In order to protect buyers, selling a home in the United States requires that specific details be disclosed to potential homebuyers; however, exactly what information has to be disclosed can vary by state. In California, the specifics are outlined in the Department of Real Estate’s “Disclosures in Real Property Transactions,” document, which includes disclosures required by both state and federal law and regulations.
It is imperative to note that there is alegal obligationto disclose the information we outline in this article to buyers – It is not optional. However, there is an advantage for the homeowner that comes with disclosing all pertinent information: The owner removes the risk of a lawsuit and all future liability with their properties after they sell. These are the responsibility of the seller to disclose but can also be disclosed through the seller’s agent. Now, let’s review some of the most common disclosures. It is best to obtain a receipt from the buyer to ensure proper documentation that they received the following.
Disclosures Upon Transfer of Residential Property
The California Civil Code outlines the disclosures that are required by sellers: “These requirements apply when real property of 1 to 4 dwelling units is transferred by sale, exchange, installment land sale contract, ground lease coupled with improvements, lease with an option to purchase, or any other option to purchase.” As always, there are exemptions to this rule, and they are outlined in CAL. CIV. §§ 1102, 1102.2, 1102.3.
Real Estate Transfer Disclosure Statement (TDS)
The TDS is the most general disclosure form related to the sale of a home. It is broken up intofive sections, three of which are the responsibility of the seller:
- Section I provides space to list additional existing disclosure reports that the seller may have in his or her possession such as property inspection reports, pest reports, geologic reports, or property insurance claims.
- Section II contains a vast checklist of items describing the property such as pool, sump pump, hot tub, etc. and has yes/no questions regarding any defects to the property. There is additional space provided for the seller to disclose any other material items that may affect the value or desirability of the property. This section will also cover the following:
- If a death has occurred in the home within the past three years. Additionally, if a buyer asks whether or not a death haseveroccurred, a homeowner must answer to the best of their knowledge.
- A statement stating that the property is compliant with California law regarding smoke detectors.
- Neighborhood nuisance problems.
- Section III is to be completed by the listing agent and requires that they complete their own inspection of the home and report any issues the seller neglected to report.
- Section IV is to be completed by the selling agent, if the agent who has obtained the offer is different than the listing agent. It again requires that they complete their own inspection of the home and report any issues the seller neglected to report.
- Section V is designated for signatures.
The TDS is required by law and can only be waived by the buyer. According toTDS law, “if a seller willfully or negligently violates any of its provisions, the seller will be liable to the buyer for any actual damages that result from such a violation. If the licensee responsible for delivering the disclosure statement cannot obtain it, that licensee must advise the buyer in writing of the buyer’s right to receive the statement. Furthermore, the California courts have held that if the seller does not provide a TDS, the buyer, before close of escrow, may cancel the purchase contract.”
Seller Property Questionnaire (SPQ)
The SPQ is designed to help seller’s disclose information about a property’s condition that might affect a buyer’s decision to buy. Although not required by law, it is included in the pre-printed C.A.R. Residential Purchase Agreement, a common purchase agreement used in California transactions.
The primary use of the questionnaire is to educate the buyer and help guide them in their due diligence – It can help them determine what type of inspections to have, what kind of repairs to request, and whether to remove certain contingencies or cancel a contract.
The SPQ is beneficial to the seller because it provides them an opportunity to disclose all known issues with the home, protecting them from future liability.
Natural Hazards Disclosure (NHD)
The seller must order an NHD from a qualified company, and the report will then be provided to the buyer. Governed by California Code Section 1103, the law specifies that the buyer must be informed if the property is in a special flood hazard area, if there is potential for flooding, or if the area is a designated high fire hazard severity zone, a designated wildland area, or an earthquake zone or seismic hazard zone.
Lead Based Paint Hazard
In 1978, lead-based paint was banned for residential use in California. However, today, many homes that were initially painted with lead-based paint still stand, which can lead to severe consequences. For example, children who ingest lead-laced chips or dust “may result in learning disabilities, delayed development, or behavioral disorders.” As a result, all homes built before 1978 must disclose to buyers the potential hazard of lead-based paint.
In addition to the above information, homeowners must also disclose the following:
- Whether a property has been used for or located within one mile of a site that was used for military training and which may contain live ammunition.
- Whether or not window security bars are mandated and, if so, what the safety release mechanism is.
- Whether a property has potential methamphetamine contamination.
- Whether a property is located in a historical district (this can make it difficult for homeowners to make repairs or alterations to a home).
The above categories cover the basic disclosures required by a homeowner looking to sell their home. However, there are additional disclosures that may be required when a buyer is financing a property or when a buyer is purchasing a home from a new development. These disclosures are more specific to the individual transaction but should be reviewed by both parties if any of them apply.
