Real Estate Disclosures: Homeowners will typically complete basic repairs and cosmetic improvements to their property before listing it for sale; these repairs are sometimes used to hide underlying defects that would otherwise reduce the value of their home. To ensure that the home buying process is free from willful misrepresentation, state and federal governing bodies have implemented comprehensive disclosure laws that require sellers to divulge any known issues before the sale of a property.
Understanding Real Estate Disclosures
The Arizona Association of Realtors has created a disclosure form known as the Seller Property Disclosure Statement (SPDS). This form contains several yes/no questions that cover various aspects of the property being sold.
While every state will have different disclosure requirements, sellers are asked to make a note of any material facts that have the potential to change either the sales price or desirability of their home. They must communicate any material facts that may come to light after the submission of their disclosure statement.
In Arizona, the SPDS divided into the following sections.
- Property and Ownership – Covers specific information about legal ownership, exact location. And occupancy of the building.
- Building and Safety Information – This section covers the property structure, electrical wiring, plumbing, wood infestations, and any renovations or additions performed on the property that is being sold.
- Utilities – Covers all types of utilities in the property.
- Environmental Information – Covers potential issues such as water damage, mold growth, soil erosion, and other environmental factors that could adversely affect the safe occupancy of the property.
- Sewage/Wastewater Treatment – details wastewater connection and treatment.
- Additional Explanations – An extra section is left open for the seller to identify other property issues that are not addressed in SPDS.
- Deaths in house and how they occurred.
- Was the house used to manufacture drugs?
The following are some specific issues that are considered material to the purchasing decision, although laws may differ from one municipality to another.
- If the house was built before 1978, then the seller must disclose whether lead paint was used on the property.
- Insurance claims filed on the property within the last five years. In Arizona, these details are contained within a document known as the CLUE Report. (Comprehensive Loss Underwriting Exchange Report) The report will also indicate the length of time that the seller has owned the property.
- Neighborhood noise problems and other nuisances need to be known. This includes patterns of offensive activities committed by neighbors.
- Past, present, or threatened lawsuits between neighbors are important.
- Any material defects to the property that the sellers real estate agent is aware of that the seller has not addressed need to be known.
The Consequences Of An Incomplete Disclosure
If the seller is found to have willfully misrepresented disclosed facts that could have adversely impact the sale of their property, they may be liable for damages.
Potential damages are as follows:
- The cost of any repairs and/or additional expense created by misrepresentation.
- Punitive damages for willful non-disclosure of known issues with the property.
With these costs and penalties in mind, sellers are well-advised to be fully transparent throughout the home selling process.