Property Disclosures - Part 2 - Chapters 18-23

Question 1

Use the federal lead-based paint (LBP) disclosure to timely disclose the existence of a lead based paint hazard on residential properties built prior to 1978

Answer 1

An owner of a residential property built prior to 1978 cooperates in the LBP disclosure and their agent other marketing efforts by:

• filling out and signing the federal LBP disclosure form
• filling out and signing the TDS containing the LBP, environmental (man made) and other property conditions
• making a physical home inspection report available to prospective buyers as an attachment to the TDS form
• providing the seller agent with copies of any report or document containing information about LBP or LBP hazards on the property

Question 2

Determine when to deliver the LBP disclosure to a buyer

Answer 2

A prospective buyer of a residence built prior to 1978 is put on notice of LBP conditions by handing them the disclosure forms before they make an offer.

Question 3

Advise owners and buyers on the conditions of the LBP disclosure

Answer 3

The LBP disclosures advise the buyer they have a 10 day period after their offer is accepted to evaluate the lead based paint risks involved.

Disclose LBP to potential buyer BEFORE they make an offer
Once buyer makes offer, they have a 10 DAY period after offer is accepted to evaluate the LBP risks.

Question 4

lead-based paint

Answer 4

Lead based paint is defined as any surface coating containing at least 1.0 milligram per square centimeter of lead or 0.5% lead by weight. It was banned by the Federal Consumer Product Safety Commission in 1978.

Question 5

lead-based paint hazard

Answer 5

A lead based paint hazard is any condition that causes exposure to lead from lead-contaminated dust, soil, or paint which has deteriorated to the point of causing adverse human health effects.

Question 6

lead based paint exemptions

Answer 6

Exempt from the Federal LBP disclosures are FORECLOSURE SALES of residential property. Yet, a foreclosing lender still has a common law duty to disclose property defect known to them at the time of the foreclosure sale.

Question 7

Determine when to disclose prior death on a property

Answer 7

Generally, seller’s agents are NOT required to voluntarily disclose info to potential buyer regarding a prior occupant whose death, from any cause, occurred on the property MORE THAN THREE years prior to the purchase offer, or who was afflicted with HIV or AIDS. If a death on the property for some reason adversely affects the market price of the property, it is considered a material fact and must be disclosed.

Question 8

Assess whether a history of death on a property might affect the buyers valuation or desire to own the property.

Answer 8

On a direct inquiry by the buyer/agent about deaths on the property, the seller’s agent is to disclose their knowledge of any deaths on the property, no matter when they occurred. An intentional concealment of a death after a buyer makes a direct inquiry is a breach of the seller’s agent GENERAL DUTY and the buyer’s agent AGENCY DUTY.

An inquiry by the buyer into deaths indicate a death is a material fact which might affect the buyers use and enjoyment of the property. This imposes an affirmative duty on the buyer’s agent to investigate or recommend an investigation into any deaths before an offer is made.

Question 9

How are deaths on a property which occur WITHIN THREE YEARS of the offer treated

Answer 9

Deaths are to be disclosed if they occurred within THREE YEARS of the offer being submitted.

Question 10

Understand the use and operating restrictions placed on conduct in HOA communities in exchange for every other owner-member doing the same

Answer 10

As a common owner of the Common Interest Development (CID) (example Condo Unit) and as a member of the HOA, use and operating restrictions are placed on most types of conduct, including:
* parking
* pets
* guests
* signs
* use of the pool, rec and common areas
* patio balconies
* care and maintenance of the unit
* structural alterations
* the leasing of the premises
The implicit bargain in becoming an owner-member is the consent to conform conduct to meet extensive use restrictions in exchange for every other owner-member to do the same.

Question 11

Identify the obligations and assessments imposed on a buyer of a unit in a common interest development (CID)

Answer 11

The obligations imposed by the HOA on a buyer of a unit in a CID fall into two categories:
* use restrictions contained
* financial obligations to pay assessments
Two types of assessment charges exist to fund the expenditures of HOAs:
* regular assessments, charged monthly
* special assessments, due in lump sum on a date set by HOA

Question 12

Determine when a seller’s agent is to request the HOA deliver the Common Interest Development (CID) documents concerning use restrictions and HOA finances for delivery to prospective buyers when a CID property is listed

Answer 12

It is at the listing stage when the seller’s agent prepares the owners request to the HOA to deliver up the CID documents concerning use restrictions and HOA finances.

