Bay Area Home Sale Disclosures: A Quick Guide for Sellers

Disclosing material facts when selling a home is crucial for maintaining transparency and integrity in the real estate transaction process. It is a duty and requirement for all sellers of California real estate, and the failure to make a full and accurate disclosure about all material facts about the property have the real potential to put the seller in legal jeopardy after the sale closes.  This quick guide for sellers of Bay Area homes will help you make sure you are making a full and detailed disclosure of all material facts to a buyer.

Material facts are any details about the property that could influence the buyer’s decision to purchase or the price they are willing to pay. Failure to disclose such information can lead to legal consequences, as it might be seen as misleading or deceptive. For example, known issues like a leaky roof, foundational cracks, or past flooding must be disclosed to potential buyers. Doing so not only builds trust but also protects the seller from future liability and disputes that may arise if these issues are discovered after the sale. Transparency in disclosures not only facilitates a smoother transaction but also helps buyers write as-is offers that will actually make it to closing.

One important aspect of seller disclosures to understand is that sellers are only required to disclose what they know.  Sellers are not required to research their properties to discover material issues which they are not presently aware of.  However, while sellers are not required to inspect or investigate their properties prior to selling, it’s a very good idea for sellers to do some basic due diligence for the buyers, by for example paying for pre-sale inspections so that buyers are fully aware of the current condition of your home before they make an offer.  These inspections typically include a home inspection and termite inspection, but may also include a roof inspection, well inspection, septic inspection, and others.

While sellers don’t have to research their property (e.g. the permit history, property boundaries via survey, etc.) the seller is obligated to provide buyers with all applicable records the seller has for the property.  For example, if you bought the home 10 years ago and you still happen to have the home inspection and seller disclosure forms from when you bought the property, these need to be provided to the buyer for their review.

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Standard Disclosure Forms

Fortunately, there are a number of standard forms that have been created by the California Association of REALTORS to help sellers meet their obligation to disclose these material facts.  When you fill out these forms, remember that the questions are always “to the best of your knowledge.”  If you don’t know, the answer is no.  On the other hand, if you wonder, “well does this count?” – the answer is better safe than sorry, and make the disclosure.

Sellers are well advised to over-disclose on these standard forms. The reason for this is that buyers don’t really don’t pay too much attention to these forms.  They are usually skimmed over on the way to making an offer.  Time and again I have buyer’s agents asking me questions that were answered on these disclosure forms, which tells me that the buyer hasn’t really read them.  So go ahead and be very thorough, it’s unlikely that anything you write will scare off a buyer.  On the other hand, if some problem comes up with the property after closing, and the buyer wants to take legal action against you, rest assured that these forms are the very first forms the buyer’s attorney will be looking at.  So take a deep breath, take your time, and make sure you are making a full and faithful disclosure of all material facts.

Real Estate Transfer Disclosure Statement (TDS): This form requires sellers to reveal any known defects or malfunctions in the property. It covers a wide range of items including appliances, electrical systems, plumbing, heating, and more. The TDS is legally required by California civil code for the sale of all residential properties of 1-4 units (with a few exceptions).

Exempt Seller Disclosure (ESD):  some sellers (e.g. trustees) are exempt from filling out Transfer Disclosure Statement and their disclosure requirements are somewhat relaxed as they will usually have limited information about the property.  However, while some sellers do have relaxed disclosure requirements, all sellers are still required to disclose any material facts that they are aware of.

Seller Property Questionnaire (SPQ):  This form prompts sellers to disclose a variety of information about their property, which can range from structural issues and repairs, to neighborhood nuisances, and any additions or renovations made to the property. Unlike the TDS, the SPQ is not a legally required document, but rather was created by the California Association of REALTORS to help sellers make a full and complete disclosure.  I tell my clients that this form was created because sellers have been sued for neglecting to mention some key details about their homes.  This form helps keep you honest, although there is some overlap with the TDS form.

Lead-Based Paint Disclosure: For homes built before 1978, sellers must disclose the presence of any known lead-based paint.  Sellers are not required to test for lead based paint, but if they do happen to have any specific knowledge about the existence of lead based paint on the property, they must disclose it.

Agent’s Visual Inspection Disclosure (AVID): this form is actually filled out by the listing agent, because the listing agent has a duty to conduct a reasonable visual inspection of the property.  You will typically see these forms filled with comments about cracks in walls, ceilings, and tile, scuffed paint on the walls, discoloration here and there.  But the AVID should also be used to point out the elephant in the room, e.g. the very steep slope behind the property, fast flowing traffic on the street, and dense vegetation around the home (fire risk). The seller is required to initial this form, but should not get the agent to change anything on it.  The agent is putting everything there for your own good and protection.

It’s very important that you get these disclosure forms filled out correctly from the get-go.  If you need to make any changes to these forms after the buyer has received them, you may end up creating an extended inspection contingency for the buyer – even if the buyer made a non-contingent offer.  If the seller makes a disclosure of a new material fact to the buyer, this is considered by the California Residential Purchase Agreement as an amendment to the transfer disclosure statement, giving the buyer up to 5 more days for heir inspection contingency (even if they never had an inspection contingency to begin with).  This will allow the buyer to walk away from the purchase and get a refund of their earnest money deposit –  so make sure you don’t miss any checkboxes when you’re filling out these forms!

