Disclosures
TLDR: In many states, sellers are required to preemptively disclose certain facts about a property by filling out a form. In other states, the burden of researching property issues rests on the shoulders of buyers.
The purchase and sale of most property in the United States is a fairly standard process (sign an offer, get a mortgage, conduct the title search, close, etc.), even across state lines. However, the biggest disparity between processes from one state to another are the disclosures required by each state. In certain circumstances, sellers are required to inform the buyer of property conditions that may adversely affect the safety or value of the property. In practice, disclosures are government forms that must be completed and signed by both parties.
Before you make an offer, the seller must already have filled out the property disclosures so that you’re fully aware of any detriments to the property.
Warning: All sales are final. No refunds or exchanges.
It may be tempting to write off disclosures as legal mumbo jumbo and assume it's just more “fine print” of the contract, but it’s imperative that you understand how disclosures are relevant to the property. Much of the burden of researching the property rests on your shoulders, which we recommend doing before you close. Un-buying a house is not easily done!
Like taxes and laws, disclosures exist at all levels of government.
There is only one federally required disclosure which pertains to the presence of lead paint in properties built before 1978. All other disclosures are required by individual states, and can vary drastically. Examples of disclosures include disclosing that methamphetamine has been manufactured on a property, is situated in a flood zone, or is considered "haunted" or stigmatized in some way.
In essence, you can think of completed disclosure forms as the government's way of ensuring sellers are airing the property's dirty laundry.
True or False: Disclosures are required to be completed in every state.
False! Some states allow buyers to complete a disclaimer instead, which allows the seller to avoid any liability.
What information must be disclosed in my state?
Disclosure requirements vary drastically from state to state and the quantity of disclosures required tend to align with quintessential state norms. For example, California requires an extensive list of disclosures be provided to the buyer, while Texas’ motto is essentially Caveat Emptor, which literally translates to “Buyer Beware.” Similar to tax law, disclosure requirements exist at all levels of government and change from year to year, so we’ll be sure to provide the required disclosures from the seller before you sign an offer.
Some states also require buyers to sign off on a disclaimer statement, effectively relieving the seller of bearing any responsibility for disclosing certain aspects of the property and placing the burden of due diligence squarely on the shoulders of buyers.
Caveat Emptor = Buyer Beware
Some states take the position of Caveat Emptor, which literally translates to "Buyer Beware," in which the buyer is responsible for researching every aspect of the property and the seller assumes no responsibility for omitting negative information about the property. It is wise to be particularly diligent when asking the seller questions in these states.
Virginia Disclosures
In Virginia, required disclosures are outlined in the Residential Property Disclosure Act, which describe circumstances that do and do not require disclosures. These are the circumstances that require the seller to inform the buyer:
The property is located in a Homeowners’ Association (HOA).
The property is located in a Condominium (Condo) Association.
This is the first sale of the dwelling.
The seller has indicated that they have knowledge of previous mining operations and/or abandoned mines, shafts, or pits wholly or partially on the property.
The property is situated in a locality in which there is a military air installation.
There are pending building code or zoning ordinance violations.
The property has previously been used to manufacture methamphetamine.
The property has a privately owned stormwater management facility.
Since 1978, two or more claims of more than $1,000 have been paid by the National Flood Insurance Program for the structure within any rolling 10-year period.
The property requires septic system operating permits.
Any other concerns about the property must be researched by you as the buyer, preferably before an offer is made. This is the part where you ask questions—LOTS of questions. Virginia’s Department of Professional and Occupational Regulation has a document dedicated to protecting sellers from liability, so be sure you ask about these topics or hire a professional if you suspect any relevancy to your property. More information on legally required disclosures can be found here.
Fun Fact
HOA and Condo Association disclosures operate similar to contingencies in that they permit buyers to terminate the contract within three days of receipt of the HOA Disclosure Packet or Condo Association Resale Certificate.
What are the limitations of the forms?
Sellers are required to be truthful when filling them out, and their honesty limits their legal liability, so read these forms thoroughly. Unless the seller has omitted information, you will likely have no recourse after you close on the property. Sellers are only required to disclose information that they know to be true, so you won't obtain the house's lifetime list of defects from previous owners.
Additionally, the states that do require disclosure forms sometimes provide sellers with the option to avoid disclosing material defects by signing a disclaimer instead of a disclosure. Other states require very few forms be completed by the seller, placing the burden of uncovering undesirable aspects of the property on the buyer.