Question 13

extraordinary expense

Answer 13

An extraordinary expense is brought about by an emergency situation lifting the limits placed on the amount an HOA may charge for regular and special assessments. Extraordinary expenses include amounts necessitated:

• by a court order
• to repair life-threatening conditions
• to make unforeseen repairs

Question 14

homeowner’s association (HOA)

Answer 14

A Homeowners Association (HOA) is an organization made up of owners of units within a common interest development (CID) which manages and operates the project through enforcement of conditions, covenants and restrictions (CCRs).

Question 15

pro forma operating budget

Answer 15

The pro forma operating budget is a budget which discloses the amount of assessments collected by an HOA, its cash reserves and whether special assessments are anticipated to occur.

The Pro Forma Operating Budget (PFOB) is the starting point for the prospective buyer’s analysis of the financial impact the purchase of a unit in the CID will have on their income.

Question 16

regular assessments

Answer 16

An HOA’s regular assessments typically fund the operating budget to pay for the cost of maintaining the common areas in a CID. Regular assessments are set annually and a are due and payable in monthly installments. Regular assessments are limited to a 20% increase over the prior year’s amount.

Question 17

special assessment

Answer 17

An HOA’s special assessments are levied to pay for the cost of repairs and replacements that exceed the amount anticipated and funded by regular assessments. An increase in Special assessments is limited to 5% of the prior year’s budgeted expenses.

Question 18

Understand the use of a home inspection report (HIR) to mitigate risks of misrepresentation in the preparation of a seller’s Transfer Disclosure Statement (TDS)

Answer 18

Reliance on a home inspection report (HIR) prepared by an inspector relieves the seller and the seller’s broker from liability for errors in the Transfer Disclosure Statement (TDS) which are unknown to them to exist.

Question 19

Exercise care in the selection of a qualified home inspector

Answer 19

For a seller’s agent to avoid liability in the preparation of the TDS by relying on the HIR, the seller’s agent need to select a competent home inspector to inspect and prepare the HIR. Thus, the seller’s agent needs to exercise ORDINARY CARE when selecting the home inspector.

Question 20

Use an energy efficiency audit report by a Department of Energy certified Home Energy Rater to market property

Answer 20

A buyer and their agent may also wish to assess the energy efficiency of the property and the costs of making energy efficiency upgrades. A home energy audit is performed by a Department of Energy-certified Home Energy Rater.

Although Home Energy Raters are specially trained and certified, any home inspector may perform a home energy audit provided the audit conforms to the HERS (home energy rating system) regulations established by the CA Energy Commission.

Question 21

California Home Energy Rating System

Answer 21

The California Home Energy Rating System (HERS) is a CA state system used to create a standard rating for energy efficiency and certify professional raters.

Question 22

home inspection report (HIR)

Answer 22

A Home Inspector Report (HIR) is a report prepared by a home inspector disclosing defects in improvements on a property and used by the sellers agent to complete the TDS (Transfer Disclosure Statement) and assure prospective buyers about a property’s condition.

Question 23

home inspector

Answer 23

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 (HIR) for reliance by the seller’s agents and the buyer as a warranty of the condition of improvements. NO licensing scheme exists to set the minimum standard of competency or qualifications necessary to be a home inspector. However, they are required to conduct an inspection with the same ‘degree of care’ a reasonably prudent home inspector would exercise to locate material defects during their physical examination of the property and report their findings.

Question 24

home energy audit

Answer 24

A home energy audit is an audit conducted by a Home Energy Rater evaluating the energy efficiency of the home.

With the energy audit in hand, a buyer can incorporate the costs of the recommended energy efficient updates into the total costs for purchasing the property.

Home energy audit companies are private, non-profit organizations approved by the Department of Energy (DOE) as a part of the CA Home Energy Rating System (HERS).

Question 25

material defect

Answer 25

The purpose of the physical exam of a property is to identify material defects in the condition of the structure and its systems and components. Material defects are conditions which affect the property’s:

• market value
• desirability as a dwelling
• habitability from the elements
• safety from injury in its use as a dwelling

Question 26

Explain the contents and consequences of info in a Structural Pest Control (SPC) Report

Answer 26

A Structure Pest Control (SPC) Report prepared by a pest control operator discloses any active infestations, damage from pest infestations or conditions which may lead to infestations within 10 days after the inspection takes place. Once a property has been cleared of all infestations and all repairs necessary to prevent infestations have been completed, a PEST CONTROL CERTIFICATION (or certificate of clearance) is issued. SPC companies also post an inspection tag in the attic, subarea or garage on completion of inspection. Tag includes the company’s name and date of completion.

