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By Tara-Nicholle Nelson | Broker in San Francisco, CA

5 Best Practices for Decoding Disclosures

Long, small-print disclosure forms are simply a part of American life. We are given disclosures for everything from toothpaste to field trips to parking lots and gyms - even concert tickets and carpet cleanings come with disclosures and waiver forms. Disclosures are such a universal element of American commerce, they are virtually a rite of passage into adulthood. A person shouldn’t be able to move to the grown-up table at Christmas dinner until they’ve signed their first liability waiver!
But the disclosures you will receive in the course of buying a home trump all others, in terms of volume, importance, complexity and potential for confusion. 

Here are a handful of best practices for smartly reviewing and using your home purchase disclosures for maximum lemon-avoiding, decision-boosting impact:

1. Read disclosures from start to finish. In most cases, buyers will receive several types of disclosures, all in one packet or at different times, in different bunches: 
  • disclosures from the various real estate brokerages and agents involved,
  • boilerplate form disclosures that may be signed by the seller or agent(s), but are just forms and
  • disclosures that the seller has actually filled in or completed with information about that particular home.
Given how busy we all are, and the fact that many of us have fallen into the habit of just signing such forms by rote in our regular lives, it can be very tempting to simply sign all the boilerplate forms without much of a glance at their content, and to give little more than a cursory skim to the property-specific disclosures. 

Do whatever it takes to resist this temptation in the course of this particular transaction of buying a home. Brace yourself, grab a cup (or a pot) of coffee, refuse to succumb to the eye-glazing boredom that may arise and read all of the disclosures you receive, from start to finish.

Even the boilerplate forms may contain some truly important information about (a) your own duties in the course of the transaction, (b) the duties the various agents owe you - and what they are not responsible to do, and (c) the realm of inspection options that may be available to you that you may not have even known about. For instance, agents are not inspectors, and you cannot and should not rely on them to educate you about the condition of a home. However, I’ve heard from many, many buyers who wrongly believed that they could - and did, to their detriment. 

Another frequently expressed post-purchase complaint is that the buyer had absolutely no idea it was even possible to obtain specialty inspections like a sewer line inspection, pool inspection or soil tests.  Are these special inspections always relevant or necessary?  Of course not - except when they are. That’s why it’s so important to know what is possible, so that you can exercise your duty to yourself as a smart home buyer to get the information you need while you can still use it to make decisions that will stand the test of time.  Often, it is the very forms that seem skippable that contain this information.

2. Read disclosures as a first step to understanding the property. Do not approach your review of disclosures expecting them to provide 100 percent of the information you’ll need to finalize your decisions about whether and on what terms to move forward with the transaction. At best, the sellers can only tell you what they know. And it is absolutely possible, even probable, that a home will have some issues that are not yet symptomatic or that the sellers are otherwise not aware of. 

The sellers’ disclosures should give you information about past and present improvements to and problems with the property that are within the realm of the current seller’s knowledge. But if you are buying a home that is owned by a bank, an estate or trust, a landlord, an investment company or a government entity, chances are good that the seller might not even be aware of recent or present issues with the property. And even if you are fortunate enough to be buying from a seller who provides detailed disclosures including copious warranty paperwork, contractor receipts and details - down to every last light bulb receipt - past owners may have modified the home in ways the current seller is unaware of.

Your best bet is to look at the disclosures you receive as a single piece of the puzzle of understanding the property and how it will or won’t fulfill your needs and expectations. The rest of that puzzle includes additional information, such as:
  • your own visual and sensory intake on multiple trips to the home at various times of day and different days of the week
  • the reports of the inspectors, engineers and appraisers that evaluate the home during the course of your transaction 
  • your Q+A with any of these professionals, as necessary and
  • your own investigations, like visitng City Hall regarding past building permits, or around the neighborhood, if it makes sense.
3. Read disclosures sooner than later, ideally before inspections. You might receive disclosures before you even make an offer, or you may not receive them until after you’re in contract to buy the place. It seems sensible and efficient to wait until after inspections are done and read all the disclosures and inspection reports in one fell swoop. 

But my advice is the exact opposite: make every effort to read and review them as soon as you can -  ideally, before you have your first home, roof, pest or other inspection. In fact, your disclosure review may give you some direction about which inspections you need to obtain!

