Buying a Home: What you need to know about the Disclosure Packet

What are Disclosures?

Disclosures are a set of documents put together by the listing team and sellers to disclose all of the known information about the property. Disclosure packages include inspection reports, advisories, floor plans, compliance documents, and anything else that the seller or agent has provided.

Reading through these documents is a crucial part of buying a house so that you can understand the property’s condition, which may not be known or seen during open houses or showings. Sellers can disclose quirks that the property may have, previous fixes, and renovations that were done during their period of ownership.

Notable Documents within a Disclosure Package

Transfer Disclosure Statement (TDS)

The transfer disclosure is typically found at the beginning of the disclosure package and is required by law in most residential sales in California. It provides information about what is at the property as well as whether renovations have been made, if there is an encroachment, or if the subject property is a part of a Home Owners Association (HOA). It is important to read this document carefully since the Seller will be noting features about the property or undergoing negotiations that may not be disclosed elsewhere.

Preliminary Title Report

The California Land Title Association defines a Preliminary Report as:

A preliminary report is a report prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land, together with the liens and encumbrances thereon which will not be covered under a subsequent title insurance policy.

It should be important to note that it is only an offer of title insurance and may not contain every item affecting title. Within the document, there will be hyperlinks to further documents that can provide more information about the property. This document also shows property taxes, percentage of ownership (specific to condos and TIC’s), and easements.

You want to ensure that there is no “cloud on title,” which would mean there is an irregularity in the chain of title of the property. If there is a cloud on title, it needs to be fixed before closing. Types of clouds on title, to name a few, range from misspellings and unpaid property taxes to liens. A lien occurs when there is an unpaid debt related to the property, there are various types of liens such as mechanics, banks, and mortgages. More about types of liens can be found here.

General Home Inspection

The home inspection is arguably one of the most important documents within a disclosure package. This inspection notes the foundation type, potential fixes that may need to be done around the property, and the overall condition. Some home inspections are only a few pages while others easily reach or surpass 100 pages. The size of a home inspection is dependent on the inspector, building size, or amount of items flagged by the inspector.

It is important to note that not everything noted in the home inspection needs to be fixed immediately. Many inspectors’ notes are informational and, thus, seem complex; however, most of the time, some fixes can be done by a licensed contractor or handyman. You may see items such as:

• The toilet is loose on the floor

• The door rubs on the floor

• The outlets are not GFCI

Each of these items is smaller items that could be fixed by a handyman.

When there is an issue noted about the foundation, that is something that calls for caution. Fixes to a foundation can easily cost between $30K to $100K, however, a professional structural engineer can provide a more accurate assessment. You can read more about our thoughts about questionable foundations here.

Pest or Termite Inspection

The pest inspection is almost as important as the home inspection however this notes fungus, subterranean termites, drywood termite damage, and other findings. The inspector is unable to inspect inaccessible sections of the home such as areas closed off by walls, ceilings, substructures, adjacent structures, etc. A diligent inspection may not uncover the true condition of infestations behind such concealed areas and there may be sections within a report that note “further inspection.”

Unlike home inspection, most pest inspections actually include approximated costs, as these inspection companies can also do the work. These costs can be used to determine the severity of the damage inspected.

Natural Hazard Disclosure

A Natural Hazard Disclosure (NHD) report is a legal disclosure form that is required in California for almost all home sales. NHD reports indicate that a home is located in an area that is prone to flooding, fires, earthquakes, or seismic activity. This disclosure notes items such as liquefaction, landslide risk, earthquake risk, and flood zones, and also includes the tax report.

The tax report goes through government lists and provides property tax information for the property. There are five separate things it goes over:

• Mello-Roos Community Facilities Districts

• 1915 Bond Act District

• Property Assessed Clean Energy (PACE) Contract

• Direct Assessments

• State Responsibility Area Fire Prevention Fee

First, it’ll summarize if the property is subject to any of these taxes. If it marks “yes” the subsequent pages will note what the tax is and the amount. There are further pages that will also help you calculate your property taxes after the sale.

Square Footage Disclosure

This document is filled out by the listing team and sellers to note the square footage and source which that number was derived from. Public records are historically the most accurate. However, there are times when the public record number is different from the actual size of the property. An example of this is if there was space legally added to the property. To determine if the space has been legally added it is always good to check permit records for the property in question.

It is important to note that square footage should only be included if it is considered “living space.” For example, a garage or deck cannot be considered living space, and therefore should not be included in the overall square footage of a property.

Agent Visual Inspection Disclosure (AVID)

An agent visual disclosure is a disclosure that notes the visual imperfections that a property may have as seen by the agent. It is required for both the listing agent and the buying agent (once in contract) to fill out this form. For example, some of the items that may be brought up by the agent are scratches or marks on the floor or baseboard. It will not be as in-depth in comparison to the actual inspector’s reports but serves as another great form of information.

It should be good to note that this disclosure does not take the place of other inspections or disclosures with the seller’s complete.

Concluding Thoughts

Overall, buying a house is a complicated and confusing process that can make a buyer feel overwhelmed and anxious. With a load of paperwork to review and process, not everyone feels up to the task. What is most important in the buying process — and what Reframe aims to do with all its clients — is that one is informed and confident in their decision. All these forms, disclosures, and documents are meant to give a buyer everything they need to know and then some.

If you have any questions, our team is here to help! You can find us on Instagram at @ashleyjhwang.realtor or email us at ashley@reframere.com