Many years ago, the rule in connection with real estate purchases used to be 'buyer beware.' Buyers were solely responsible for determining whether or not a property had hidden defects, and they could collect damages only if they could prove the seller actually lied to them about the condition of the property. The result was sometimes disastrous when buyers couldn't afford the extensive repairs.

Things began to change in the l970's when individual states began to pass seller disclosure laws, requiring sellers to disclose material defects that affect the market value of the property. Today, the vast majority of states have such laws, and a disclosure document, signed by the seller will be a required part of most residential real estate transactions. Laws vary widely from state to state, and you should look to your own state's Web site for detailed information on what it requires.

There are some general guidelines that buyers and sellers can follow to avoid problems with these documents. If you are a seller, you should know that failure to disclose a serious defect can subject you to costly litigation. Even if you are ultimately held blameless, the costs of defending a suit can be enormous, especially since you are likely to have to travel back to your old location to defend yourself. You may be tempted to omit disclosure of a problem that has been fixed, such as previous flooding, but it's a very bad idea to do so. Problems like this often recur, in the form of mold damage or other residual effects that could still subject you to liability.

It is bad enough to be held liable for thousands of dollars worth of repairs, but if you fail to disclose a defect that sickens or kills someone, you could have even bigger problems. In an actual case of this type, a seller failed to disclose a faulty gas heater, even though a repairman had told him it was dangerous. When the heater blew up and killed two of the buyer's family members, the seller found himself facing manslaughter charges.

The seller disclosure form itself should provide a fairly good guideline of what types of disclosures are expected, but consult an attorney if you have any doubts at all. Sometimes, minor disclosures that aren't strictly required can help the sale go through by impressing the buyers with the seller's thoroughness and honesty. Serious matters, such as large foundation cracks or faulty wiring, should always be disclosed. Generally, sellers are not held liable for defects they were unaware of, but in some states sellers may be required to have tests performed to check for certain hazardous defects, and these regulations must be strictly observed to complete the sale.

If you are a buyer, hiring a buyer's broker who will represent only your interests and not the seller's may be a good idea. Even with a buyer's broker, your best defense against disaster is always a thorough inspection by a reliable home inspector. Sellers sometimes do lie if they think they can get away with it. Furthermore, there is always a chance the sellers don't know everything about the house, especially if they haven't lived there long. In an older home with multiple owners, it is possible that there are defects the current owners are unaware of.

Buyers should also be aware that the laws usually will not protect them from defects which they could easily have discovered for themselves. Thus, if there is a large burn on the wood floor under the seller's throw rug, it is up to the buyer to pick up that throw rug and inspect the entire floor, and the seller may not be liable if they fail to do so.

Any buyer who purchases a foreclosed property, or any property sold 'as is' should realize the seller disclosure laws may not necessarily apply and should therefore be especially cautious. Often in such situations, the lender holds the deed to the property, which may not have been inhabited in some time, and has no knowledge of its condition. Sometimes, buyers are prohibited from entering such properties before purchase, and it may therefore be impossible to discover defects. In such a situation, the buyer must decide if the land and the basic structure are worth the price paid, making no assumptions about the condition of the interior.

Finally, buyers should know that many of the seller disclosure laws have strict statutes of limitations on legal remedies. The time to file suit may be as short as one year from date of purchase. If a buyer believes the seller failed to disclose an important defect, he should contact an attorney immediately.

While seller disclosure laws may have leveled the playing field a bit, an honest seller and a cautious buyer are still the best way to ensure a happy outcome to any real estate transaction.