A Property Disclosure Statement is a document sellers use to disclose a property’s history and condition, protecting them from post-sale lawsuits. It informs buyers about any issues or damage, helping them make informed decisions.
Most states mandate these statements to ensure transparency in property sales, allowing sellers to reference them if disputes arise over damages found after purchase.
When Is a Property Disclosure Statement Required?
- In states that don’t follow a “buyer beware” policy.
- Necessary unless the state permits the statement to be waived by mutual agreement between seller and buyer.
- Must be provided to all interested buyers when applicable.
How a Property Disclosure Works
Property disclosure statements serve different roles for buyers and sellers.
- For buyers, these statements provide crucial information about any repairs or issues a property may have. They can use this information to assess whether the property’s listed price reflects its condition and potentially negotiate a lower price.
- You must provide a property disclosure statement to all interested buyers as a seller. This document is essential for protecting yourself against potential legal disputes. If a buyer later claims you failed to disclose certain damages, your property disclosure statement can serve as evidence in your defense.
Consider working with a real estate attorney to ensure your property disclosure is thorough and accurate. In some states, such as California, there are specific rules about how these forms must be completed, and real estate agents are not permitted to fill them out on behalf of sellers.
Property Disclosure Statements by State
| State | Property Disclosure Statement Required? | Buyer Beware Policy | Laws |
|---|---|---|---|
| Alabama | Optional | Yes | – |
| Alaska | Yes | No | AS 34.70.010 |
| Arizona | Yes | No | Hill v. Jones, 725 P.2d 1115) |
| Arkansas | Optional | Yes | – |
| California | Yes | No | CC § 1102 |
- California requires sellers to complete a Real Estate Transfer Disclosure Statement, and real estate agents may not fill out this form for the seller.
- South Carolina is also a unique state in that both the buyer and the seller can agree ahead of time and in writing not to complete a disclosure statement.
- Tennessee has a similar policy. Unless both parties agree to waive, sellers are required to provide buyers with a property disclosure statement.
What Should a Property Disclosure Statement Include?
A property disclosure statement should provide comprehensive information organized into key categories:
Property Structure
- Known Structural Issues: Any defects in the foundation, walls, roof, or other structural components.
- History of Flooding: Past incidents of flooding that may have affected the property.
Interior Systems
- Mechanical and Electrical Defects: Known issues with the electrical wiring, HVAC systems, and other mechanical components.
- Plumbing and Sewer Systems: Information about the condition of water supply, plumbing, and sewage systems.
Property Features and Conditions
- Health and Safety Hazards: Asbestos, lead paint, or other hazardous materials.
- Pests: History of infestations, including termites, rodents, or other pests.
- Legal Issues: Any ongoing or past legal disputes related to the property.
Additional Details (If Applicable):
- Neighborhood Conditions: Information about neighborhood noise levels or nearby nuisances.
- Local Ordinances: Details on zoning disputes, HOA requirements, or the presence of nearby sex offenders.
What Must Be Disclosed?
- No Pre-Inspections Required: Sellers aren’t expected to conduct inspections before disclosing information.
- Seller’s Knowledge: Disclosures should be based solely on what the seller knows at the time of sale, without further investigation.
How To Write a Property Disclosure Statement
It’s important to know what information a property disclosure statement contains.
With that in mind, sellers writing a property disclosure statement should include the following:
Step 1: Opening Statements
A property disclosure’s opening statement includes the seller’s name and the address of the property in question.
Step 2: Ownership Information
The ownership section of a property disclosure statement details the type of property up for sale, the year it was constructed, and the length of time the current seller has owned it.
Step 3: Property Information
The following sections of a property disclosure statement detail the property’s features. These sections should include the following:
- Water: Is the water source private or public? Have there been problems with the water supply in the past? Does the property come with a water treatment system? Is there a fire sprinkler system on site, and has it been maintained?
- Sewage: Does the property connect to a public sewage system or a septic tank? Have there been problems with this connection before?
- Heating: Does the property run on oil, natural gas, electricity, or propane? Does the heating unit serve every room?
- Air conditioning: What kind of air conditioning unit does the property have? Has the system been maintained over time?
- Hot water: How does the property heat its water? How old are the applicable hot water units?
- Foundation: What kind of foundation does the property have? Has it been maintained?
