What is a sales disclosure?
Generally speaking, a sales disclosure is a document which tells a potential buyer about defects of a home that is being sold. While the federal government requires a lead based paint disclosure for all homes sold prior to 1978, by and far most required disclosures have been left to the states and they vary from place to place. For the purposes of this article we will be looking at the required disclosures for the state of Indiana. As I will be discussing Indiana Code in reference to the sellers residential real estate sales disclosure; I want to be clear in stating that I am not an attorney, this is not legal advice, you should do your own due diligence and seek legal consul if you have any questions concerning the law.
That said, let us start by looking at who is and is not required to provide a sellers disclosure when selling a home. In Indiana, a residential real estate closing disclosure must be provided when the seller is transferring title on residential real estate of 4 or less units. Basically if you are selling (or leasing with an option to buy) a house or apartment building with less than 5 units in it, you are required to provide the buyer with this disclosure.
As always, there are exceptions. You do not have to deliver a residential real estate sales disclosure if the property is
- transferred by court order (divorce decree, sold by bankruptcy trustee, foreclosure, etc.)
- when the property is sold by the mortgagee due to foreclosure or a deed in lieu of
- when the property is transferred by the fiduciary of a trust
- when partial ownership is transferred between co-owners of the property
- when the property transfer is from a spouse or blood relative
- when the property is transferred as the result of a tax sale
- transfers between a private party and the government
- the first sale of an uninhabited dwelling (new construction)
- transfers to a living trust
So what has to be disclosed? Anyone selling a private residence that is not excepted has to disclose any defect in the home. Indiana law defines a defect as “a condition that would have significant adverse effect of the value of the property, that would significantly impair the health or safety of future occupants of the property, or that if not repaired, removed, or replaced would significantly shorten or adversely affect the expected normal life of the premises. Essentially if there is something wrong with the house, you have to disclose it to the buyer.
The great state of Indiana has simplified this matter quite a bit by providing a standardized form for the sales disclosure. Just below this text you will see a pdf download button.
It is a two page form divided into 8 different sections, 7 of which just ask direct questions which you answer yes, no, or don’t know. Those sections are:
- Electrical system
- water and Sewer system
- heating and cooling system
- hazardous conditions
- Other disclosures (questions that don’t fit the other categories)
- Additional comments and/or explanations
When looking over he form you will notice that the additional comments and/or explanations specifies “use additional pages”.
This is because even though the form doe not ask about all of them, Indiana law requires that you disclose defects to ALL of the following:
- mechanical systems
- water and sewer systems
- areas that the Indiana Real Estate Commission deem appropriate
- contamination caused by the manufacture of a controlled substance
- any inspection report that advises the owner to seek additional professional inspection or repair
- if the property is within certain distances of an airport (depends on the type of airport)
- whether the property is governed by a HOA
What doesn’t have to be disclosed on the residential real estate sales disclosure? Unlike many states, Indiana does not require the disclosure of what is termed “psychologically affected property”. A psychologically affected property (by Indiana Code) is a property where someone has recently died, the occupant had a disease, or past criminal activity at the property. Indiana law does not address “haunted” properties, and it is commonly understood that hauntings are not required to be disclosed.
There is a caveat to this though. If directly asked about any of these issues, the law does require honest representation of the facts. An owner or agent may not intentionally misrepresent a fact concerning any condition of the property.
When do I have to deliver the residential real estate sales disclosure? In Indiana, the form is required to be delivered prior to the acceptance of any offer. If the form is received by the buyer after making the offer, they may retract the offer for any disclosure on the form. Because of this most Realtors place the disclosure on the listing, and it specifies in the purchase agreement whether the buyer has or has not received the disclosures.
I have also included a pdf of the current (as of July,16 2016) Indiana Code concerning the Residential Real Estate Disclosure, if you would like to dig a little deeper into it.