Seller's Disclosure Notice: A Deeper Look
This post has been updated to reflect recent changes to the Seller’s Disclosure Notice, which took effect on January 1, 2016. When selling your home in Texas, one of the forms you’ll be asked to fill out is the Seller’s Disclosure Notice (TAR Form 1406). The Seller’s Disclosure Notice is designed to provide information to potential buyers regarding the property’s condition and the seller’s awareness of those conditions (as well as any repairs they may have done to fix prior adverse conditions). There are several exclusions from the requirement to provide the notice; cases of bank repossession (where the bank is the seller and therefore has no knowledge of the property’s condition), government agencies, trustees in estate sales…but as long as you’ve lived in the home (or used it as an income property), you’re probably not exempt. Let’s take a look at the Seller’s Disclosure and break it down into its component pieces.
THE SELLER’S DISCLOSURE NOTICE
Occupation. Just a quick question, but it is often overlooked or misunderstood. The question asks whether the seller is or isn’t occupying the property, how long since they last occupied it (or not at all). Often, we hear investors say they don’t have to fill out a Seller’s Disclosure because they have never lived in the property, but that is not the case. Make sure you fill this section out, as it affects how much you may know about the property (if you never lived there, you may not know quite as much as if you had lived there only a month ago).
Section 1. The Property has the items marked below. This section delineates what items the property does and does not have. Each item listed is followed by three checkboxes – Y, N, and U (Yes, No, and Unknown). Some examples of items listed include ceiling fans, fences, hot tub, smoke detector, and window screens. In addition, the second half of the page has more items, but this time the items require additional info. Some examples of this include how many A/C units the home has and whether they are gas or electric powered and whether or not the garage is attached or detached from the home.
Section 1 continues on the second page with several specific questions: who is the water supply provided by, was the home built before 1978, what type of roof is there and what is its approximate age, and whether or not the seller is aware of any items in Section 1 that are not in working condition, have defects, or are in need of repair (and if you check “yes” then you’ll need to elaborate).
Section 2. Are you (Seller) aware of any defects or malfunctions in any of the following? The question says it all – if there’s a defect or malfunction that you’re aware of, you need to disclose it. This simple checklist asks you to mark Y or N (Yes or No) and then if you’ve checked Yes on anything to explain.
Section 3. Are you (Seller) aware of any of the following conditions? Again, a list of Y or N checkboxes asking you, the seller, about anything you might be aware of. If you answer Yes to anything, be prepared to explain it on the next page.
Section 4. Are you (Seller) aware of any item, equipment, or system in or on the Property that is in need of repair, which has not been previously disclosed in this notice? Think of this as a catch-all – if the Seller’s Disclosure Notice didn’t cover it yet, you need to address it here. This prevents everyone from saying “oh, I didn’t know I had to disclose it because it was not on the form.”
Section 5. Are you (Seller) aware of any of the following? This section consists of eleven questions.
- Room additions, structural modifications, or other alterations or repairs made without necessary permits or not in compliance with building codes in effect at the time.
- Homeowner’s associations or maintenance fees or assessments.
- Any common areas co-owned in undivided interest with others.
- Any notices of violations of deed restrictions or governmental ordinances affecting the condition or use of the Property.
- Any lawsuits or other legal proceedings directly or indirectly affecting the Property.
- Any death on the Property except for those deaths caused by: natural causes, suicide, or accident unrelated to the condition of the Property.
- Any condition of the Property which materially affects the heath or safety of an individual.
- Any repairs or treatments, other than routine maintenance, made to the Property to remediate environmental hazards such as asbestos, radon, lead-based paint, urea-formaldehyde, or mold.
- Any rainwater harvesting system located on the Property that is larger than 500 gallons and that uses a public water supply as an auxiliary source.
- The Property is located in a propane gas system service area owned by a propane distribution system retailer.
- Any portion of the Property that is located in a groundwater conservation district or a subsidence district.
As usual, if you check Yes on any of these items, you will need to explain them.
Section 6. Asks whether you have attached a copy of the survey or not. I highly recommend you do attach one if you have it. This often saves time and money for both buyers and sellers.
Section 7. This section asks you to report any prior inspections within the past four years. These could include pest inspections, structural reports, or home inspections. If you’ve had someone hand you a written report about your home in the last four years, this is the place to disclose it (you’ll also need to provide copies of the reports).
Section 8. A list of checkboxes detailing what current tax exemptions you currently claim on your property.
Section 9. A simple yes or no questions asking if you have ever filed a claim for damage to the home with an insurance provider.
Section 10. If you’ve ever made a claim on your homeowner’s insurance and did not use that insurance check to make the repairs related to you claim, you’ll need to explain in this section.
Section 11. Do you have working smoke detector’s installed in accordance with Chapter 766 of the Health and Safety Code? This section is often skipped by homeowner’s because they have no idea what Chapter 766 defines…which is why they have printed an explanation of that part of Chapter 766 just below this section.
Utilities Although it does not fall within a specific section number, the last page has Additional Notices to Buyer which requests utility information from the seller, including the name and number for each of the utility services that currently supply your property.
That’s all there is to it, but there is often a lot of confusion over the Seller’s Disclosure Notice. As agents, we are not allowed to fill in the form for our clients (the notice must be filled out by the seller). As the disclosure will be attached to the contract, it is important that you (as the seller) fill it out completely and to the best of your knowledge. Now is not the time to hide something from disclosure – as it may come back to bite you later. Full disclosure is of the utmost importance and you should warn your real estate agent of any potential problems you may know about in or with your home in order to better prepare for its sale.