Real Estate

Disclosure packets: assurance or red flag?

When a fixable flaw can be a deal breaker

by Karla Kane

While reading a disclosure packet can be a massive house-hunting buzzkill, don't be tempted to skip the fine print, Realtors advise.

What if you've found a dream home in the perfect neighborhood for the right price, only to discover it's half-eaten by termites and has a cracked foundation, leaky roof and a bundle of other pesky problems? Maybe it was the site of a recent ax murder?

Though it may be painful, carefully combing through a property's disclosure packet is an essential part of real estate transactions. A good Realtor will be there to dig through it with clients and point out the differences between easily fixable flaws and major red flags.

A disclosure packet contains all the detailed information on a property's condition, usually compiled after a professional home inspection (or several). A seller is obligated (except in foreclosure situations, or when no one's occupied the home for a number of years) to provide this information so potential buyers know what they're getting into, what kinds of repairs or upgrades they might need to make, and what a fair offering price would be.

Some disclosure information is mandated by the state, while others are shared thanks to common practice and standard of care. By California law, all property disclosures must include the Transfer Disclosure Agreement, which covers information on the condition of all appliances, plumbing and electrical systems, water and gas supplies, structural components and known problems or defects -- such as environmental hazards, property additions, neighborhood concerns or lawsuits. Also required is the California Natural Hazards Disclosure Statement, which covers such information as whether or not the property is located within a flood, wildfire, landslide or earthquake zone.

Suspect the house may be haunted? The law only requires disclosure of deaths occurring on the property within the last three years.

Longtime local Realtor Ginna Lazar, with Sequoia Realty Services, Redwood City, said one potential buyer decided not to bid on a house in Woodside after learning that an elderly man had recently died there under hospice care. A home in Palo Alto, however, where a murder had taken place, sold with multiple offers.

"Some people are bothered by these things and some just aren't," she said.

Sellers often opt to include more information, such as a supplemental checklist, specialized inspections (including pest or septic reports) and information on old permits, she added. Individual counties also have their own local disclosure forms.

Obviously it behooves the buyer to know what they're getting into before committing to a property purchase, but the process can help smooth the way for sellers, too. According to Lazar, disclosure packets and presale home inspections have taken on even more importance locally in the last 25 years or so, when multiple offers on homes started becoming more frequent. Previously, it was often up to the buyer to arrange inspections later.

With so much competition for bids, "(it) made more sense for the sellers to go out and get all of their inspections ahead of time and make everything known to the buyer so, if they offered to buy it 'as is,' they knew what 'as is' was," she said.

Having all inspection information disclosed means that all potential bidders have the same knowledge to go on and only the bid itself will vary between offers.

It's up to the seller to decide the level of detail included in the disclosure, but generally the more information the better to insure there are no nasty surprises when negotiations get further along.

"If the seller knows something, it's best just to go ahead and disclose it," Lazar said.

And it's ultimately up to the buyer to decide what's acceptable and what's out of the question.

Lazar said it's not uncommon for older homes in the area to have undergone construction without city permits.

"Unpermitted additions are usually disclosed upfront, and that is a liability for the buyer," she said.

A cracked foundation is the most major no-no she'd warn clients against taking on, she said, while other, more easily fixable flaws needn't necessarily be deal breakers.

Termite damage is the most common issue she comes across in disclosures on the Peninsula, thanks to the wood-chomping critters' prevalence in Northern California. And while of course the home may sell faster, and for a higher price, if the seller is able to make repairs and upgrades ahead of time, Lazar acknowledged that, depending on the situation of the seller, that may not always be feasible. Putting out as much information as possible in the disclosure packet assures all parties that they know where they stand. And if there's something questionable in the disclosure that warrants further investigation, Lazar said the buyer can always opt for a second, specialized inspection.

"I have a responsibility to call your attention to something I notice. If there's something about the roof, let's pay the extra money and get our own roof inspection just to set the buyer's mind at ease," she said.

Michael Hall of Alain Pinel Realtors in Palo Alto said that the abundance of disclosure information and reports common in local transactions is unique to the very fast-moving market of the Bay Area.

"I know of no other place in the country where this is common practice. Certainly not in Southern California where I began my career," he said. "As a buyer in most markets, you are responsible for inspections after the contract is ratified. It means that the buyers are constantly re-negotiating the terms and/or price of the deal. Very frustrating."

Freelance writer Karla Kane can be emailed at

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