Real Estate Round-Up: T is for transfer disclosure statement
Last updated 8/20/2021 at 1:43pm
The simple definition of disclosure is “the action of making new or secret information known.” The antonym is equally simple and profound, “concealment.” In California real estate, the Transfer Disclosure Statement is something sellers are required to provide to the buyers when they transfer or sell their property. A second disclosure is the Seller Property Questionnaire which provides a more in-depth disclosure about the structure, the parcel, the neighborhood, etc. Both forms are a series of questions that the seller answers.
Some of the questions are benign, like do you have a range, a garage, smoke detectors? Others require a bit more thought, like what kind of roof do you have and how old is it? These types of questions are easy for the seller to answer. You either have it or you don’t, you either know the type of item and its age or you don’t. But then there are questions that many times cause a seller to pause and ask themselves or us, “should I tell them that?” Questions like, “should we tell them that we had a roof leak, since we repaired it and it was over five years ago?” We chuckle and let them know that if you must ask, the answer is yes.
Disclosures in a real estate transaction need to be seen as an opportunity to tell the prospective buyers everything you know about the property; the good, the bad, and the ugly. The buyers receive these disclosures within a week of an accepted offer. Our practice is to provide the sellers’ disclosures immediately when an offer has been accepted. Think of it like this. Do you remember when you met your spouse? Early on, when you were head over heels in love with them, they could have told you anything, and you still would have wanted to marry them.
It’s not that different with a home. Especially in this market, where buyers must fight to get their offer accepted, once they “win” the house, they are going to fight like anything to keep the house. So short of telling them that the property is condemned, there’s not much that can scare them away. On the other hand, if you delay in providing the disclosures, the buyers may already have a tiny bit of buyers’ remorse over the price they had to pay, or the complication of the purchase process. Whatever the reason, immediate delivery is always the best. Delayed delivery may not go as well.
The key to disclosure is found in the definition above. The buyers know nothing about the property they are purchasing, except that they like it. They either like the location, the style of the home, the price of it, the neighborhood, the amenities, or all the above. But they don’t know anything about the stuff inside the home. They don’t know what is working or what is not. They don’t know what you’ve repaired or what might need to be repaired. They don’t know about the neighborhood or the bigger community.
The disclosures are the seller's opportunity to tell them everything that they know. Hint, it’s ok to tell them that something doesn’t work. Or that you had a water leak that caused you to have an insurance claim that paid for you to have all those beautiful new floors. It’s not only ok to tell them, it is mandatory to tell them.
Telling the buyer that something is not working does allow you the potential for not having to repair it. Let me explain. Buyers receive all the seller's disclosures within seven days of acceptance unless that date is amended in the purchase agreement or counteroffer. The buyers have the right to inspect the property within 17 days of acceptance unless that date is amended.
A professional home inspector does the home inspection and provides a report that notes items that are deficient, need repair, or are safety issues. If, for example, you disclose that your roof is 29 years old and the home inspector mentions that the roof appears to be nearing the end of its life, a buyer might choose to ask you to replace it, provide additional home warranty coverage for it, or give a credit toward the cost of replacing it. However, since you disclosed its age and you never had any leaks, then you should be clear of any responsibility for potential future repairs.
We had this exact scenario play out recently and the sellers were in the clear. They had never had any leaks, and they disclosed the age of the roof. The minute the buyers received the seller's Transfer Disclosure Statement making them aware of the age of the roof, the buyers could have cancelled, but they didn’t because they really wanted this home.
On another occasion, we had a listing that had an elevator. The sellers disclosed that it had not worked since they purchased the home in 1992. Every buyer that viewed the home was made aware of the non-working elevator. Buyers were then able to write an offer, with that knowledge. Early disclosure is so important.
Look at the antonym: concealment. That’s not a good word. Sellers, if you know, you tell. If you don’t know, you don’t make up an answer, you say you don’t know or “no.” Remember what I said about when you were first dating your spouse. Ask yourself were there things he/she told you early on, that you accepted as part of who he/she was? And you loved them knowing that they told you the truth. It’s not more complicated with a property. Tell what you know, and the buyers will trust you and be thankful for your honesty.
Many years ago, a buyer we represented found themselves in a situation where the seller was not so forthcoming. There were multiple times that their backyard had flooded because of faulty irrigation lines and lack of drainage in their neighbors’ yard. The leaks had been repaired, drainage had been installed to prevent it from recurring, but the sellers never mentioned any of this to anyone, and they did not include it in their disclosures.
At the final walk-through, which occurs just days before closing escrow, the nosey neighbor peeked her head over the fence and asked the buyer if the seller had told them about the flooding from her yard into theirs. Hard as they tried, the sellers could not back peddle enough to save that transaction. The buyer cancelled and found another home.
The Transfer Disclosure Statement and Seller Property Questionnaire are tools to keep you, the seller, out of trouble. They provide a basis that creates trust between the seller and buyer. Don’t let some nosey neighbor be your spoiler. Tell what you know and rest easy.
Kim Murphy can be reached at [email protected] or 760-415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.