Should I Disclose Known Defects In My Home?

Only 20 years ago, home buyers were lucky if the seller told them anything about the condition of the property they were purchasing. Now, it's law in most states that sellers must disclose material facts to home buyers that might influence their decision to buy or the price they'd be willing to pay.

The National Association of Realtors is in favor of all states enacting seller disclosure laws. Why the big push to require sellers to come clean about property defects when they sell? Put yourself in the buyer's shoes and consider the following.

You save for years so that you can afford to buy a home of your own. The first winter after you move into your new home, the roof leaks causing interior damage and the basement floods destroying valuable personal property.

You make a claim to your insurance company that pays to repair the damage, but not to correct the cause of the problems. You consult with contractors who inform you that you need a new roof and a drainage system at a cost of more than $30,000. You have no cash reserves to correct the problems. Also, your insurance company might refuse to renew your policy because you submitted a claim for water damage.

Buyers usually have a home inspection done before they finalize a purchase. However, sellers often have painting done to get their home ready for sale. When they do so, such things as stains—that indicate a problem exists—disappear. In this case, the buyers would have no way to know they are buying pre-existing problems unless the sellers tell them.

HOUSE HUNTING TIP: Sellers can be wary of disclosing defects because they fear their candidness will discourage buyers from buying. In fact, full disclosure rarely keeps a home from selling. Buyers who are told about defects before they buy can factor this information into their decision-making, and budget accordingly.

For example, let's say the buyers in the above example knew that the roof was on its last legs. The sellers disclosed this fact, along with an estimate to replace the roof as part of their disclosure package.

The buyers had no extra cash to pay for the new roof, but they had several options. They could ask the seller to replace the roof. If the seller said no, they could ask the seller to pay a portion.

Or, they could make an offer at a price that covered the cost of a new roof. For instance, instead of offering $350,000, they could offer $360,000 and ask the seller to credit $10,000 to them at closing to cover the cost of a new roof. This way the buyer finances the roof replacement and pays if off over time.

The options aren't so great for buyers who don't know about defects before they close on their new home. They can ask the sellers to pay to fix the defects. But, if the sellers refuse, their only recourse may be to sue the sellers. This could end up being a far more costly proposition than it would have been if the sellers had come clean to begin with. Full disclosure is usually in the best interest of both buyers and sellers.

Sellers who don't realize the protection full disclosure provides may skimp on their disclosures, which can also lead to problems. In addition to disclosing defects, it's prudent to inform the buyers about routine maintenance that will need attending to in order to avoid future problems.

For example, you may have a sewer line that needs to have roots cleared periodically to avoid backups or a skylight that needs routine caulking to avoid leaks.

THE CLOSING: When you pass this information along to the buyers, you also transfer responsibility for avoiding future problems to them.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers," and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books

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