Up-front disclosures are the best policy #671

#671 in a series of true experiences in real estate

Buyers really like knowing what they are buying – scars and all. It is a benefit to both the buyer and to the seller that all possible is known from the start.

If the basement is wet, the roof is leaking, or water in the house runs at a slow dribble, better by far that the seller say so at once. If the buyer knows what’s wrong, he can decide whether to take on the problems, or not.

All houses have things wrong with them. When a potential buyer turns away from a house because of something he has learned about it, it is safe to say, it wasn’t the house for him. He wasn’t the right buyer.

It does no one any good when the wrong buyer gets into contract on a house he will later decide he doesn’t want to buy. The buyer and the seller will both lose something, but it is the seller especially who will be hurt. He will have to re-market his house. Momentum will have been lost and distrust may have set in. “It’s back on the market. What’s wrong with it?” agents and buyers ask.

And so, Anet and I take up-front disclosures seriously. We advise our sellers to have pre-marketing inspections: at a minimum, termite and general physical inspections, and sometimes, further inspections of the fireplace and chimney, furnace and roof.

Sometimes the seller makes repairs recommended by these inspectors. Other times, nothing is changed, but the written reports are passed along to interested parties. The idea is to fully inform buyers about the condition of the house.

Another good reason for giving information to a buyer before he writes an offer is that if disclosures are delivered to the buyer after his offer is signed, he is allowed 3 days to decide whether to proceed with the sale. If the buyer does not know, for example, at the time he agrees to buy the house, that the roof leaks, and is informed of the fact after the contract is signed, he can simply walk away.

Legally, the seller must complete and provide to the buyer quite a large number of disclosures covering various subjects such as slides and earthquakes, lead and asbestos, and others. The main disclosure form, titled Real Estate Transfer Disclosure Statement, is a two-page form which all California sellers must complete. On the first page, sellers check off what equipment and features the house includes – rain gutters, dishwasher, sump pump, exhaust fans, and the like. The form continues with yes-no questions about the condition of the house and neighborhood. Any “yes” answers must be explained.

There are always “yes” answers, and typically, our sellers write their answers in an attachment, as well as provide other information about the house. They usually say how long they have owned the house, and frequently include happy thoughts about the house and the area – what they like about living there.

They include a description of work that has been done to the house during their tenure (new systems and appliances, room additions and alterations) and what years this work was done. And they list anything about the house that is in disrepair or nonfunctional.

Anet and I have made up a list of questions to prompt sellers to remember information. Not all answers are legally required, but as we talk about these things, we can better advise our sellers about what to include in their written disclosures.

We begin by asking about the main systems of the house: roof, electrical, plumbing, drainage, furnace. Are they new or old? Working ok?

Any additions to the house, remodeling, upgrading? With city permits?

What about the foundation? What information does the owner have about the foundation? Any earthquake retrofit done?

If there are electrical fuses, do they “blow”? What is the capacity of the water heater? Has the furnace been serviced recently, the filter changed? When was the fireplace chimney last swept?

How about the appliances? Anything not working? Burners, broiler? Dishwasher?

Has the owner had to have the sewer cleared? Was the sewer line to the street replaced? Slow drains anywhere? Running toilets?

Are there stains on wood floors, cuts or breaks in vinyl or tile? Does the doorbell work? Is there any broken or cracked window glass?

Have there been any leaks from the roof or windows or under doors? Any water in the basement or garage?

We ask about the neighborhood. Break-ins? Disputes with neighbors? Noises or other nuisances? Any sliding or settling of land or houses in this area that the seller is aware of?

We make notes, and  we ask the seller to write down anything else they think of later. Before we put the house on the market, together we complete all of the disclosures and attachments.

Owners of houses we have listed have let buyers know about a number of interesting secrets including feuds with neighbors, fences built (and torn down) out of spite, and once, a squirrel nest in a clothes dryer vent. Another seller revealed that the refrigerator was noisy and sometimes sweats while a refrigerator in another house “dumps water from the bottom” but only “once a year.”

We also had owners who told about deep water inside the house caused by an overflowing city storm drain. And one explained that there was no heat in the house; the pipes in the floor for radiant heat were broken.

Perhaps my favorite disclosure was a warning to buyers that there was a lot of broken glass in the overgrown and ivy-covered backyard due to hot tub party revelers tossing empty wine bottles over the edge of the deck.

None of these truths prevented these houses from selling.

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