Property Disclosures - Part 1 - Chapters 13-17

Question 1

What conditions and circumstances is a broker to disclose in a RE transaction?

Answer 1

A broker is obligated to disclose:

• the physical condition of soil and improvements of a property
• the land use and title conditions
• the operation income and expenses of the property
• location hazards and the impact of the surrounding area.
• the actual legal size and boundaries of property
• accurately represent the tittle restrictions and potential future use of real estate to any prospective buyer or tenant.

Question 2

Recognize a broker’s general and agency duties

Answer 2

The brokers general and agency duties owed to others is to inspect, confirm, and report the physical, financial, legal and regulatory conditions of a property

Question 3

Identify the circumstances when a broker can or cannot be held liable for failing to disclose property information in a RE transaction

Answer 3

A broker of a dwelling is relieved of the responsibility of verifying the representations regarding property conditions they receive from other and pass on to buyers as long as the source of the information is disclosed to the buyer. The source of information is typically the seller, the seller’s broker, or a home inspector. Further, the broker only has a duty to inspect and disclose material facts OBSERVABLE or KNOWN to them, not to independently verify the claims of their disclosed source.

Question 4

Annual Property Operating Data Sheet (APODS)

Answer 4

The Annual Property Operating Data Sheet (APOD) is a worksheet used when analyzing the suitability of an INCOME PROPERTY which is for sale. The worksheet gathers income and expenses on the operation of the income producing property, to analyze its suitability for investment. (a way to remember - PODS is a company, company makes income.)

Question 5

as-is clause

Answer 5

The ‘As-Is Clause’ is an unenforceable provision stating the buyer accepts the property without a full disclosure of known conditions. Properties are sold ‘as-disclosed,’ never ‘as-is.’

Question 6

eminent domain

Answer 6

Eminent Domain is the right of the government to take private property for public use on payment to the owner of the property’s fair market value. (a way to remember is SMUSD claimed eminent domain on house next to DPS)

Question 7

further-approval contingency

Answer 7

The further-approval contingency is a provision in an agreement calling for the further approval of an event or activity by the seller, buyer or third party as a condition for further performance or the cancellation of the transaction by a person benefiting from the provision.

Question 8

material fact

Answer 8

A material fact is a fact that, if known, might cause a prudent buyer or seller of RE to make a different decision regarding what price to offer or demand for a property or whether to remain in a contract or cancel it.

Question 9

Transfer Disclosure Statement (TDS)

Answer 9

The seller of a 1 to 4 unit residential property completes and delivers to a prospective buyer a statutory form called a Transfer Disclosure Statement.

The Transfer Disclosure Statement (TDS) is a MANDATORY disclosure prepared by a seller and given to prospective buyers telling them about any property defects known or suspected to exist by the seller generically called a ‘condition of property’ disclosure.

The seller’s agent also note’s on the TDS any defect observable or known to the seller’s agent which are not already noted by the seller or are inconsistent with the seller’s disclosures.

The TDS is handed to the prospective buyer ASAPracticable, putting the buyer and the buyers’s agent on notice of physical defects in the property which are observable or known to the seller or seller’s broker and their agents.

Question 10

Distinguish between an agent’s specific duty owed to their client from the general duty they owe to others in a transaction

Answer 10

A seller’s broker have a special fiduciary agency duty, owed solely to their seller to diligently market the listed property for sale in order to locate a buyer who is ready, willing and able to purchase the property.

Once a prospective buyer is found the seller’s agent owes the buyer’s agent a limited GENERAL DUTY to voluntarily provide critical, factual info on the property, collectively called disclosures of material facts.

Question 11

Conduct a due diligence investigation to observe property conditions adversely affecting value for disclosure to prospective buyers

Answer 11

A seller’s agent’s owes a duty to prospective buyers to conduct a reasonably diligent visual inspection, a due diligence investigation, of the property for defects which adversely affect the property. The seller’s agent notes on the TDS any defects observable or known to the seller’s agent not already noted by the seller or are inconsistent with the seller’s disclosures.

