Full Disclosure Is the Best Policy When Selling Your Home

Just how much should you reveal to potential home buyers when showing them your property? June Fletcher on why being as truthful as possible is the right thing to do - both ethically and legally.
By: June Fletcher: The Wall Street Journal Online
Question: I am selling my home myself. Am I required to disclose to the buyer that our new neighbors are considering adding an addition to their home and are relocating their driveway closer to our property line? The neighbors recently moved in and we only have spoken with them once about their plans. They have not begun any building, nor should there be any boundary dispute because they recently had a survey completed on the property.

- Lisa, Boardman, Ohio (Last name withheld upon request.)

Lisa: There are two rules to consider when it comes to disclosure.

The first is the seller's legal obligation to disclose any known defects. Requirements vary from state to state, but in general, laws no longer uphold the "buyer beware" standard that prevailed a generation ago. Rather, the burden is on sellers to convey a property that isn't necessarily perfect, but which has, as the old Holiday Inn commercial put it, "no surprises."

In Ohio, the Real Estate and Licensing Division of the state's Department of Commerce provides a four-page disclosure form on its Web site. It's pretty straightforward and spells out the condition of all the systems that are likely to concern a buyer, from the roof to the lawn sprinklers, as well as the presence of mold and hazardous materials like asbestos and radon. It also details whether the property is in a flood plain or has historic status. By filling out the form, you're not warranting the condition of your home; you are simply letting the buyer know what's wrong with it and what you have repaired.

The form also lists any boundary encroachments, shared driveways and zoning violations that affect your property - but not your neighbor's. So you're under no obligation to disclose your neighbor's plans.

But there's another rule I believe in following, even though it's not mandated by law: the Golden Rule. In other words, if you were buying your own home again today, what would you want to know about it? Wouldn't you want to know about a possible addition and rerouted driveway next door? (I say possible, because even though your neighbors have told you about their plans, it doesn't mean they'll necessarily go ahead with them.)

Some people aren't bothered by the prospect of construction on the other side of the fence. On the contrary, they see remodeling as adding to the overall value of the neighborhood. There's nothing wrong with pointing this out. So you might say as you show buyers around your house, "The neighbors here really care about their homes and like to improve them. In fact, my next-door neighbor John Smith told me he's thinking about putting on an addition." If the buyers want more information, suggest that they speak directly with Mr. Smith.

But even put in such a positive light, some buyers might find the prospect intolerable. Perhaps they can't stand the thought of living next door to bulldozers, air hammers and circular saws for weeks on end because they have a new baby or an elderly parent living with them. Or they may worry about the neighbor's house growing too big, or fret about the placement of the new driveway. If so, your house really isn't right for them.

In the long run, being empathetic to the concerns of buyers serves your interest as well as theirs. For instance, what if a leak shows up in an out-of-the-way area a month or so after the buyer has moved in - something you never noticed? If you haven't been totally upfront with buyers, they're more likely to think that you hid an old leak with primer and paint - and thus more apt to sue you for damages. But if you've leveled with them all along on everything else, buyers are more inclined to believe your explanation. Decency begets decency, especially when it goes beyond what the law requires.

- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Mondays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.