The Full Disclosure on Disclosures – Reports
Part 2 - Reports
Every disclosure package includes a few different types of reports that are required by state and local laws, and are important for buyers to review thoroughly.
Inspection Reports
General home inspection, underground tank inspection, pest inspection, and sometimes sewer lateral inspection reports are not required but often included in the disclosure package. These are important reports for potential buyers to carefully review so that they can understand the condition of the home as well as provide an understanding of what maintenance may need to occur down the road.
For example, a buyer may review the pest inspection report and discover there is termite damage to a wooden deck with an estimated cost for the recommended repairs. When considering how much to spend on a property, the buyer will likely factor this additional cost into their final offer. And, likewise, a seller may need to adjust their list price accordingly if there is significant work that needs to be done.
I recommend that my seller clients provide these reports upfront, rather than having potential buyers initiate them during escrow. Providing these reports can help buyers write contingent-free offers with confidence, ensuring a smooth transaction. Disclosing up front also may cost a seller less than renegotiating price once in contract.
3R Report - Report of Residential Building Record
Provided by the San Francisco Department of Building Inspections, a 3R Report details the building permit history for a property, excluding plumbing and electrical permits, which can be viewed online. It’s important for buyers to know what improvements were made and what work may have been done without permits. It can also help buyers to determine what space or additions are legal or warranted.
Why is this important? Consider a scenario where you purchase a home that has a finished basement that was previously used as an accessory dwelling unit. If the work was done without permits, it may be considered “unwarranted” or illegal space. If you were to pursue a renovation down the road and submit for a permit with the Building Department, they might require you to bring this unit fully up to code. It could get even more complicated if you were to try to rent the space and then issues arose while it is being occupied by a tenant.
While unwarranted space can be fairly common in San Francisco, knowing the risks as well as how it may impact your potential future plans and resale of the property is important to understand before you make a purchase.
Natural Hazards Report
A Natural Hazards Report informs potential buyers if the property lies within any of six common “hazard zones”:
- A flood hazard zone as designated by the Federal Emergency Management Agency
- An area of potential flooding after a dam failure
- A high fire hazard severity zone
- A wildland fire area
- An earthquake fault zone
- A seismic hazard zone.
By providing this report to buyers, the seller’s liability is limited, offering significant financial protection. When buyers agree to the sale after reviewing this report, it becomes their responsibility to further investigate possible risks and take steps to mitigate any potential issues.
Let the Buyer Beware...and the Seller Disclose!
Ultimately, caveat emptor is the golden rule in real estate. These reports exist to provide buyers with a thorough understanding of the property’s condition. Further, they also help buyers understand what additional work they may need to take on after they purchase the property. In addition, these reports help protect sellers from liability after the close of escrow.
I help my seller clients prepare and provide these reports in a thorough disclosure package. And I guide my buyer clients through reviewing these reports and pointing out any potential problems they may face now, and later. With my expertise and guidance, you can sell and purchase a home with confidence.
Read Part 1 of the Series:
Seller Disclosures
Read Part 3 of the Series:
Preliminary Title Report
Read Part 4 of the Series:
HOA Disclosures
Read Part 5 of the Series:
Compliance Disclosures and Certificates
Read Part 6 of the Series:
General & Other Disclosures
