Whenever you sell real estate, you are obligated to follow local “mandatory disclosure” laws. This involves informing the buyer about specific hazards or problems affecting the property before the sale is completed.
While mandatory disclosures can vary from state to state, here are some of the more common ones:
- Lead disclosures. You are required by law to provide a lead disclosure form. This law is based in part on the Residential Lead-Based Paint Hazard Reduction Act passed in 1992, also known as Title X.
- Asbestos disclosures. Up until the early 1970s, asbestos insulation was commonly used in both residential and commercial buildings. If your building contains asbestos, it can represent a significant health hazard. Before putting your property on the market, make sure to have the insulation removed by a firm that specializes in asbestos removal and cleanup.
- Environmental hazards. If your property contains other environmental hazards such as oil, gasoline, or toxic chemicals, you must disclose the presence of these materials at the time of sale.
- Faulty equipment. If you are including any equipment in the sale of your business, you must disclose upfront whether or not any of that equipment is potentially faulty. It pays to have equipment that you are including in the sale checked beforehand.
- Natural hazards disclosure. These are fairly new. With all the flooding and hurricane damage to properties in the last few years, it is now necessary to let the buyer know the good, the bad, and the ugly about your property. For example, is the property in a location that is prone to flooding during heavy rains?
- Miscellaneous disclosure. To be on the safe side, you should disclose everything there is to know about your property at the time of the sale. Some business owners will have an independent inspection agent do a routine walk through and make a list of everything that belongs on the full disclosure report.
Most state laws mandate that disclosures be on special forms that the seller must sign and date. Be sure the buyer acknowledges receipt of the disclosures by signing and dating the forms as well. If your state doesn’t require a specific disclosure form, be sure the buyer otherwise affirms receipt of your disclosures in writing.
Check with a real estate broker, attorney, or your state department of real estate for a complete list of the disclosures required in your state. In addition, call the city planning department and ask about information on local ordinances and disclosures that affect your sale. Be aware that real estate brokers are increasingly requiring that sellers complete disclosure forms, regardless of whether or not it’s legally required.
A word of warning: Don’t take the list of mandatory disclosures too lightly. If a buyer can prove that you purposely failed to disclose any of the items that apply to the laws of your state, he or she can sue you for a good deal of money.