Real Estate October 4, 2022

What is a Seller’s Disclosure? Why is It Important?

Whether you’re about to purchase a home or sell your current home, there is a lot to learn and paperwork to sign. One of these critical documents is called a seller’s disclosure. 

A seller’s disclosure is a document sellers legally must provide buyers. According to the Texas Real Estate Commission, the seller’s disclosure is a notice of disclosure of the seller’s knowledge of the condition of the property as of the date it is signed by the seller and is not to be considered a substitute for any inspections or warranties the purchaser may wish to obtain. It is not a warranty by the seller or the listing agent.

Why is a seller’s disclosure necessary?
A seller’s disclosure is a legal document protecting both the seller and the buyer. It protects the buyer by informing them of any issues or defects the home and surrounding property may have. It also safeguards the seller from being sued by the buyer after the transaction if the seller’s disclosure was completed correctly.

For Buyers
The goal of the seller’s disclosure is to inform the buyer of the property’s history and future repairs so buyers can make an informed decision. If the seller’s disclosure reveals a major issue with the home, buyers can back out of the deal without losing earnest money. Any problems documented in the seller’s disclosure can also give the buyer some negotiating power, such as the price of the home or requesting the seller make any necessary repairs.

For Sellers
The seller’s disclosure can only protect the seller if done accurately and honestly. If done correctly, this document will protect the seller from being held legally liable for any issues that may develop with the home. This would only be the case if the seller made the buyer fully aware of all home defects before the purchase. As a seller, it is best to disclose, disclose, disclose.

When should a seller provide the disclosure?
It’s best to complete the seller’s disclosure before the home goes live on the multiple listing service so there isn’t a delay in providing it to the buyer. Some listing agents will attach the seller’s disclosure to the listing so buyers can access it through their buyer’s agent. If the seller’s disclosure isn’t attached to the listing, it will be part of the contract once received from a buyer. There are two options for delivering the seller’s disclosure to the buyer on the Texas contract. Option one states that the buyer has already received the seller’s disclosure, while option two says how many days the seller must provide it to the buyer. Suppose the buyer has not received the seller’s disclosure with the number of dates stipulated on the contract. In that case, the buyer may terminate the contract at any time before closing, and the buyer’s earnest money will be refunded.

How a seller’s disclosure can impact a home sale
The seller’s disclosure can significantly impact the home selling process if a property has substantial issues. Buyers must decide if they’re comfortable with any significant issues disclosed and get a professional inspection to assess what it takes to manage the problem. As a buyer, it’s essential to carefully review the seller’s disclosure with a real estate agent and during the home inspection. 

What are the standard real estate disclosures in Texas?
In the general Austin area, there are three seller’s disclosures that a seller may use. The entities that provide the disclosures are the Texas Real Estate Commission, Texas Realtors ®, and Austin Board of Realtors®. Sellers should discuss the differences between the disclosures with their listing agent.

Here’s what to expect from the disclosure:

  • Hazards: High risk of natural disasters or threats like contamination, lead paint, radon, asbestos, and toxic mold.
  • Repairs: Any significant repairs the house may need and has had. Significant repairs would include structural, electrical, and plumbing issues.
  • Water damage: Flood risk or existing flood damage.
  • Death: Sellers must disclose deaths that occurred because of the property’s condition or violent crimes that happened in the property.
  • Other possible disclosures: Other disclosures could include special historical districts, homeowner’s associations, and unpermitted improvements.

As a buyer, will I always receive a seller’s disclosure?
There are several circumstances in which a buyer may not receive a seller’s disclosure.  Here are the situations where a seller is not required to furnish the notice under the Texas Property Code:

  • A foreclosure or deed-in-lieu of foreclosure (usually applies to a bank-owned home)
  • A trustee in bankruptcy
  • A fiduciary in the administration of a decedent’s estate, guardianship, conservatorship, or trust
  • One co-owner to one or more co-owners
  • Between spouses resulting from a decree of dissolution of marriage or legal separation or from any governmental entity
  • Transfers of new residences of not more than one dwelling unit which have not been previously occupied for residential purposes
  • Transfers where the value of any dwelling does not exceed 5% of the property’s value.

The seller should confer with their listing agent to confirm whether a seller’s disclosure is necessary or not.

What happens if the sellers fail to disclose issues adequately?
The buyer can sue if the seller fails to disclose or actively conceals problems that can affect the property’s value. The seller can be subject to lawsuits for recovery of damages based on fraud, deceit, misrepresentation, and breach of contract. If the law doesn’t require you to disclose something, it’s best practice to determine if it may impact the buyer.

Even with a seller’s disclosure, don’t skip a home inspection.
In addition to the seller’s disclosures, the buyer should always have an inspection done. No matter how thorough or trustworthy the seller may be, a seller’s disclosure is no substitute for a complete home inspection by a licensed and qualified professional. Most buyers aren’t trained to look for and identify the issues that can affect the average home. Before you buy, it’s in your best interest to get an inspection.

Final takeaways about seller disclosures

  • The seller’s disclosure is necessary for both sellers and buyers.
  • There are several disclosures required in Texas. Work with a real estate professional to understand your situation better.
  • In some cases, you will not receive a seller’s disclosure.
  • In addition to a seller’s disclosure, it’s recommended to have a professional inspection of the property.