Question 12

Protect the seller by ensuring all readily known material facts on the listed property are disclosed to prospective buyers before the seller enters into a purchase agreement

Answer 12

A agent will protect the seller by ensuring all readily known material facts on the listed property are disclosed to prospective buyers before the seller enters into a purchase agreement. These disclosures are to be sufficient to place the buyer on notice of facts that may affect the prop value. This NON fiduciary duty of good faith and fair dealing prevents the seller’s agent from exploiting a prospective buyer. Examples of exploitation are:

• providing less than the minimum required disclosures
• giving unfounded opinions or deceptive disclosures
• stifling the buyers attempts to learn more about the property

Question 13

Understand the need to qualify your representations in a transaction when they are opinions and not based on the results of an investigation into the facts.

Answer 13

A seller’s agent must disclose all facts adversely affecting value and known to the seller, however the seller’s agent has NO DUTY TO INVESTIGATE any of the information or data disclosed as provided by the seller. However as a minimum effort to be made before passing the info on to a prospective buyer the seller’s agent is to:

• review the information
• include comments about the agent’s actual knowledge and observations made during the physical inspection of the property to expose any inaccuracies, inconsistencies, omissions in seller’s statement
• identify the source of the info as the seller

Question 14

fiduciary duty

Answer 14

A Fiduciary Duty is the duty owed by an agent to act in the highest good faith toward the principal and not to obtain any advantage over their principal by the slightest misrepresentation, concealment, duress or undue influence. Fiduciary duty is owed to their own client (think of it a contractual)

Question 15

general duty

Answer 15

A General Duty is the duty a licensee owes to non-client individuals to act honestly and in good faith with up-front disclosures of known conditions which adversely affect a property’s value. A general duty is owed to others in the transaction (not their client).

Question 16

title conditions

Answer 16

Title Conditions - the things going on with the ‘Title/House’. Encumbrances such as liens, conditions, covenants and restrictions (CCRs) and easements which affect the title of the property.

Question 17

The affirmative duty of a seller and seller’s agent to inspect and disclose their observations and knowledge about property conditions to prospective buyers

Answer 17

The seller of a one to 4 unit residential property completes a Transfer Disclosure Statement, or more generically called a Condition of Property Disclosure Statement. The TDS is given to prospective buyers to inform them of property conditions that have an adverse effect on the property’s value.

Question 18

The general duty of the seller and seller’s agent owed to prospective buyers to prepare a Transfer Disclosure Statement (TDS)

Answer 18

The Seller and Seller’s agent must prepare the TDS to give to prospective buyers. The failure of the seller/agent to deliver the TDS, WILL NOT INVALIDATE THE PROPERTY SALE after closing, however the seller AND the seller’s broker are both liable for the actual monetary losses incurred by the buyer due to an undisclosed defect known to them.

If the TDS is belated to the buyer the buyer may:

• elect to cancel purchase agreement after their statutory three-day/72 Hours right to cancel
• make a demand on the seller to cure/fix any of the undisclosed items BEFORE escrow closes.
• CLOSE escrow and then make a demand on the seller for the costs to cure the defect

Question 19

What is the role of the home inspection report (HIR) to identify and disclose property conditions as a warranty of the property’s condition

Answer 19

To greatly reduce the potential of buyer claims and eliminate to the extent possible the risk of negligent property improvement disclousres, the Home Inspection Report (HIR) is coupled with the Transfer Disclosure Statement and both are presented to buyers before the seller accepts an offer.

Question 20

home inspection

Answer 20

A competent seller’s agent will aggressively recommend the seller retain a home inspection. A home inspection is a non-invasive examination of the mechanical, electrical and plumbing systems of a dwelling, as well as the components of the structure, such as the roof, ceiling, walls, floors and foundations.

Question 21

home inspector

Answer 21

A home inspector is a professional employed by a home inspection company to inspect and advise on the physical condition of property improvements in a home inspection report for reliance by the seller, the seller’s agents and the buyer as a warranty of the condition of improvements.

