As a buyer, it's important to read all of the seller disclosures carefully, but with so much information to process, it can be overwhelming. If you read seller disclosures in this order, you'll discover a deal breaker sooner.
1. Confirm Listing Details agree to public records.
Ensure that the listing details, such as square footage, lot size, number of bedrooms, and bathrooms, match the public records. If items don’t match ask your agent to get an explanation. Here are your concerns:
The listing may be inaccurate. It is possible that the seller or their agent made a mistake when measuring the square footage of the home. This is more likely to happen if the home has had renovations or additions that have not been properly updated in the public records.
The seller may be trying to mislead buyers. Some sellers may intentionally overstate the square footage of their home in order to make it more appealing to buyers and sell it for a higher price.
The appraisal may come in lower than the purchase price. If you are financing your purchase, your lender will require an appraisal to be done. If the appraiser finds that the home's square footage is less than what is listed in the MLS, your appraisal may come in lower than the purchase price. This could mean that you have to come up with more money to close on the house, or you may have to negotiate a lower purchase price with the seller.
Example MLS Listing Details
Example Public Records Details
In this example, living square feet and lot size tie-out. Public records has no knowledge about the bedrooms and baths, but when I examined the home, the bedrooms and baths looked original to the house, and the seller confirmed they had done no additions. This descrepancy is either the builder hadn't reported the data or the city or county had not input it.
2. Inspect the Inspections to estimate cost of repairs, if the amount exceeds what you can handle post closing, stop reading.
The Roof Report is the easiest to read, pay attention to cost to repair to get a 1 year warranty and also remaining estimated life of the roof.
Example Roof Inspection
Then look at the Pest Reports' cost of repairs and if any further inspection is advised. What you typically find here information on types of infestations, recommendations for treatment, and recommendations for preventions. The Inspector will break it down into three sections (see below). If these first two reports don't exceed your budget, then continue reading.
Section 1 lists all active pest infestations and wood-destroying organisms (WDOs) that are currently present on the property. This includes pests such as termites, carpenter ants, and wood decay fungi. Section 1 also includes any damage that has been caused by these pests.
Section 2 lists all conditions that are conducive to pest infestations, but where there is no evidence of current activity or damage. This could include things like moisture problems, food sources, and access points.
Section 3 lists all further inspections recommended by the inspector.
Example Pest Bid
The General Home Inspection report will only flag items for your attention without specifying repair costs. You'll have to estimate these repair costs. The general home inspector will inspect everything visible from the crawlspace to the roof. It should repeat what has already been stated in the roof or pest report but with less detail. Also if this report recommends any additional inspections, discuss doing it with your Realtor and the Inspector who did the report. Learn what their concerns are.
Excerpts from a Home Inspection
3. Review Seller's Disclosures
Most of the seller disclosures are advisories. You should read those but the are generic to every home. The most important seller disclosures we feel are the Transfer Disclosure Statement (TDS Form) and the Seller Property Questionnaire (SPQ Form). These documents list known property defects, improvements and other important questions that the seller is required to answer. Additionally, the Listing Agent’s Agent Visual Inspection Disclosure (AVID Form) will detail any significant items the agent believes you should focus on. If a seller is exempt from completing the TDS or SPQ, they are still required to complete the Exempt Seller Disclosure Form (ESD).
Search for any significant events like deaths on the property, litigation, repairs, or remodeling work. Take note of whether improvements were conducted with the necessary permits and whether they were completed by handyman or licensed contractors. If you know improvements were done on the property, then search for permit records. Many cities allow you to search for permits online.
Excerpt from the Exempt Seller Disclosure Form
Example by Seller of Improvements Made to a Property
5. Read the Natural Hazard Disclosure Report (NHD Report).
This report will tell you if the property is in an area that is prone to natural disasters. If you want to avoid a property in a Special Flood zone, or High Fire Hazard Area or Earthquake Fault Zone, then stop after reading this report. I recommend reviewing the maps for Liquefaction, Earthquake Fault Lines, Flood Maps, and High Fire Hazard areas to see general areas you are comfortable with. Finally the NHD will also provide with instructions on how to estimate your annual property bill.
Example Natural Hazard Disclosure Summary Page
6. Review the Preliminary Title Report for the following information:
Owner of record. This is the name of the person or entity that currently owns the property.
Statement of vesting. This section describes the type of ownership interest that the current owner has in the property.
Legal description. This is a detailed description of the property boundaries and location.
Example Legal Description
Exceptions. These are matters that affect the title to the property and may not be covered by your title insurance policy. Exceptions can include things like easements, liens, and unpaid taxes.
Standard exceptions and exclusions. These are matters that are typically excluded from all title insurance policies.
It is important to understand all of the exceptions listed in the preliminary title report before you close on the property. If you have any questions or concerns, be sure to discuss them with your real estate agent or title company representative.
Here are some specific things to look for when reading the exceptions section of a preliminary title report:
Easements. An easement is the right of another person or entity to use your property for a specific purpose. For example, a utility company may have an easement on your property to install and maintain power lines.
Liens. A lien is a legal claim against a property that gives the lienholder the right to sell the property to satisfy the debt. Liens can be placed on a property for unpaid taxes, child support, or other debts.
Unpaid taxes. If there are any unpaid taxes on the property, this will be listed as an exception in the preliminary title report. The buyer is responsible for paying any unpaid taxes before the sale can close.
Other exceptions. There are a variety of other matters that can be listed as exceptions in a preliminary title report, such as zoning restrictions, building code violations, and homeowners association liens.
It is important to note that not all exceptions are necessarily bad. Some exceptions, such as easements for utility lines, are common and do not pose a major problem. However, other exceptions, such as liens or zoning restrictions, can be more serious and may need to be resolved before the sale can close.
7. Read the HOA documents.
If the property is part of a homeowners association, review the HOA documents to learn about the current HOA dues, any special assessments or planned increases in dues, any upcoming litigation, any violations on the unit and the financial health of the HOA. Also you would here if the community has any rental restrictions.
Example Reserve Study Showing Percent Funded.
By following the above order in reading, you will be time efficient in reading Seller Disclosures.
Here are some additional tips for reading seller disclosures:
Pay attention to the date of the disclosures. They should be up-to-date, as new information may come to light after the disclosures are made.
If you have any concerns about the disclosures, consult with your Realtor, Inspectors or attorney.
Seller disclosures are an important part of the real estate transaction. By reading them carefully, you can make an informed decision about whether or not to purchase the property.