- Basement/crawlspace/cellar: What additional space does the property have? Have those spaces leaked or experienced high degrees of moisture in the past?
- Roof: What is the roof made of, and when was it last replaced? Has the roof leaked or experienced moisture damage in the past?
- Plumbing system: Is the property’s plumbing operational? Are there issues with the current plumbing setup?
- Insulation: Are the exterior walls, ceiling/attic, floor, and other areas of the property insulated?
- Fire: Does the property have working fireplaces, chimneys, or woodstoves?
- Structural systems: What supports does the property have in place, if any?
Step 4: Problem Areas
These sections of the property condition disclosure statement specifically touch on what problems a property may have experienced.
These can include:
- Insects and other infestations
- Carbon monoxide leaks
- The presence of hazardous or regulated materials
- Zoning violations
- Exterior drainage and standing water
- Flooding
- Property restrictions
- Murder/suicides
- Illegal drugs or a history of criminal activity
- Material defects
Step 5: Additional Information
Most property condition disclosure statements also require sellers to disclose whether they’ve improved the property during their tenure as owners.
Sellers can also include information about a property’s mineral rights and any additional disclosures in this section.
Step 6: Signatures
Finally, sellers complete the property condition disclosure statements and the warranty deed with their signatures, and interested buyers sign to acknowledge receipt.
Sample
Below is an example of what a property disclosure statement looks like. Use our document builder to create a property disclosure statement online easily.
Understanding Your Rights as a Homebuyer
As a homebuyer, you must know your rights and protections throughout the purchasing process. Two key areas to consider are the “Buyer Beware” policy and handling earnest money deposits.
Buyer Beware (Caveat Emptor)
- What It Means: In certain states that follow the “Buyer Beware” (caveat emptor) policy, the responsibility to identify property defects falls mainly on the buyer. Sellers in these states are not always required to disclose certain defects.
- Your Protection: If you’re purchasing a property in a “Buyer Beware” state, conducting thorough inspections and due diligence is crucial before finalizing the purchase. Once the sale is complete, the seller may not be held liable for undisclosed issues.
Earnest Money Deposits
- Purpose: Earnest money is a deposit made by the buyer to show serious intent to purchase the property. It is typically held in escrow until the sale is finalized.
- Rights to a Refund: If a seller fails to disclose a significant defect in the property that is later discovered, the buyer may have the right to demand a return of the earnest money. This is particularly important in states where property disclosures are mandatory.
- Legal Recourse: In cases where disputes arise over undisclosed defects, buyers may be able to void the purchase agreement or seek legal remedies, including returning their earnest money.
Frequently Asked Questions
What are the Consequences of Lying on a Property Disclosure Statement?
Buyers who discover that a seller overlooked damage in their property disclosure statement may have the right to void a real estate purchase agreement. Buyers can alternatively pursue a real estate purchase agreement amendment, depending on their circumstances. If you’ve already sold your property, a wronged buyer may choose to take you to court over an alleged oversight. However, buyers have to uphold a substantial burden of proof. Sellers, after all, aren’t required to conduct inspections before creating a property disclosure statement. Sellers who can argue that they lack knowledge about conditions on a sold property may be able to avoid a civil lawsuit altogether. If you’re concerned about missing apparent damage when writing your property disclosure statement, bring a real estate attorney to walk through the property with you. You are not expected to hire an inspector when writing your property disclosure statement. However, an attorney can help you identify obvious damage the average buyer might have issues with.
What About Buyer Beware and Property Disclosure Statements?
The term “buyer beware” refers to a policy upheld in states mentioned above that generally do not hold sellers accountable for property disclosure statement oversights.
These states don’t punish sellers who overlook a property’s defects before selling that property. Buyers must contend with these defects without the ability to hold the original seller accountable for giving incomplete information.
That said, “buyer beware” only happens once a seller concludes a sale in any of the states mentioned above.
If a buyer brings in an expert before closing and discovers damage not listed on a property disclosure statement, that buyer can negotiate the price.
Who Fills Out the Property Disclosure Statement?
The property seller is expected to fill out and complete the property disclosure statement.
Property sellers in California must fill out the transfer disclosure statement in writing and remember that real estate agents cannot offer legal advice regarding the form.