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The Residential Property Disclosure Act, codified as North Carolina G.S. 47E, requires the seller of residential real estate (one to four dwelling units) to complete a form—known formally as the Residential Property and Owners' Association Disclosure Statement—disclosing conditions and defects with the property.
The idea is to compel you to detail any facts of which you are aware that negatively affect the property. This could cover a wide variety of concerns in and around your home, ranging from the age of the roof to defects in the gas tank. The legislature's broader goal, of course, is to prevent the buyer from receiving any nasty surprises after moving in.
The statute applies to most transfers of residential property in North Carolina, whether or not a licensed real estate agent or broker is involved. The type of contract doesn't make a difference; it can be a sale or exchange, installment land sales contract, option, or lease with option to purchase.
There are exemptions to the disclosure requirement, however, for transfers such as those that:
(For the full list and further detail, see North Carolina G.S. § 47E-2.)
The North Carolina Real Estate Commission provides the approved
"RESIDENTIAL PROPERTY AND OWNERS' ASSOCIATION DISCLOSURE STATEMENT" form. It contains all of the necessary information that real estate sellers must disclose to buyers (as described next).
You must fill it out and provide written copies to potential buyers. Don't wait until the last minute to work on it. Many homeowners find it's not easy to remember every relevant issue in one sitting, and also need to gather information from their records.
North Carolina's disclosure statement asks numerous questions about various aspects of the home being sold.
Some questions are simply informational, asking, for example, for the address and year was the home was constructed, and what type of sewage system it has. Some are more legal in nature, asking whether there are any liens against the property, or lawsuits involving it, or whether there's a homeowners' association in the neighborhood that restricts any of the owners' rights. Some are environmental, such as noise hazards, or concerning the presence of pests.
The vast majority of the questions touch on specific elements of the home, covering everything from leaks in the basement to problems with the water supply source to non-functioning appliances.
If the property is governed by a homeowners' association, you'll also need to quantify the fees and assessments that owners are expected to pay.
Finally, a separate portion of the statute, North Carolina G.S. 47E-4.1 provides for a further disclosure relating to whether any mineral, oil, and gas rights come with the property, which is somewhat unique to North Carolina. The statute itself sets forth a series of questions that you must answer on a separate sheet of paper—all of which can be included with your primary disclosure form.
For each question on the standard North Carolina property disclosure form, you are given a choice of answering "Yes," "No," or "No Representation."
"No Representation" simply means that you are not making any statement one way or the other on this issue (and doesn't imply no knowledge on your part). It can be a convenient option when you aren't sure how to appropriately answer the question.
Overuse of this choice this might, however, raise red flags in the eye of the buyer—especially if it's an element of the home about which you should really know. On the other hand, it could avoid liability for outright fraud, as in for saying no defect existed when a buyer later discovers that it did. Smart buyers will, at a minimum, ask the home inspector they hire to look extra hard at whatever part of the home you chose to make no representations about.
Importantly, you are obligated to disclose only information about which you have actual knowledge. You are under no legal obligation to commission tests or to hire a home inspector to verify or shed light on any answer in the disclosure statement. To the contrary, the form specifically warns that "Buyers are strongly encouraged to obtain their own inspections from a licensed home inspector or other professional."
However, the state legislature does give you the option to hire your own inspector, if you so choose. In fact, pursuant to North Carolina G.S. 47E-6, you can simply hire an inspector to write a report, in which case you no longer need to fill out the North Carolina disclosure statement: You cannot, according to the statute, be held legally liable for any "error, inaccuracy, or omission" in such a report.
The timing of your property disclosure is important. According to North Carolina G.S. § 47E-5, you must give the disclosure "no later than the time the purchaser makes an offer to purchase, exchange, or option the property."
If you fail to deliver this statement, the buyer can rescind the offer of purchase by written notice within three days of receiving the disclosure or signing the purchase contract. Avoid any inclination to put off giving your buyer the disclosure until the last minute!
Federal law requires disclosure of potential lead paint hazards, as described in Seller Responsibility to Disclose Lead-Based Paint Hazards.
Before putting your home on the market, it's wise to consult an experienced real estate attorney for further information about any other city, state, or federal real property sale disclosure requirements.
If, after delivering one or both of the North Carolina disclosure statements to the buyers, you discover a material inaccuracy in the disclosure statement, something happens to make it inaccurate, you must promptly correct this by delivering a corrected disclosure statement or statements. Failure to do so or to make any newly needed repairs can make you liable to the buyers, on the theory that you're breaching the sale agreement. After all, its standard language requires the property to be in substantially the same condition at closing as on the date of the offer to purchase, taking into account reasonable wear and tear.
Upon first glance, North Carolina's disclosure form can seem like a significant burden. Why would your elected representatives force you to accentuate bad qualities of the property to buyers? It's true that some buyers might not be interested in purchasing a home that will need to be repaired. But what should also be taken into account is that honesty and openness in the negotiations leading up to the sale will increase buyer confidence, and avoid awkwardness when the home inspector hired by the buyer (as occurs in most real estate sales) turns up defects or repair needs.
Also, a thorough disclosure can save you from legal hassles down the road. If you disclose a known defect, the purchaser will have a tough time turning around months after the transaction has closed and suing you for fraud, misrepresentation, or breach of contract. After all, the form gave the buyer full notice of the defect. The opposite is also true. Buyers who are angered by an apparent failure to disclose might just take the next step and file a lawsuit.