If a buyer would like to terminate the sale of a home after receiving one of the aforementioned disclosures, they have “three days after delivery of the disclosure in person or five days after delivery by deposit in the United States mail to terminate the offer or the agreement, and they must do so by delivering a written notice of termination to the seller or the seller’s agent.”
What Must a Real Estate Agent Disclose?
For every transaction in which an agent represents a homeowner, they must also disclose specific details to the buyer. These include the following:
- Visual inspection dedicated to disclosing all material facts affecting the property’s value, desirability, and intended use. It is necessary to note that this is actually part of the TDS.
- The agency relationship disclosure, which outlines the agent’s relationship to seller, buyer, or both.
- The commission the agent will receive upon the close of the sale.
Closing a Transaction
It is always in the homeowner’s best interest to be open and honest during a home sale. A lawsuit as a result of poor communication or deception can be costly and timely and can simply be avoided by being upfront. Some sellers are nervous about disclosing information about their home if they fear it will lower their chances of selling or their sale price, but the potential fallout and cost is not worth leaving out information to force a sale. If a buyer backs out of the sale after learning something important through one of these disclosures, don’t panic. It is always best to accept the withdrawal offer and focus your time and energy on identifying a buyer who fully understands and accepts the deal being offered.
What must be disclosed? Under California law, all material facts that affect the value or desirability of the property must be disclosed to the buyer. There is no specific definition or rule on what is considered to be a material fact.What is the duty to disclose in real estate in California? ›
In California, the seller has a legal responsibility to provide “meaningful disclosures” regarding the property for sale. If the seller fails to disclose known issues and defects that will affect the property's desirability or value, the seller and their agent will have substantial liability.What disclosures are required by the seller? ›
- Property Repair History. ...
- Damage, Hazards And Faulty Systems. ...
- Death In The Home. ...
- HOA Governance. ...
- Liens On The Property. ...
- Items That Stay With The House Or Don't. ...
- Property Line Disputes. ...
- Nearby Nuisances.
The transfer disclosure statement (TDS) evaluates the condition of a property. Every residential seller must complete the TDS document. It will let the buyer know about major defects at the property.What is the common law duty to disclose? ›
The common law has for decades imposed duties on sellers of real estate, particularly residential real estate such as homes, condominiums, etc., to disclose to the buyer “any material facts known to the seller affecting the value or desirability of the real estate" being sold.What is a material fact that must be disclosed? ›
Material Fact: Any fact that could affect a reasonable person's decision to buy, sell, or lease is considered a material fact and must be disclosed by a broker to the parties in the transaction and any interested third parties regardless of the broker's agency role within the transaction. N.C.G.S.What are the duties to disclose? ›
A duty of disclosure requires all parties to disclose all information relevant to an issue in the case. This requires the parties to disclose the information to both the court and to the other party. The disclosed information can be in the form of a paper document or in an electronic format.Which disclosure is required by the real estate Settlement Procedures Act? ›
What Information Does RESPA Require To Be Disclosed? If necessary, your lender or mortgage broker must provide an Affiliated Business Arrangement Disclosure. This disclosure indicates that the lender, real estate broker, or other participant in your settlement has referred you to an affiliate for a settlement service.Which of the following must be disclosed in the real estate transfer disclosure statement TDS? ›
The seller must disclose on the TDS such things as additions made without a building permit, easements, encroachments, the existence and functionality of appliances, fill dirt use, zoning problems, and neighborhood noise or nuisance problems.)What is the most common form of disclosure? ›
It is the most common and lowest level of disclosure available. It includes information on any 'unspent' convictions you have.
The key documents in a seller financing transaction include: (1) Purchase Agreement; (2) Promissory Note; and (3) Deed of Trust. Depending on the particulars of the financing arrangement, other documents may also be needed.Is seller property questionnaire required in California? ›
If the buyer and seller execute a California Residential Purchase Agreement and Joint Escrow Instructions (the C.A.R. official version of a purchase and sale agreement), the seller is contractually obligated to complete a Seller Property Questionnaire (SPQ) in addition to the TDS.What are the four main categories of disclosure? ›
Four main categories for disclosure include observations, thoughts, feelings, and needs (Hargie, 2011).Is California a full disclosure state? ›
California, like many states, requires its residential property sellers to disclose, in writing, details about the property they have on the market.What are the main disclosure requirements by the standard? ›
- information about the significance of financial instruments.
- information about the nature and extent of risks arising from financial instruments.
