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There are several important agreements and statements that need to be completed when buying and selling real estate. A Transfer Disclosure Statement or TDS is amongst these documents; in fact, it is likely the most important one. Although some sellers might think the agreement is only beneficial for the buyers, the sellers are required to provide a TDS, in part, to protect themselves from lawsuits for failing to share vital information that would be impossible for a buyer to unearth themselves without an invasive inspection process.

Providing disclosures about the condition of the home and any known issues is mandated by California state law. Under section 1102 of California Civil Code, every residential seller has to document and disclose issues pertaining to what the buyers get during the contingency period of their contracts. A TDS may seem like any other three-page document, but it is really crucial. It can be used as a supporting proof in the court when property buyers need to sue the sellers for non-disclosure. This makes it even more important for the sellers to precisely disclose all the relevant data.

If you have questions about how to fill out the TDS, you can read the Disclosure Information Advisory (DIA) provided by California’s Association of REALTORS (C.A.R.) or consult a legal professional. As C.A.R. says in the DIA, when in doubt, the best answer to the question: “Do I need to disclose…?” is almost always “Yes, disclose it.”

Importance of TDS

This document is not only important because of the information that it contains for the buyers, but because the law requires it. It is a document that even buyers can’t waive. The TDS is to be produced before a deal is finalized, and if it is presented later or is materially amended at any time, you (as a buyer) will have every right to cancel the contract. This will also bring back any deposits you submitted. This is how important and useful a TDS is.

While most of the form is simple, there are some tricky areas you may need help with. As a buyer, the first thing you need to ensure is that the form must be filled out and signed by the seller. No agent or any other person linked with the seller can answer the questions on the TDS on his/her behalf unless it is a close relative—this is also only applicable when the seller can’t fill out the form for genuine reasons.

Some important things that need to be disclosed in the transfer disclosure statement include:

  • Date of the Disclosure: The date on which the disclosure is completed by the seller is called the date of disclosure. Instant updates to the TDS should be made if anything changes between the date of disclosure and the date of property sale.
  • Additional Disclosures: The future home inspection conducted by buyers can also be made a part of the TDS by simply checking appropriate options. These disclosures can include any types of inspections or pest control reports.
  • Occupancy: This requires sellers to indicate if they are living in the property.

The TDS Form

Any items on a particular property that the seller is familiar with should be discussed in the Transfer Disclosure Statement. From a damaged window and a leaking roof to any neighborhood-related issues that may impact the desirability of the house (e.g. neighborhood noise, zoning issues, etc.).

Apart from this, accurate information regarding any appliances in the home and any external factors affecting the house’s indoor environment, such as noise, pollution, or other damages, should be disclosed entirely.

Debunking the Famous TDS Myth

Most buyers and sellers believe that corporate buyers who turn over residential properties are not bound to provide a TDS. This, however, is just a myth. In reality, such investors must also fill out a TDS to the best of their ability and present it to the buyers. 

In case a seller is exempted from presenting a TDS to you, the realtors or agents you hire must at least conduct a thorough visual inspection of the property for any defects that may be critical to the property’s market value.

The Bottom-line

While transfer disclosure statements may seem to be more buyer-oriented, they are just as important for the seller as they reduce the risk of potential lawsuits or litigation. If the agreement is not presented for any reason whatsoever, both the buyer and the seller will be at a loss. For the buyer, it will be impossible to prove any existing damages on the seller’s part without a TDS, and the seller will be held accountable for not abiding by the law and misleading the buyer.  For the brokers or realtors to stay out of any such lawsuits, it is vital to ensure that a TDS is used in every deal they do.

Lastly, although TDS is a mandatory document, it is important not to neglect the physical examination of the property you are planning to buy.

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