I suggest you make every effort to read the disclosures to look for flags about areas you can ask your inspectors to investigate more deeply or even walk you through or point out to you, live and onsite, during the inspection. You lose the ability to get your inspectors’ real-time, expert input and answers to your own personal questions on subjects such as whether a repair was done right or how serious a cracked wall is if you don’t read about those items until after your inspections have taken place.

So, read them early, highlight things you want your inspectors to pursue further, and take the highlighted disclosures and your questions about them with you to your inspections (which, as you may have guessed, I recommend that you personally attend).

4. Read disclosures at a dedicated time, take notes and include your agent in your follow-up plan.  Feeling rushed and overwhelmed at the sheer number of pages of disclosures is a major reason buyers fail to fully read disclosure forms until it’s too late. The best practice is to block out a couple of hours, grab a coffee or a snack and sit down with the pile of disclosures, your spouse or other co-buyer(s), a highlighter and a note pad - digital or otherwise. 

This way, you can explore the documents fully without time pressures, and capture all your questions and concerns as you go. Then, make sure you get on your agent’s calendar for a follow-up call or meeting as soon after your disclosure review as possible, to go over your questions and create a plan for obtaining any additional information you need from the sellers, inspectors or even your own investigations.

5. Read disclosures in the context of your contract. Keep the particular circumstances of your home sale transaction and your contract in mind as you approach your review of disclosures. Again, if your home is being sold by an entity versus an individual, expect to receive little or no property-specific information from the disclosures (be pleasantly surprised if you do get some!) and be very exhaustive as you obtain inspections and do your own informational digging into the property’s past. It never hurts to Google the address or ask the neighbors what they can tell you about the home’s history. 

Just be thoughtful about what you know about the sellers and the transaction’s terms, and talk
with your agent about how this context may impact the level and type of disclosures you receive. For instance, if you know that the home has been a vacation or rental property, you should also know that the owners may not have the same level of awareness of creaks and cracks that someone who lived there every day might possess. 

Or, if you’re buying a home ‘as-is,’ make sure you’re comfortable with every single crack and issue that the sellers disclose or that you’re okay taking the needed repairs on at the agreed-upon purchase price. (Except in caveat emptor (buyer beware) states like Alabama, Arkansas and Virginia, even as-is sales still require the seller to disclose issues they know about which would affect a reasonable buyer’s decisions about the home. Talk with your agent or attorney to understand the full implications of an ‘as-is’ clause for your disclosure rights, in your own transaction.)

Agents: What tips do you give to your buyer clients as they approach the sometimes daunting process of reviewing disclosures?

P.S. - You should follow Trulia and Tara on Facebook!        




