When buying or selling your home, work with your real estate agent and attorney to better understand what disclosures are required by law prior to closing the deal. (Getty Images)

When it comes to real estate, sellers have a legal obligation to disclose past and current defects to potential buyers. But exactly how far does this obligation go? On one hand, sellers want to minimize negative disclosures that may affect their ability to sell the property for maximum profit. Buyers, on the other hand, want to know exactly what they are buying, estimate potential repair expenses and negotiate the purchase price accordingly.

Whether you’re selling or buying, it’s a good idea to understand the basics of real estate disclosures.

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Required Disclosures

Disclosure laws vary from state to state, and even from county to county or city to city. The general rule is that sellers are only required to disclose defects of which they have personal knowledge. In other words, sellers are not required to hire an inspector to search for problems that the seller isn’t already aware of. However, there are exceptions to this general rule. Some states have laws that do require sellers to look for and report certain problems, such as termite damage.

Typical disclosures include:

  • Water damage or mold
  • Termite damage
  • Cracks in the foundation
  • Leaks in the roof
  • Issues with any appliances: electrical, HVAC, sewer, water or other mechanical systems
  • Previous repairs or renovations
  • Potential environmental dangers such as earthquake fault lines, flood zones and frequent wild fires

[Read: How to Sell a Teardown House.]

There are also federal laws that apply no matter where you live. For example, if you're selling a home built prior to 1978, you must comply with the Residential Lead-Based Paint Hazard Reduction Act of 1992 (U.S. Code § 4852d), commonly referred to as Title X. Title X requires sellers to:

  • Disclose any known lead-based paint in the home;
  • Provide buyers with a pamphlet titled Protect Your Family from Lead in Your Home, published by the U.S. Environmental Protection Agency;
  • Include specific warning language in the sales contract and get signed statements confirming that these disclosure requirements were completed;
  • Keep the signed statements for three years as proof of compliance; and
  • Give buyers a 10-day opportunity to test the home for lead.

Failure to comply with disclosure requirements can have serious legal consequences and result in substantial financial liability. Depending on the state, sellers can remain liable for up to 10 years if they fail to make required disclosures. Failure to comply with the requirements of Title X allows a buyer to sue the seller for triple the amount of damages actually suffered.

When in Doubt, Disclose

If there’s any doubt about whether something should be disclosed, the best policy is to err on the side of disclosure. Full disclosure will protect sellers from future legal claims and give buyers confidence that they are being treated fairly. Remember, just because a seller discloses a problem doesn’t mean the seller has to fix it. Interested buyers will be anxious to close the deal as well, and will often be willing to overlook minor issues. More serious defects may lead to negotiation, but won’t be a deal-breaker for serious buyers.

Full disclosure is important to protect both the buyer and seller, to help ensure smooth closing of the sale, and to get the best deal for all involved.

[Read: Can You Actually Turn a Profit Flipping Homes in Today's Market?]

Trust a Professional

Real estate agents and attorneys can help ensure compliance with the disclosure requirements for your state. Most states have specific forms that must be used when making disclosures. Even if not legally required in your state, it's good practice for the seller’s real estate agent or attorney to use a form that clearly spells out all of the seller’s disclosures and is signed by both the buyer and the seller. When purchasing real estate, be sure to use licensed, experienced and reliable real estate professionals.

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice. Individual situations will differ and should be discussed with a licensed attorney. For specific legal advice on the information provided and related topics, please contact the author.

Tags: real estate, housing, housing market, home prices, home improvements, law, existing home sales, pending home sales

Andrew Dickens is a North Carolina real estate attorney and the founder of Dickens Law Group. During his career, Andrew has worked side by side with some of the most experienced and well-respected real estate attorneys in North Carolina. He has represented a range of clients including publicly traded companies, multinational corporations, financial institutions, REITs, local builders and developers, small family-owned businesses and individuals. Andrew's experience, innovation and devotion to providing quality legal services are now benefiting the clients of Dickens Law Group throughout the state of North Carolina. Dickens Law Group provides real estate services to the entire state of North Carolina including foreclosure prevention, landlord-tenant representation, and other real estate matters. Additional helpful articles written by Andrew Dickens can be found on the Dickens Law Group blog. You can connect with Dickens Law Group on Facebook, LinkedIn and Google+.

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