Disclosures and You: What Can We Learn About a Property Before Buying It
The California Legislature Requires Sellers to Disclose A Lot About Property — Except for When They Didn’t — So What Should You Expect?
“How Many Disclosures Are Out?”
“When Are Disclosures Ready?”
When you’re out and about at open houses or are trying to gauge a property’s popularity you’ll often hear “disclosures” thrown about as if it was going out of style. So, what are they? Disclosures typically refer to a set documents that sellers are supposed to complete that answers questions about the property they’re selling. Disclosure documents may also include pre-sale property inspections (general contractor’s, pest, roof, fireplace, sewer lateral, underground storage tank), reports about area natural hazards, a property’s permit history and reams of boilerplate advisories and notices. Ultimately from those hundreds of pages about 20-50 pages are relevant. Most seller’s agents want would-be buyers to have reviewed disclosure materials before submitting an offer. So knowing how many disclosure packages an agent has sent out will inform buyers if they face potential competition from other buyers.
Disclosure Documents Are a Required Part of a Sale
California’s Civil Code requires sellers to disclose property conditions and material information affirmatively to would-be buyers. What’s a material fact? There’s no bright-line rule as the definition changes under different circumstances but it’s generally understood as a fact that will impact a buyer’s decision to make an offer on a property and what the offer will be. There are standard forms the local REALTOR association and state association produce that most agents use.
If completed properly (and legibly), a set of California disclosure documents can help buyers form a very complete picture of a property and its recent history. While there are other times (such as when a trustee/successor owner who inherits a property) where information is scant. Disclosure documents usually follow a general pattern and are usually hundreds of pages long. The City’s tradition of having disclosure documents ready before property comes to market runs counter to standard practice in most places where there’s more time to investigate a property after a contract is signed. Having disclosures prepared early allows prospective buyers to assess a property before making an offer, which saves a lot of grief and heartache if an issue pops up after you get into contract.
Getting the 411 About the Property You Like: The Specific Forms That Are Most Useful
Yes, we said hundreds of pages but some are more relevant than others. While disclosures were traditionally paper they’re usually sent as one or two PDF documents (with varying scan quality). Depending on the audience, some folks may care less about a building’s permit history because they’re remodeling the property anyway, while some folks fixate on it. We consider the most relevant ones below:
Transfer Disclosure Statement and various Supplements (The “TDS.”) The TDS is, perhaps, the most important document of the lot. Unless a property is being sold by a trust or estate, every owner must answer three pages of questions ranging from roof type, crime, if pets lived onsite to what type of defects exist on the premises. Because this document requires a seller or seller representative to sit down and answer questions affirmatively, TDS documents are more solemn. The hope is that sellers are following their duty to tell the truth about a property and that they are, in fact, disclosing any ‘material’ facts that could have an impact on buyers. You may be thinking that this standard is a bit broad and ambiguous as it could overly inclusive as easily as it can be under inclusive.
Other Supplements. There are other circumstances, locales and instances where supplemental forms are required. San Francisco, for example, has its own form that asks questions about rental history while there’s another form for TIC properties and, for income properties, there are forms about the tenants and their rents.
And All That Other Stuff…
Most of the disclosure package’s pages are taken up by a virtual reference library of a wide variety topics that could impact a house including earthquakes, landslides, fires, mold, more mold, termites, lead paint, flying saucers, locusts … okay, maybe not the last two but there is a lot of literature about many topics that matter and others are inapplicable.
Property Inspection Reports. It used to be that a buyer would have 21 days to inspect a property after an offer was accepted. Nowadays sellers and their agents will have hire the very same inspectors that buyers’ agents would call to have their properties inspected before coming to the market to encourage contingency-free offers. The inspectors typically come from one of five main companies and will walk the property and prepare a written report that’s sectioned into discussions of a property and its component systems and condition.
Pest Report. In San Francisco, with its moist and temperate climate, wood structures and density, the prevalence for structural pest damage increases, i.e., termites, beetles and fungus. The average repair bill is around $8,000-$10,000 for most structures in the City with decks, doors jambs, window sills, or mudsill-earth contact being the chief cost centers.
Sellers used to walk on pins and needles when it came to a pest or termite inspection as a bad report could scuttle an entire transaction. Formally known as a structural pest control inspection these inspections could wood-destroying pests or organisms. Pest reports are divided into two sections (work that should be done now and things that can wait), are supposed to be more objective that not and are registered with the state Structural Pest Control Board. The work recommended in a structural pest report might be done by the company preparing the report or the parties may use another contractor, or do the work themselves. Beware of pest reports and lenders because some lenders will require the pest report’s findings be cleared before a mortgage can fund if they find out about the report.
- Dry Rot. Dry Rot is a fungus (ew) that grows when a building’s wood framing repeatedly is exposed to water and dampness. If unchecked, that fungus will literally eat its way through the wood turning it into dust. On average it can take up to 7 years for dry rot to show any visual signs of damage or to manifest significant damage requiring repair. Damaged wood will need replacement (like filling a cavity) and the affected area will require chemical treatment.
- Wood-eating Beetles. As their names implies, wood-eating beetles are beetles that slowly eat away the wooden structure of a property. You can’t spot these guys but you can spot evidence of them (usually after 2 years) in pin-point-sized holes in exposed wood and tell-tale dust. If unabated, the beetles will eat the wood to dust. What’s the remedy? Spray and repair or replace.
- Termites. Termites are notoriously fast workers and can do serious damage in 1 to 3 months. You’ll see channels or tubes and deteriorated wood in their wake. Treatment is usually done by pumping orange-based chemicals into the ground to eliminate their colonies/nests. And, infestations are either “active” or dormant meaning for some reason the termites simply ceased their activity. Pest companies will still recommend treatment because you won’t know when they could come back. Preventing unwanted termites usually consists of raising where a foundation meets the soil and monitoring traps.
Agent Inspections. The seller’s agent is obliged to perform a reasonably competent and diligent visual inspection of the property’s accessible areas. This inspection and subsequent report is where agents should note — in very clinical terms — any defect, condition, or observation that’s intended to inform a buyer of the property’s condition. You’ll come to see that many agents are incredibly taciturn in these documents. Eventually, the buyer’s agent will do one of these reports as well.
Natural Hazards Disclosure Reports. Based on a property’s location, a handful of companies prepare 100-page-plus reports showing risks associated with gas lines, landslide, forest fire and liquefaction risks as well as toxic these disclosures for such items as gas lines, previous industrial uses, area ground contamination, and other information such as property tax and assessment obligations and overhead airplane paths for example.