Question 22

Identify man-made environmental hazards

Answer 22

Examples of MAN MADE environmental hazards are:

• asbestos-containing building materials
• formaldehyde used in construction materials
• radon gas concentrations in enclosed, ventilated spaces located in a building where underlying rock is uranium
• hazardous waste which is Tox, Corr, Ignit, Reactive
• smoke from combustion
• security bars which interfere with ability to exit a room
• lead

Question 23

Distinguish environmental hazards which exist off a property

Answer 23

Environmental MAN-MADE hazards which exist off the property include:

• military ordinance sites within ONE MILE of property
• industrial zoning in the neighborhood of property
• airport influence areas established by local airport
• ground transportation arteries including train tracks and major highways in close proximity to property

Question 24

Advise on the effect an environmental hazard has on the value and desirability of a property

Answer 24

Environmental hazards have an ADVERSE EFFECT on a property’s value and desirability. Thus they are considered defects which, if known, are disclosed as MATERIAL FACTS: the hazards might affect a prospective buyer’s decision to purchase the property.

Question 25

What are the rules for disclosure of environmental hazards to prospective buyers

Answer 25

The seller’s agent needs to competently conduct a visual inspection of the property for environmental hazards BEFORE preparing the Transfer Disclosure Statement (TDS) and advise prospective buyers of their observations (and knowledge) about conditions which constitute environ hazards. The notice of these hazards to be delivered to a buyer by a seller is delivered in writing. The TDS and PURCHASE AGREEMENT are currently used as the vehicles for written delivery of all environmental hazards to prospective buyers. Also the agent confirms delivery of the environmental hazard booklet approved by the CA Dept of Health and Safety (DHS).

Question 26

carcinogen

Answer 26

A carcinogen is a substance which causes cancer in humans.

Question 27

environmental hazards

Answer 27

Environmental hazards are noxious or annoying MAN-MADE conditions which are:

• injurious to health of humans
• interfere with an individual’s sensitivities

Further analysis, environ hazards which affect the occupant in use and enjoyment of the property are either:

• located on the property
• originate from sources located elsewhere

Question 28

hazardous waste

Answer 28

Hazardous waste is an environ hazard and any product, material, or substance which are toxic, corrosive, ignitable or reactive (TCIR). Haz Waste is released into the environment, primarily the soil, by the leaking of underground storage tanks, drum containers, poorly contained landfills or ponds, accidental spills or illegal dumping.

Question 29

Identify various types of natural hazards needing to be disclosed

Answer 29

A seller or seller’s agent of ANY TYPE of RE are to disclose whether the property is affected by one or more of these types of NATURAL HAZARDS:

• an area of potential flooding
• a very high fire hazard severity zone
• a state fire responsibility area
• an earthquake fault zone
• a seismic hazard zone

Question 30

Comply with mandated disclosures of natural hazards on all types of property

Answer 30

A seller of property is to disclose any natural hazards affecting the property known to the seller, as well as those contained in public records to the buyer. Natural hazards are disclosed using the statutory Natural Hazard Disclosure Statement (NHD).

Question 31

Avoid liability by the use of natural hazard expert to investigate the public record for known hazards

Answer 31

A seller could consult publicly available records themselves to disclose all natural hazard information on their property, however the use of an expert to gather information from the public record and prepare the NHD report relieves the seller’s agent of any liability for errors not known to the agent to exist.

Question 32

Alquist-Priolo Maps

Answer 32

The Alquist-Priolo Maps are maps which identify earthquake fault areas available from the State Mining and Geology Board and the city or county planning department. The maps are used to identify whether the listed property is located within a 1/8 (one-eight) of a mile on either side of a fault.

Question 33

natural hazards

Answer 33

Natural Hazards come with the LOCATION of a parcel of real estate, NOT with the man-made aspects of the property. Natural hazards pose risks to life and property which exist in nature due to a property’s location.

Question 34

Natural Hazard Disclosure (NHD) Statement

Answer 34

The Natural Hazard Disclosure (NHD) Statement is a report created by the California legislature to unify and streamline the disclosure by seller/agent of all the natural hazards which exist on a property for sale.

Question 35

termination

Answer 35

If a house is in escrow and the NHD has not been provided, the buyer may cancel or TERMINATE the transaction.

Question 36

restoration

Answer 36

If a house has closed escrow and the NHD has not been provided, the buyer may rescind the sale and be refunded their investment called RESTORATION.