A lawyer owes a fiduciary duty to a client. The lawyer must at all times act in the best interest of the client and must make full disclosure of any economic or other interest that the lawyer has that might conflict with the interest of the client.What is an example of disclosure laws? ›
When a contract or purchase is made, both parties are required to disclose the full truth before it is signed so both parties fully know the consequences of their action. An example of full disclosure would be when the court requires both parties signing a prenuptial agreement to provide a list of assets.What is breach of fiduciary duty common law? ›
A breach of fiduciary duty in California happens when an individual or entity is in a position of trust and fails to act in their client's best interests. In California, the responsibility for proving a breach of fiduciary duty falls on the plaintiff (i.e. beneficiary, ward, advisee, client).What information should not be disclosed? ›
Confidential Employee Information
Confidential employee personal and professional information includes but is not limited to: Personal data: Social Security Number, date of birth, marital status, and mailing address. Job application data: resume, background checks, and interview notes.
The Parties agree not to disclose to each other any sensitive, non-public, personally identifiable information (such as social security numbers, personal credit card information or health care data, etc.)
There are three types of misrepresentations—innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation—all of which have varying remedies.What are the do's and don'ts of disclosure? ›
Reassure the child, but only so far as is honest and reliable. Don't make promises that you can't be sure to keep, e.g. "everything will be all right now". Reassure the child that they did nothing wrong and that you take what is said seriously. Don't promise confidentiality – never agree to keep secrets.What is the duty of disclosure of material information? ›
Purchasers of commercial insurance have a duty to disclose every material fact or circumstance that they know, or ought to know, about the risk. A material fact or circumstance is something that would influence the judgement of an insurer in deciding whether to insure the risk and on what terms.What is the right to disclose? ›
The right to disclosure is founded in the principle of fair play between parties as well as the right to make full answer and defence. When the Crown receives evidence it is not information that it holds in trust for the witness, rather it is "property of the public, to ensure that justice is done."Which two items will appear on a closing disclosure? ›
A Closing Disclosure is a five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs).What is Section 10 of the Real Estate Settlement Procedures Act? ›
Section 10 of the Real Estate Settlement Procedures Act (RESPA) provides protections for borrowers with escrow accounts. Specifically, it limits the amount of money that a lender may require the borrower to hold in an escrow account for paying taxes, hazard insurance and other charges related to the property.Which disclosure form is provided to sellers first? ›
When you make an offer on a home, one of the first pieces of paperwork you'll get is a seller's property disclosure. Also known as a “property disclosure statement,” “home disclosure” and “real estate disclosure form,” this document contains a list of known problems with the home.How long are you liable after selling a house in California? ›
The 4-year statute of limitations for breach of contract in California, Code of Civil Procedure § 337 is a primary and critically important statute of limitation for all real estate sales, contracts and transactions, which potentially applies to every real estate transaction in California since all such transactions ...Which seller is exempt from completing a transfer disclosure statement? ›
Other exemptions from of the TDS include transfers from one co-owner to another, transfers made to a spouse or child, grandchild, parent, grandparent or other direct ancestor or descendent; transfers between spouses in connection with dissolution of marriage, and various transfers to the state for failure to pay ...Do you have to disclose a death in a house in California? ›
In California, sellers must tell the buyer if a death in the home has occurred anytime in the past three years. This includes death by most natural causes (certain types of deaths, like those from AIDS, cannot be disclosed).
The Disclosure Checklist (DC) streamlines checklist preparation and review for financial-statement disclosures and builds in quality assurance processes.What are the five 5 forms of disclosure? ›
- help-seeking behaviour.
- telling without words.
- partially telling.
- telling others.
- telling in detail.
Examples of the Full Disclosure Principle
The nature of a relationship with a related party with which the business has significant transaction volume. The amount of encumbered assets. The amount of material losses caused by the lower of cost or market rule. A description of any asset retirement obligations.
TILA disclosures include the number of payments, the monthly payment, late fees, whether a borrower can prepay the loan without penalty and other important terms. TILA disclosures is often provided as part of the loan contract, so the borrower may be given the entire contract for review when the TILA is requested.What two items are usually used to document real estate financing? ›
A real estate sale involving financing typically contains at least three main documents; the loan agreement, a promissory note, and a mortgage instrument or deed of trust.What are typical seller financing terms? ›
When bank financing is involved, the amount of seller financing is typically 10 - 20% of the purchase price with an interest rate of 6% and a term of 3 to 5 years. Principal and interest payments are typically paid on a monthly basis.Does California require a seller's disclosure? ›
Is a seller's disclosure required in California? California Civil Code §1102 requires a seller's disclosure. This requirement to disclose applies to real estate property of 1 to 4 dwelling units transferred by a sale. The form is a standardized checklist called the Transfer Disclosure Statement, or TDS.What is the golden rule of disclosure? ›
Basic principles – 'the golden rule'.
