What Is Real Estate Transfer Disclosure Statements?

Mr. Smith was going to retire and would like to sell his present home, and move to a smaller home. Six months ago, he asked Pest Inspection Company "A" to do an inspection, and Report "A" came out to be $4,500 for repair work. He wanted a second opinion, so he hired Company "B" for another inspection, and Report "B" came out to be $3000. Mr. Smith asked me whether he could just provide Report "B" ($3,000) to the buyer. I said, "You have to provide all the reports to the qualified buyer to comply with the Real Estate Transfer Disclosure laws. But, you have the right to choose the lowest price quoted as the basis for paying for the repair job, and negotiate with the buyer."

In sales of residential property containing not more than 4 units, both Federal and State laws require the seller to provide a detailed written disclosure to the buyer. The Real Estate Transfer Disclosure Statement which is mandated by the State consists of three sections.

Section I is a briefing of the subject property.

Section II has three parts, and all of which have to be filled out by the seller. Part A consists of a check list of appliances & improvement items. Seller has to check which of those items will be included in the sale, and if they are in operating condition. Part B is to inform the buyer if the seller is aware of any significant defects or malfunctions in any of the items listed. Part C is a list of questions about the general environment facts, seller answers 'Yes' or 'No' to those questions and explains the ones answered 'Yes' in writing.

Section III and IV are to be filled out by the seller's and buyer's agents respectively. After conducting a reasonably competent & diligent visual inspection of accessible areas of property, the agents should disclose to the buyer all facts affecting the value or desirability of the property.

After reviewing the disclosure statement, should any questions arise, the buyer should ask the seller to provide additional information. Some real estate companies have additional disclosure statements for the seller to fill out, other than the State mandated one. Those statements are not to be construed as any kind of warranty by the seller. Even though the seller has the duty to disclose the facts & conditions of the property to the best of his knowledge truthfully to the buyer, he might not know about the structural and building codes. So, before a buyer should finalize the purchase contract, he should hire a State licensed contractor to inspect the property. The inspector will provide a written report of his professional opinions of the property to the buyer. This will minimize the chances of dispute in the future.

The purpose of the disclosure statements is to provide as much information as possible in order to protect the rights of both the seller & the buyer. The seller's duty is to disclose all Material Facts known to the seller. The seller's disclosure is based on knowledge, and thus the seller is not guaranteeing the condition of the property. The buyer should obtain his own inspections however, as there may be conditions at the property which the seller is unaware of, but which will be discovered by an inspection.


Q: What has to be disclosed in the statement?
A: There is no regulation on which facts should be disclosed, it is all determined whether the facts are 'Material' or not. Material Fact means whatever affects the buyer's desire to buy and the value of the property; e.g.: foundation problem, roof leakage, even knowing that the immediate neighborhood's crime rate is high, etc., are all Material Facts.

Q: What if a death occurred on the property?
A: This will depend on the buyer. If the buyer believes that this fact will affect his desire to purchase the property, then to him, that is a Material Fact. The buyer should ask the seller, and the seller must answer truthfully. But the seller does not need to volunteer information concerning death in the property, EXCEPT in certain instances. There was a case concerning this matter in San Francisco. After transfer of title, the buyers found out that a suicide occurred on the property, so they filed a lawsuit against the sellers, based on the sellers' failure to disclose that fact. In this case, the buyers were Asian, but not the sellers. To the sellers, the suicide was not a Material Fact. But the buyers indicated that they would not have bought the house if they had known that fact, (they believed that occurrence of death on the property could bring bad luck to the residents of the property). The Judge concluded that because of the differences in cultural beliefs and the buyers' failure to ask if any deaths had occurred in the property, the sellers were not liable for failure to disclose.

Q: For those 'AS IS' sales, will the seller be exempted from providing the disclosure statements?
A: No. Generally, for 'AS IS' sale, the subject property might need a lot of repair work, and the seller doesn't want to pay for any repairing cost, YET, the seller still has the duty to provide disclosure statement to the best of his knowledge.

Q: What if the owner of property has died already, who will provide the disclosure statements?
A: In such cases, the property's present sellers may be: the heirs of the deceased, the bank which owns it, or the State (if no heir). The seller does not have to provide the disclosure by law. But, the buyer's and the seller's agents have the duty to conduct a diligent visual inspection of the accessible area of the property and provide a disclosure statement to the buyer.

I will be happy to answer your questions on the above article or other real estate needs. Please feel free to call me at my office (510) 559-2929.

- Herman Sun