Disclosure duties continue developing
Originally appeared in Hills Publications, Feb. 25, 2005 and ANG Newspapers, Mar. 5, 2005
When a buyer sues a seller, often it is because of failure to disclose a material fact. Such information is one that could influence the buyer’s decision to buy and/or how much to pay.
Real estate licensees have a duty to explain to sellers their disclosure responsibilities (when they are the listing agent) and to buyers the seller’s obligations (when they are the selling agent). Some agents, because they are inexperienced, not fully competent, or both, fail to inform their buyers and sellers of the consequences of less than complete disclosure. This can be costly to both the client and his agent.
California is generally the leader in developing written real estate disclosures. The most recent ones cover a wide range of topics.
Market Conditions Advisory. Emphasizes the cyclical nature of real estate markets and explains that the buyer is responsible for determining the offer price. This is an area that, despite the form, necessitates thoughtfulness and reasonable caution by buyers. In too many instances, real estate practitioners tell their buyers, “If you really want the house, give it your best shot.” This is not nearly good enough.
Agents have a responsibility to represent their clients, not just sell them. As a buyer, before offering, consider these questions: Is the property fairly priced, high, or low for where and what it is? What do you know about its condition and how much these problems will add to your cost? How many offers are you competing against? Are you willing to offer the same if there is one other offer as if there are twelve? If the answer is “no,” what is your agent’s plan for handling this uncertainty without costing you tens of thousands of dollars?
Non-contingent offers are also covered by this advisory. Buyers are warned the broker does not recommend offers without inspection and financing (loan and appraisal) contingencies. Once again, notwithstanding this advice, an alarming number of contracts written locally are without a loan contingency and with no, or only a short, inspection contingency.
Some agents blithely tell their buyer his only chance of getting a house in competition is to eliminate one or both of these contingencies. The risks are seldom completely elaborated. In numerous cases, it is because the real estate person is not aware of the dire negative consequences of waiving contingencies beforehand. There is no question that this unacceptable practice will lead to future buyer lawsuits when the market cools down.
Megan’s law. Existence of a data base of registered sex offenders must be revealed to buyers. Megan’s Law is discussed in the California Association of Realtors (CAR) residential purchase agreement. Although California passed its own Megan’s Law in 1996, a new, 2004, law provides the public with Internet access to more than 63,000 individuals, with home addresses for 33,500. Agents are not required to give the URL for this database, but would be wise to do so, www.meganslaw.ca.gov.
Statewide Buyer and Seller Advisory. This new eight-page form covers many issues buyers and sellers need to consider, such as square footage and boundaries, mold, water intrusion, permits, views, insurance and Internet advertising.
Supplementary Statutory Disclosure. Asks sellers questions not covered in the Transfer Disclosure Statement (TDS).
Buyer Material Issues. Form provides the buyer the opportunity to give his agent, in writing, issues important to him. For example, if the buyer has a swing shift job and sleeps during the day, living next to or near a school or day care center would be a material issue.
Not just “paperwork”
Although the amount of printed material incorporated in a residential purchase is monumental and ever-increasing, each form has received enormous forethought and, usually, gone through a number of revisions before you ever see it.
In the often stressful atmosphere of a purchase or sale, the sheer volume of paperwork can seem overwhelming. In spite of this, for your own protection, you must read and understand each page. Top Realtors will review and explain all documents you receive.
As time goes on, the very capable and professional committees and legal staff at the California Association of Realtors amend and create forms to educate Realtors and the public about the essentials of a real estate transaction. One purpose is to help inform you even if your real estate representative is less than astute.
Do not choose an agent lightly. It makes sense to work only with a professional who has the experience, knowledge and caring attitude to help you navigate through the real estate whirl of words in a way that is comfortable and represents your best interests.
Pre-approval Letters: Can You Count on Them?
Does Your Agent Educate You?
Multiple Offers, Part 1
Multiple Offers, Part 2
Your Agent Can Get You In Trouble
List of required disclosures keeps growing (2011 update)