Comments

By Angela,  Thu May 24 2012, 10:19
Very helpful!
By Melissa Shriver,  Thu May 24 2012, 10:36
Read REad Read disclosures and they may not show up until after your offer is accepted. I was buying a foreclosure that had dropped 40 % in value so I expected the property taxes to be overstated and wasn't concerned. It was a pocket of newer builds in a very established area so I did not expect to see new assessments for schools, fire and parks. I got a disclosure that I had to sign stating there were special assessments. My agent was not forthcoming on why we were getting the disclosures. I went to the county website and pulled up the tax bill and found a 2800/year special assessment for fire, parks and schools where there were no new ones.
By Birdwatcher,  Thu May 24 2012, 10:38
In real estate transactions of any kind, if it's not in writing it doesn't count. Yes, read, read, read!
By Tsultrimbonpo,  Thu May 24 2012, 11:37
What about the seller? If the disclosure does not list a particular problem, is the seller liable after the sale?
By Ellen Derby,  Thu May 24 2012, 11:40
In our home search here in NY we've been given the disclosure forms right away. They are not terribly long and don't go into great detail... manly basics- septic, water, roof, toxic waste, how long it was owned, lead paint, asbestos, co and smoke detectors, and a line to add any "faults" the seller is aware of. It takes about 20 minutes to read through them carefully. It took us about 20 minutes to fill out ours carefully. But Yes, I read them very carefully.
By William Williams,  Thu May 24 2012, 11:53
if this is your first home buy, get your own lawyer to attend the closing...Trulia, you assume that the people reading are understanding what they are reading (remember the reason so many people got into trouble) and home prices, when supply outpaces demand ...well you know..point is dont assume that your interpretation of the documents will be the same as the bank, mortgage company or others...
By Helen Oliveri,  Thu May 24 2012, 12:14
All good disclosure reviewing tips, Tara.
By zzbeasley,  Thu May 24 2012, 13:22
Thanks Tara. We were recently in contract for a 'quick sale' estate.. Because it was an estate no disclosures were mandatory and because it was such a fine property on the outside, we discounted the upgrade costs and I very foolishly agreed with the seller's request to by pass an inspection to save time. After learning that the title had not yet be transferred we should have known that this was not a quick sale and yet we signed the contract. On a later visit I saw that loose basement tiles were most likely an asbestos issue, that he electrical was deficient and that trees on the property were dangerously untrimmed. We only got out with our deposit because the probate took long enough for us to option out.
By Sweeper508,  Thu May 24 2012, 14:27
DURRRR HAVE YOUR LAWYER REVIEW AND EXPLAIN OPTIONS. ONLY AN IDIOT SPENDS BANK WITH BEING REPRESENTED..NUFF SAID
By Barbara Murphy,  Thu May 24 2012, 15:09
Excellent points, Tara! I encourage my Buyers and Sellers to READ EVERYTHING -- ask questions, and better yet, HIRE AN ATTORNEY to review their documents if they find any language to be unclear or confusing to them. A Real Estate Purchase is a large investment of time, as well as money, and it PAYS to be informed! Thanks for this explanation of those matters that so many just rush right by.
By Thomas Bates,  Thu May 24 2012, 18:43
You forgot the agents and owners disclaimers as they are not qualified, liscensed or qualified to commetn on the disclosuress. Have a liscensed expert do it and then requied an indeminifaction
By angel670,  Thu May 24 2012, 20:02
Is it alright for a first time home buyer to use the same lawyer, he/she used for the P&S agreement for the closing also? It is a two family home.
By Meanjeanne5,  Thu May 24 2012, 20:23
Tara-once again I learn from you-Thank-you
By Regina15,  Thu May 24 2012, 20:46
All of your points are excellent and well-taken. If a Buyer ignores any disclosures or fails to check the court's website for assessments and/or code violations, they can't blame anyone but themselves for revelations after the close of escrow.
By Rich Jones,  Thu May 24 2012, 23:31
Articulated very well!
By Joanne Bernardini,  Fri May 25 2012, 06:29
This is great and should be required reading by every buyer!
Joanne Bernardini
By Pat,  Fri May 25 2012, 16:33
After reading this article,I will always read a disclose differently, and at 63 years old, I am not sure I am ready for the adult table :)

Thanks so much Tara - as said before me, excellant articulation!!! Again...
By Bob Grignon,  Mon May 28 2012, 09:31
Thanks, Tara as usual, great reinformation for us agents to help our Buyers and Sellers make informed choices. Real Estate® agents and their Brokers are licensed and will most likely be included in any law suit. I always recommend an ASHI qualified home inspector and that the buyer attend the inspection.
Thank You, Bob
By Edward Gura,  Mon May 28 2012, 13:15
Very informative article Tara. I think it would be advisable for every real estate agent, seller, and buyer to read this one.
By Brian Petrelli,  Tue May 29 2012, 07:50
Great suggestions. Thanks for posting
By Pamela Shemet,  Wed May 30 2012, 12:23
Great advice. A must read for buyers, sellers & agents.
By Reggie,  Wed May 30 2012, 20:47
Why is it so many listing agents...will caution their seller the "rules" or requirements of disclosures with the comment...IF YOU DON'T TELL: ME---I DON'T KNOW ABOUT....so ONLY tell me what you want me to "know:" I have to disclose everything you tell me. On short sales, REO's and other types of distress sales, why do LISTING agents advice their sellers, that even though the buyer may have a cause of action for misleading disclosure information ( that could have killed the price or the deal if disclosed), the REAL WORLD says that if the seller is destitute and lost most assetts as a result of the sale, what is left to pay any court judgment? NOTHING! This makes the seller practically judgment proof if he/she lies and fails to disclose.
By Carla Pennington, Realtor(R),  Fri Jun 15 2012, 05:58
We as Realtors can't help complete the form, but we can be sure our sellers understand the instructions for doing so, and we can review it for completeness. I've seen many Sellers Disclosures where half the information wasn't included - by a seller living in the home - blatantly inaccurate. Things like "The property has items marked below" and the seller checks Unknown on everything - pool, microwave, dishwasher, air conditioning. Let's do our part to see that the seller has done his!
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By Voices Member,  Thu Sep 12 2013, 14:55
Disclosures can be some of the most complicated stuff around if you let it! I am wondering how to use this article, though! :)

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