Seller disclosure statement: an important but frequently useless document
The seller disclosure statement, also known as a seller disclosure form or Form-17 is a crucial document that sellers must complete when selling their home. Its purpose is to provide potential buyers with information about the condition of the property and any known issues or defects.
This disclosure statement is designed to protect both parties involved in the transaction. It allows the sellers to fulfill their legal obligation to disclose any material facts that could affect the value or usability of the property. For buyers, potentially, it provides valuable information to make informed decisions about purchasing the property or not.
However, the disclosure is only as good as the information provided by the home seller and let's say, some sellers are a lot better than others at completing the form. I tell home buyers to take the disclosure with a healthy pinch of salt. The seller disclosure statement is not a replacement for a home inspection or the buyer doing their due diligence. Buyer beware.
So, what is the seller disclosure statement?
The disclosure statement is a Federally required form that homeowners are required to fill out when they list their home for sale. The length of the form, the disclosure requirements and the number of questions that the seller must answer will depend on the disclosure laws for each state. The Washington State version has 6 pages of questions, notices, and disclaimers and covers the following:
- Title/form of ownership and any legal issues.
- Water and water rights.
- Sewer and septic.
- Structural: which covers any know defects and needed repairs plus whether the owners did any remodeling projects including permits. Includes items like water damage.
- Systems and Fixtures: covers all the home's systems including HVAC and appliances.
- Homeowners association / common interests: this needs to be completed if the home is part of an HOA.
- Environmental: covers everything from whether the home is located in a flood zone, any hazard issues, or whether the home was ever used as a meth lab!
- Lead-based paint: applies to all homes that were built prior to 1978 when they stopped adding lead to paint.
- Manufactured and mobile homes.
The seller has the following answer options:
- Don't know
- Not applicable.
If the seller answers YES to a question then for some questions they are required to provide further information about that question. For example, if they answered yes to whether the basement had ever had water issues.
When does the seller have to provide a copy of the disclosure to a buyer?
The buyer must be provided with a copy of Form-17 within 3 days of having their offer accepted, i.e. mutual acceptance. However, for the Seattle real estate market at least, the disclosure is usually uploaded with the listing on the Multiple Listing Service (MLS) and the buyer's agent can download a copy before making an offer.
The buyer has 3 business days to review the document and if they don't like what they see, can terminate the sale and get their earnest money back. However, in a competitive market, many buyers will review the disclosure before making an offer and in order to make their offer more competitive, will waive their right to walk on the sale based on form-17.
The limitations of the Seller Disclosure Statement.
As mentioned previously, the form is only as food as the information provided by the seller and a buyer has no way of knowing how reliable that information is.
Most homeowners don't know their own homes!
Me included! Although the seller is required to answer questions regarding items like the attic and crawl space, how often does the average owner venture into those areas? Correct, almost never.
The roof could be leaking and the crawl space might have standing water and a pest infestation but the owner has no idea and so they will comfortably answer NO to whether those areas have any known issues.
However, if the owner did a pre-listing property inspection before going on the market then they should be aware of all major issues and either fix them before going on the market or disclose them to potential buyers.
The honesty level of the seller.
While many sellers are highly conscientious and will do their absolute best to complete the questionnaire to the best of their ability, some owners can be a little economical with the facts.
Some disclosures are ridiculously clean with no mention of any defects but when you see the home in person, it clearly has problems that should have been disclosed, like water issues in the basement, windows that don't open, and easy-to-see cracks in the foundation. Those versions are strictly for amusement purposes only!!
Do some sellers sometimes fail to disclose major hidden issues that they are aware of? Absolutely.
Say, for example, there's a significant crack in the foundation. The owner is aware of it, doesn't include it on the disclosure but tells the listing agent about it. That listing agent is now legally required to share information about that problem with prospective buyers even if the seller doesn't want them to reveal it.
This is referred to as a latent defect and the agent cannot help conceal it. A latent defect refers to a problem with the home that is hidden and not easily found by walking around and looking at the home or inspecting the home. Mold in the walls is another good example. If the seller demands that the listing agent not divulge the hidden issue then that agent should refuse to work with the owner.
"Don't know" is a popular answer!
Many sellers genuinely don't know the correct answer to some of the questions on the form and instead of taking the time to get the correct answer, just go for the easy don't know option. As a result, many times buyers are presented with a disclosure form that is low on details.
But kudos to those home sellers who put in the time and effort to get the information needed to fill out the questionnaire more thoroughly.
Estate sales don't require a seller disclosure.
An estate sale is where the owner of the property has died and the individual or family who inherited the home are selling it via an estate sale. Because the owner has passed, they are obviously not available to fill out the seller disclosure statement and so one is not required in this case.
Note that some sellers who own homes that they have never lived in, like an investment rental property, will argue that they don't need to provide a Form-17. Incorrect! They must fill one out just like everyone else.
The disclosure document is not a warranty.
The seller disclosure form does not impose warranty obligations on the seller. The seller is not held liable for any errors or omissions in the disclosure statement unless they had prior knowledge of them. Additionally, the disclosure statement does not automatically become part of the purchase and sale agreement, so any misstatements do not constitute a breach of contract by the seller.
In some states murders and haunted homes do not have to be disclosed.
The questions that the seller is required to answer vary from state to state. For example, in Washington State, sellers are not required to disclose whether any murders occurred in the home, if someone died in the home, or if the home is allegedly haunted. In other parts of the US, sellers will be required to divulge those details. Regardless, you might be haunted by your mortgage payments for a few years!
Hey condo owners, please start answering this question properly!
Here's one example demonstrating how unreliable the information on a completed form can be.
Question in the Title section: Are there any covenants, conditions, or restrictions recorded against the property?
Basically, is your home part of a homeowners association (HOA) with CC&Rs?
When I look at Form-17s for condo sales in the Seattle area, 80% of the time I see this one answered with a NO which is completely wrong. It's an automatic YES! Sorry, one of my pet peeves.
Although, the form is to be filled out by the seller and not by their listing agent, shouldn't the listing agent point out an obvious error on the form...just like latent defects?
The disclosure statement is NOT a replacement for a home inspection.
It's hard to know a lot of time if the seller disclosure statement is fact or fiction but either way, buyers should never hang their hat on it and use it as a reason not to do a home inspection. Spend a few hundred dollars to avoid thousands of dollars in hidden repair costs.
By doing a home inspection, including a sewer scope you will discover a lot more information about the condition of the home than the owner is aware of.
A word of advice for sellers...answer ALL the questions!
When you fill out the disclosure statement make sure you answer every single question and do not leave any questions unanswered. If a particular question does not apply to your home, make sure to mark it as N/A.
Because if you leave a question unanswered, the buyer can send the form back to you to answer that question. Once you return the form to the buyer they now automatically have three more days to review the document and potentially get out of the contract.
To summarize regarding seller disclosure statements in real estate:
Sometimes they are informative and reliable but many times they are not. Home buyers should not overly rely on the information contained in a Form-17 and do their due diligence. Many sellers are unaware of issues and needed repairs that are only revealed after an inspection. Buyer beware!
This article was written by Seattle and Eastside Realtor Conor MacEvilly who has been in the business since 2008. I hope you enjoyed the post and thanks for visiting my website. If you have any questions about Puget Sounds area residential real estate feel free to contact me. I'm happy to help. My direct line (cell) is 206-349-8477.