What does the seller's condition report cover and where does a homeowner's responsibility to disclose end?

June 19, 2017

Generally, any defects that affect the value of a home are the disclosures the law requires a seller to report. But, it gets a little tricky. Here are some points to avoid problems down the road.

​Reader Question: What must a home seller disclose and what are we not obliged to disclose? We are preparing to sell our home and want to know. ​What does the seller’s condition report cover and where does a homeowner’s responsibility to disclose end?

​Monty’s Answer: ​Most every state has laws and requirements for a home seller to furnish a condition report. Many states have a pre-approved form that a seller must complete and provide to the buyer before preparing a purchase agreement. These requirements a seller must adhere to vary by state. Fairness is the underlying principle driving these requirements. As a general rule of thumb, any defects that affect the value of a home are the disclosures the law requires a seller to report.

Prelude from an actual seller condition form

“In this form “am aware” means to have notice or knowledge. In this form “defect” means a condition that would have a significant adverse effect on the value of the property; that would significantly impair the health or safety of future occupants of the property; or that if not repaired removed or replaced would significantly shorten or adversely affect the expected normal life of the premises.

The owner discloses the following information with the knowledge that, even though this is not a warranty, perspective buyers may rely on this information in deciding whether and on what terms to purchase the property. The owner hereby authorizes any agent representing any principal in this transaction to provide a copy of the statement, and to disclose any information in the statement, to any person in connection with any actual or anticipated sale of the property.”

The word “significant.”

In the language above, “significant,” or “significantly” is sometimes a matter of opinion. If a home is worth five hundred thousand dollars, is a thousand-dollar repair significant? Consider the practice of disclosing more, as opposed to less, to avoid future conversations over the word. Better yet, make the repair, so it is no longer a disclosure issue. If you cannot afford the repair, issue a credit for the buyer to make the repair in your offering. You can often eliminate condition problems with a professional inspection before you place it on the market.

Locating the condition report in your state

  1. Use your computer search bar and type in, “[your state] seller condition report.” If those words do not produce satisfactory results, type in “[your state] seller property disclosure.”
  2. ​Pick the first search result that indicates it is a PDF file. When you click the link, you will see the actual seller condition report. The real form is where you will learn what you must disclose. If the search terms above do not produce the report, you may have to poke around a bit to find it.
  3. Find the law that dictates the intent of the condition report. Using your search bar again, type in “[your state] statute real estate condition report.” The links produced by the search bar should take you to the written law.

Between these two information sources, what the seller is expected to disclose should now be clear. The condition report is different in every state.

The realities of the seller condition report

While the report anticipates the buyer can rely on the seller, the protection it offers may not be adequate. Many sellers are very conscientious, other sellers are not forthright in their disclosures, are not aware of the deficiencies, knew at one time, but forgot as time passed, and some try to hide the flaws. This fact is one of the reasons that home inspections have become an integral part of the industry over the past 30 years.

Check out dearmonty.com home inspection discussions.

Other disclosure requirements

The term “material adverse facts” also applies to real estate transactions. A material adverse fact may not be the same as a “defect.” These facts are more often not a physical piece of equipment, like a faulty furnace. A haunted house is an example of a material adverse fact. A home seller once disclosed their home contained a ghost. A buyer surfaced and made an offer “subject to verification.” They imported a firm that spent a week testing for evidence, and could not verify the ghost’s presence. They did not buy the house. The ultimate buyer was someone with no belief in ghosts.

Ask your agent for the impact of material adverse facts in your state. You may be surprised.