house_formWith the recent winter storms, I have received a number of emails from agents on the issue of what must be disclosed to a prospective buyer. This Article is intended to address that question as it applies to 1–4 unit residential properties.
  1. California Law requires that a Seller make numerous disclosures to a Buyer concerning the real estate and structures. The most important of these is the Transfer Disclosure Statement (“TDS”) which was created by the legislature to disclose “known material defects” to a Buyer. Material means it reasonably affects the value of the Property.
  2. California Association of REALTORS® provides the most widely used forms for real estate transactions and includes a number of additional disclosures that are required by Contract, not by California law. C.A.R. publishes a Disclosure Chart listing all Disclosures, their use, and their legal basis, if any. The most important of these is the Seller Property Questionnaire (“SPQ”)and the Agent’s Visual Inspection (“AVID”). Interestingly, if you visit website, you will find out, that the C.A.R. Disclosure Chart only requires the AVID to be used if a Seller is exempt from providing a TDS, although commonly both are provided to the Buyer.
While all of the above primarily concern disclosure of existing known defective conditions, disclosure obligations specified in the Purchase Agreement (“RPA”) and SPQ also include disclosure of conditions on the property that may have been repaired and not re–occurred, or which may never have even been a defect. For example: RPA, Paragraph 11.A requires disclosure of “any known insurance claims within the past five years;” SPQ, Paragraph V. requires disclosure related to 14 separate categories of the Property’s condition, both past and present. This is not limited to past or present defects, but rather is inclusive of any repairs, improvements, pets, etc., and with few exceptions, existent at any time even if it were 40 years ago. As stated in the Note to Seller at Paragraph III, the Purpose is: “To tell the Buyer about known material or significant items affecting the value or desirability of the Property and to help eliminate misunderstandings about the condition of the Property.” In clarifying what is meant by this, the SPQ instructs Sellers to “think about what you would want to know if you were buying the Property today.” Taken together, the additional C.A.R. Disclosure requirements, while not legally mandated, certainly achieve their objective of more fully informing a prospective Buyer of the history of the Property, not just its existent defects. The value of this can be very important; for example, if the Property flooded in heavy rains 10 years ago. For the Buyer that closed last Summer, this information would be material if their Property is now underwater and they otherwise would not have expected this to happen. Bottom–line: While disclosures go a long way towards educating a Buyer and thus reducing the risk of future legal liability, they will never fully address the issue of defects which a Seller intentionally or inadvertently failed to disclose. For these, a Buyer will still have to prove that they were damaged from a materially defective condition of which the Seller knew and intentionally failed to disclose, and that the Buyer could not have known about through their own reasonably diligent inspection. For instance, it might not always be possible for a buyer to check for insects and bugs making a home out of a buyer’s potential home. These are defects that must either be disclosed by the seller or contained by them by contacting a pest control agency like Austin’s Top Pest Control Firm – BBEA, before even planning on selling the property. For Agents and Brokers, the best way of staying out of being named in any such lawsuit is to make sure that the Seller completes the requisite disclosures and that their client, Buyer or Seller, reads and understands what has been disclosed. For over 20 years, the attorneys of BPE Law Group, P.C. have been advising and representing Buyers, Sellers, Agents, and Brokers on legal issues arising out of Disclosure obligations and other real estate and business related matters. Check us out on the Web If you would like a consultation with us, please call our office at (916) 966–2260 or email Steve Beede at sjbeede@bpelaw.com. Attorney Steve J. Beede, President, BPE Law Group, P.C.