Fonseca, a real estate agent for 23 years Fort Myers and Naples areas.
“We want the buyer to know exactly what they’re getting. We want the seller to tell them everything about the house that is accurate. And that way there’s no future issue for us or any liability for anybody.”
“I’ve always told [sellers] that things can come back in the future and really hurt you,” Fonseca said. “If you don’t tell them that you had a leak behind your faucet that you fixed, and it wasn’t done properly, and in the future they find out there’s mold behind that wall and it’s a major issue because now cabinets need to be replaced and whatnot, technically, they can come back to the seller and ask them to pay for all the damages and sue the realtor and everybody.”
Are sellers required to fix up any known defects, or what’s the procedure?
Disclosure laws don’t apply to regular wear and tear—and you don’t have to repair any defects that you report. The seller also does not have to conduct an investigation to find defects on the property, notes Mark Chernoff, an attorney handling real estate litigation in Phoenix, Scottsdale, and throughout Arizona.
That said, you don’t want to speculate, Chernoff added. A seller should disclose precisely what is known about the property, nothing more and nothing less, to avoid accidentally misrepresenting a problem.
If you’re unsure about what to disclose, talk with your real estate agent or your real estate attorney. Sometimes an issue isn’t major enough to be written down on a disclosure form but should be relayed to the potential buyer in some fashion, such as an email, Valdez said.
“From my perspective, the more you disclose the better. It’ll make things go smoother,” Valdez said. “You want to cover yourself to make sure that the buyer doesn’t feel cheated. They know exactly what they’re buying. I think that’s something that helps the seller a lot, even if they have something that’s a little bit of a negative on their property.”
Again, state laws about real estate disclosures vary, and we’ve gathered the disclosure laws for all 50 states so you can see what your state requires. But here’s an overview of eight common real estate disclosures you’re likely to see come up:
Federal law—the Residential Lead-Based Paint Hazard Reduction Act passed in 1992—requires the disclosure of any lead-based paint or chipped paint in any housing built before 1978. Under the law, homebuyers also have a 10-day period to conduct a paint inspection or risk assessment for lead-based paint or related hazards.
The health hazards of asbestos are well-known in the workplace; the U.S. Occupational Safety and Health Administration sets standards for asbestos testing and disclosure in work environments.
Although residential disclosures vary by state, many require disclosures about asbestos on houses built before 1975.
3) Environmental hazards
The Illinois Radon Awareness Act and the Illinois Real Property Disclosure Act, for instance, requires that potential buyers are made aware of a property’s levels of radon, a colorless, odorless gas that is a leading cause of lung cancer. Many relocation companies and lending institutions also will request radon tests before a home purchase.
4) Natural hazards
Flooding issues and plumbing leaks are the most common disclosures top real estate agents say they encounter. “The biggest issue is always the plumbing leaks and the roof issues because of the recent hurricane we had last year,” Fonseca said. “A lot of the agents have been helping their buyers and making sure that the roofs are in good, working condition.”
This area is also where sellers tend to be skittish, Valdez added. “In Chicago particularly, there are a lot of leaky basements in houses, so a lot of times people are very, very nervous about disclosing that. And often it wasn’t disclosed to them when they purchased the house, so maybe they feel like they don’t have to disclose it to the next buyer.”
“But I always advise people to disclose anything and everything, because eventually, it may come back up during the inspection, and if it comes back later, it’s going to be a lot worse for them even after the closing.”
5) Boundary line disputes
Disclosure laws often require sellers to note if any lawsuits about the property’s boundaries have been filed with the city or if they’ve had any disputes regarding the property line.
Valdez ran across one such dispute the day before closing after his clients, the buyers, chatted with the next-door neighbor. The neighbor had told the homeowner for years that the owner’s fence was on his side of the property, but the neighbor hadn’t filed a formal complaint. “We were able to work out a credit at closing for that,” he said.
6) Structural and mechanical issues
This applies to defective drywall and structural matters, as well as upgrades and repairs (frequently within the past five years) to the plumbing, electrical system, water softener, built-in appliances, central heating, and other mechanical systems.
Some buyers also like to know about renovations in general. “If somebody’s fixed up a property, in Chicago, you’re supposed to get permits for just about everything. Unfortunately, Chicago is not the best at enforcing that,” Valdez said. “That’s one of the things as part of the disclosure that you want to ask: What has been done? What hasn’t been done?”
7) “Haunted” or otherwise stigmatized property
Stigmatized property disclosures are murky area of disclosure laws, but some states do have laws that require disclosure of a property’s history of “psychological impact,” such as a murder, suicide, or rumored hauntings that don’t impact the property’s physical condition but still may be considered “material” to a buyer’s decision.
In California, for example, sellers must disclose any known death on a property within the past three years, regardless of the circumstances.
However, the majority of states do not require sellers or their agents to disclose occurrences like homicides, felonies, suicides, or natural deaths that occurred on a property or any rumored paranormal activity associated with it. In states that don’t require disclosure, an agent’s disclosure of sensitive information to the buyers without the seller’s permission may be considered a breach of ethics.
Fonseca remembered when working in New Jersey years ago that he had to disclose a suicide in a home, which he later sold. In Florida, no such requirement exists, but “if a person asks, of course, we can’t say no.”
Valdez said that a few times a year, potential buyers will ask him if someone has died on the property. He hasn’t had a seller disclose such an event. However, “what I always say is that most of the inventory in Chicago is very old. It’s all from the 1800s or late 1900s. So it’s been a long time and it’s very likely that somebody could have,” he said.
8) Miscellaneous disclosures
From state to state you’ll come across some interesting and seemingly unusual real estate disclosures.
In 2009, Illinois updated its Residential Real Property Disclosure Act to require that sellers disclose whether someone has been manufacturing methamphetamines on the property. The drug is made with a variety of volatile chemicals, which can permeate walls, ceilings, carpeting, and air ducts.
The state also has a particular disclosure for condominiums that outlines any upcoming projects with special assessments.
Florida has a similar addendum about the requirements of condominium and homeowners’ associations, which outlines the fees, among other particulars. “If you don’t provide a condo disclosure to a potential buyer, and they find out that there’s an association, they don’t have to follow through with the contract if you didn’t give them the documents that go along with the property,” Fonseca said.
Information in this blog post is meant to be used as a helpful guide, not legal advice. If you need legal help with a disclosure rule in your state, please consult a skilled real estate lawyer.