In Minnesota, Sellers are required to disclose what they know about a home and the property to potential buyers. This is usually done using a Seller's Property Disclosure Statement. This document is about 12 pages long (as of 2015) and covers a range of items. It is intended to "disclose material facts of which the Seller is aware that could adversely and significantly affect an ordinary buyer's use or enjoyment of the property..."
This disclosure statement covers things such as additions to the property, insurance claims, encroachments, age of roof, any known hazards, radon, and the like. If the seller is aware of things, they should be disclosing it on this form.
What is a Seller's Disclosure Alternative form?
The Seller's Disclosure Alternative is a way for the seller to opt out of disclosing information. They have a couple of choices in how they can opt out, but usually they use the Waiver option. With this option, the buyer must accept the non-disclosure of information in order to purchase the home. Even with this non-disclosure, the seller is still required to disclose information about subsurface sewage treatment systems, private wells, valuation exclusion, meth production, radon levels (if known), and a few other items that the seller cannot waive.
Also, if there are material facts or defects about the home or property that the seller is aware of, the Disclosure Alternative DOES allow the seller to not disclose anything. The SELLER'S AGENT is NOT EXEMPT from disclosing any information they know, however.
Why would a seller choose the Disclosure Alternative?
There are a few reasons why a seller may choose to opt out of disclosing information on a property. The first is that they may not have lived in the home, or at least not recently. An example of this would be that if an elderly person has passed away, or moved into an assisted care facility, the kids may be trying to sell the property for the family. The kids may not have lived in the home for 30+ years and may not know anything about the house anymore.
A second reason may be that the seller is a "flipper" and purchased the house to fix and sell. They may not have lived there at all. But in this case, I would argue that the flipper should know enough about what work they performed and disclose at least that information. Most of the time flipped homes have the "SDA" form which does the buyers a disservice.
Another reason is that maybe the seller lived in the home, but then moved out and rented it out for years. In this case they may know a little about the home, but it has been lived in currently by other people. The renters, or whomever is currently living there, may have done things that could damage the home, and the seller may not have know about it.
One last major reason is if the house is bank owned. Banks will not disclose anything to buyers and for good reason. They have never lived in the home and know nothing about it.
What does the Seller's Disclosure Alternative mean to a Buyer?
As a buyer, one should do due diligence on a home whether a seller discloses what they know, or not. But in the case where the seller doesn't disclose anything, one should be more careful. I always recommend an inspection (see below). This is a way to have a 3rd party professional inspector take a close look at the home to see what they can find. With a full inspection, this can help determine how much risk a buyer is willing to take on with a non-disclosure situation.
One way to do due diligence is to knock on the neighbor's door. Mention to them that you are looking at buying the house next door. Can you tell me anything about it or the owners?
The bottom line is this: with a Seller's Disclosure Alternative, it usually means less information, a slight bit more risk for the buyer, which translates into a slightly lower price (due to the slightly higher risk). I've helped several people buy homes with a Seller's Disclosure Alternative, and it shouldn't be a huge turn-off. Just be aware of it and do your due diligence.