Fairness ordinarily requires that any material held by the prosecution which weakens its case or strengthens that of the defendant, if not relied on as part of its formal case against the defendant, should be disclosed to the defence.
- Principle 1: Relevant. The tendency to produce reports which obfuscate the reality is to be resisted. ...
- Principle 2: Complete. ...
- Principle 3: Clarity. ...
- Principle 4: Consistent. ...
- Principle 5: Comparable. ...
- Principle 6: Verifiable. ...
- Principle 7: Timely.
Guide 3 requires disclosure of the following: Average amounts of and average rates paid for certain deposit categories that exceed 10 percent of average total deposits.
For those who don't know, California's disclosure law requires lenders who facilitate commercial financing to a borrower to disclose specific information relating to the major terms of the financing by extending a specific offer of commercial financing before the loan documents are presented to the borrower.What is the new California disclosure law? ›
The new California legislation requires various consumer-friendly financial disclosures to be included in writing and separately signed for most non-bank commercial financings of personal property up to $500,000 with borrowers or lessees whose business is principally directed or managed from California.What is the full disclosure rule? ›
Full disclosure is the U.S. Securities and Exchange Commission's (SEC) requirement that publicly traded companies release and provide for the free exchange of all material facts that are relevant to their ongoing business operations.What is a legally required disclosure? ›
Required. The Required Disclosure or Mandatory Disclosure clause details the circumstances under which a party may disclose confidential information when required to do so by law, judicial body or government agency.What is the minimum disclosure? ›
The minimum disclosure document is where you will find a lot of information that will help you make decisions about your unit trust investment decisions. The document should, among other things, tell you: The investment objectives and key characteristics of the fund.Does seller have to disclose previous inspection in California? ›
Must California Sellers Commission a Home Inspection Report Before Making Disclosures? California law requires only that sellers disclose known defects, with no obligation to search them out or get expert eyes on the house, such as by getting a home inspection.How long can a buyer sue a seller after closing in California? ›
The 4-year statute of limitations for breach of contract in California, Code of Civil Procedure § 337 is a primary and critically important statute of limitation for all real estate sales, contracts and transactions, which potentially applies to every real estate transaction in California since all such transactions ...Who is exempt from filling out a seller's disclosure California? ›
The Transfer Disclosure Statement (TDS) is required in the state of California unless the seller (or transferor) meets one of the following conditions: Court-ordered sales such as probate sales, foreclosure sales, sale by bankruptcy trustee, eminent domain.Does buyer have to disclose appraisal to seller in California? ›
The seller often does not generally get a copy of the appraisal, but they can request one. The CRES Risk Management legal advice team noted that an appraisal is material to a transaction and like a property inspection report for a purchase, it needs to be provided to the seller, whether or not the sale closes.Is seller disclosure mandatory in California? ›
Is a seller's disclosure required in California? California Civil Code §1102 requires a seller's disclosure. This requirement to disclose applies to real estate property of 1 to 4 dwelling units transferred by a sale. The form is a standardized checklist called the Transfer Disclosure Statement, or TDS.
If a seller fails to disclose defects, it would be considered fraud. Under California law the statute of limitations for fraud cases is 3 years. Generally the cause of action for failing to disclose is for fraud. When you assert fraud you have 3 years to bring forth your cause of action.Are the sellers of a house liable for repairs after the closing in California? ›
Is the Seller Responsible for Any Repairs After Closing? Sellers aren't liable for the cost of repairs if they weren't aware of the issues before closing. However, a seller can be held responsible if they knew about the problems and didn't disclose them to the buyer.What happens if you buy a house and something is wrong? ›
Depending on the issue you discover after buying your house, you might be able to sue the property owner. You could also sue the property inspector or the other party's real estate broker. The basis of your lawsuit could be fraud, negligence, breach of contract, breach of warranty, or negligent misrepresentation.Can a seller back out of a home sale in California? ›
Real estate contracts are legally binding, so sellers can't back out just because they received a better offer. The main exception is when the contract includes a contingency that allows the seller to terminate the sale.Why must a seller of one to four units of residential real estate disclose all known defects in the property to a buyer? ›
Remember that sellers and real estate agents must make the disclosures necessary to avoid fraud, misrepresentation or deceit. This section deals with the major disclosures required by the California Civil Code (commencing at Section 1102).When can yOU use exempt seller disclosure California? ›
Sellers who are not legally required to complete a TDS can use this form to make other required disclosures, including the disclosure of material facts of which they are aware.What is an exempt seller in California? ›
Exempt Sellers include: (d) Sales or transfers by a fiduciary in the course of the administration of a trust, guardianship, conservatorship, or decedent's estate.