For Best Results

Natural Hazard Disclosure Report

The Natural Hazard Disclosure Report in California plays a critical role in real estate transactions by informing potential buyers of the environmental and natural risks associated with a property. This report is mandated by state law and must be provided by sellers to prospective buyers. It typically includes information about the property’s susceptibility to various natural hazards such as flood hazards, earthquake fault zones, wildfire risks, and any other state and federally designated hazard areas. Additionally, the report might cover issues like soil and geological instability, the presence of radon gas, and potential for industrial contamination.

By providing this information upfront, the Natural Hazard Disclosure Report helps buyers make more informed decisions and understand the potential risks and future implications of their property purchase. This transparency is essential for the protection of buyers and contributes to a more straightforward and secure real estate transaction process.

This report is automatically generated based on a statewide database of mapped hazard zones, and typically costs about $99.  This fee is usually paid through escrow.

California AB-38 Defensible Space Disclosure

The California AB-38 disclosure is part of a legislative effort to enhance fire safety and awareness in areas prone to wildfires. Enacted to address the increasing frequency and severity of wildfires in the state, this law requires sellers of properties located in designated high or very high fire hazard severity zones to provide specific disclosures to potential buyers. The disclosure must inform buyers if the property complies with local ordinances related to defensible space or other wildfire protection plans, such as vegetation management. Additionally, sellers must disclose if the property has undergone a compliant defensible space inspection (and if not, seller will be required to have this inspection performed prior to close of escrow). This legislation aims to ensure that buyers are fully aware of the wildfire risks associated with their potential new home and the preventive measures in place or needed to mitigate these risks, thereby promoting safer housing practices in fire-prone areas.

Government Mandated Inspections

Some parts of California will have “point of sale” government mandated inspections that must be completed prior to the sale of the property.  For example the city of Morgan Hill, Pacific Grove, and all of Santa Cruz county, have mandatory sewer lateral inspections.  Santa Cruz County has mandatory septic inspections.  The city of Marina has an exterior building inspection all sellers must perform prior to selling a home, while the city of Salinas requires that sellers provide a “city building report” to all buyers.  You must make sure your REALTOR understands what local government mandated inspections and reports may be required for your area.

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Important Material Facts Sellers Must Disclose

The forms I have listed in this article will help you fulfill your obligation to make a complete and honest disclosure of all material facts to the buyer of your property.  But the SPQ also asks:

Any past or present known material facts or other significant items affecting the value or desirability of the Property not otherwise disclosed to Buyer

There are obviously a lot of material facts and significant items that the SPQ and TDS did not touch on – because every property and neighborhood is unique.  The following is a list of other material facts that should be disclosed to the buyer:

• Presence of Hazardous Materials: Information about the presence of asbestos, radon, formaldehyde, or other hazardous materials must be disclosed.
• Pest Infestation and Damage: Details about any past or present pest infestations and any resultant damage must be disclosed.
• Death in the Property: If a death occurred on the property within the last three years, this must be disclosed, unless the death was related to AIDS, which is protected under confidentiality laws.
• Neighborhood Nuisances and Noise: Any known nuisances like noise from nearby airports or traffic, odors from farms or factories, and other local conditions that could be considered a nuisance.
• Homeowners’ Association (HOA) Information: If the property is in an HOA, the seller must provide documents such as CC&Rs (Covenants, Conditions, and Restrictions), financial statements, and minutes from recent HOA meetings.  I have a rundown of a HOA document package here.
• Structural Integrity: Information about the condition of the foundation, roofs, walls, and other structural elements of the property.
• Major Repairs and Renovations: Details about any significant repairs or renovations that have been carried out, including the addition of any new rooms or major systems.
• Pest Control: History of pest infestation and any treatments or repairs related to past infestations.
• Neighborhood-specific Issues: Information on local issues such as traffic noise, smells from local businesses, or proximity to airports.
• Utilities: Details about the property’s water source, sewage system, and any issues with heating, plumbing, or electrical systems.
• Legal Issues: Any ongoing legal issues affecting the property, such as boundary disputes or special assessments.
• Mold: Disclosure of any known presence of mold or water damage that could lead to mold.

The Real Estate Disclosure Package

So where do all these disclosures go?  They go into what we call “the disclosure package.”  This information should be provided to the buyer before they make their offer, although this is not strictly speaking necessary.  In fact, in most of the country, buyers only get disclosure information until after they have agreed on price and terms. But in the Bay Area, our standard of practice is to provide the disclosure package to the buyer up-front, before they make an offer.  This way, the buyer has all the material facts about the property and can make an offer accordingly.  This will save you from the hassle and drama of the buyer wanting to renegotiate later, after they have received all of this important information.

Conclusion

In all my decades of selling real estate, I have never had a client of mine get sued for failing to make a full and honest disclosure of all material facts about the property.  It is very much in the seller’s interests to provide all the relevant and material information they can about the property to the buyer.  This assures both a smooth and (relatively) drama-free closing, while also mitigating the risk of legal issues after close of escrow.  With the help of an experienced  REALTOR like myself, you’ll be able to rest easy knowing that you’ve met your legal obligations regarding these disclosures, and will be better able to enjoy the experience of selling your home.

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