Question 27

Manage the role of an SPC provider in RE transactions

Answer 27

When choosing an SPC company, the seller’s agent needs to protect their client and verify the individual or company’s license, the company’s registration and the individual’s or company’s complaint history by calling the SPC board. An individual or company who does the inspection and issues the report holds a BRANCH 3 Wood-Destroying Pest and Organisms License/Registration. Those with Branch 3 license may:

• perform inspections for wood destroying pests
• issue inspection report and completion notices
• conduct treatments
• perform any repairs recommended

Work is done to fix issues, by a licensed contractor, however a licensed contractor cannot perform any work that requires an SPC license to complete.

If someone else does the work the SPC company will need to Return and Reinspect the property before issuing a certification.

An SPC company is required to prepare Notice of Work Completed and Not Completed for any work they undertake on a structure and then they give that to the seller’s agent to pass on to buyer/agent.

Question 28

inaccessible areas

Answer 28

Inaccessible areas of a structure are areas that cannot be inspected without opening the structure or removing the objects blocking the opening such as:

• attics or areas without adequate crawl space
• slab foundations without openings to bathroom plumbing
• floors covered by carpeting
• wall interiors
• locked storage areas

Question 29

Pest Control Certification

Answer 29

The PEST CONTROL CERTIFICATION is a certificate of clearance by the Structural Pest Control (SPC) company indicating the property is free of pest infestation or infection in the visible and accessible areas, commonly called a termite clearance.

If any signs of infestation or infection HAVE NOT been corrected, it will be noted in the certification. Finally, if any Section 2 conditions (future infestations) will also be noted on the Pest Control Certification so the SPC company is not liable for the costs to eliminate those conditions.

Question 30

separated report

Answer 30

A Separated Report is a report issued by a Structural Pest Control (SPC) company which is divided into Section 1 items, noting active infestations and Section 2, noting adverse conditions which may lead to an infestation (usually only observed in home that do not have a slab foundation and have a crawl space beneath the floor of structure. )

Question 31

Structural Pest Control (SPC) report

Answer 31

The Structural Pest Control (SPC) report is a report disclosing any active infestations, damage from infestations, or conditions which may lead to infestations. Unlike the TDS and the NHD, the SPC report is not a legislatively mandated disclosure in a CA real estate transition.

If evidence of an active infestation is found, a Structural Pest Control Report is required to be provided in the following transactions:
* VA - US Department of Veterans Affairs (VA) and
* FHA - some Federal Housing Administration (FHA) transactions
such as where active infestation is observed.

However, as a matter of good practice, buyers agents simply prepare purchase agreement provisions to include a call for the seller to provide an SPC inspection, report and certification. Thus, an SPC contingency provision is placed in the purchase agreement to eliminate uncertainty about the property’s conditions.

Question 32

Explain the due diligence an exclusively employed broker owes a seller or buyer

Answer 32

Every exclusive listing agreement entered into by an agent on behalf of their broker documents an employment which established a client relationship. The employment imposes SPECIAL AGENCY (FIDUCIARY) duties on the broker and the agent to use due diligence. The promise of due diligence is the consideration a broker and their agents owe their client when rendering services in exchange for employment as the exclusive representative of the client. If the promise to use due diligence is not stated in the exclusive listing agreement, it is a duty IMPLIED as existing in the relationship.

Question 33

Explain the best effort obligation as the broker’s duty to a client under an open listing employment

Answer 33

In contrast to an exclusive listing, a broker and agents entering into a OPEN LISTING are not committed to render any services at all. The broker and agents only have a BEST EFFORT OBLIGATION to act on the employment. Best effort obligations under an open listing require the agent to take reasonable steps to achieve the objective of the client but requiring no affirmative action until a match is located at which point due diligence is required.

Question 34

best effort obligation

Answer 34

Best effort obligations under an open listing require the agent to take reasonable steps to achieve the objective of the client but requiring no affirmative action until a match is located at which point due diligence is required. Once the agent actually begins to perform services under an open listing entered into by a buyer or seller, the agent has ACTED on the EMPLOYMENT, thus the due diligence is required of the agent going forward.

Question 35

due diligence

Answer 35

Due Diligence is the concerted and continuing efforts of an agent employed to meet the objectives of their client, the agent’s promise given in exchange for the client’s promise to pay a fee. DD is also the continuous effort by the broker and agent to meet the objective of the employment.

Question 36

marketing package

Answer 36

The marketing package is a property information package handed to prospective buyers containing disclosures compiled on the listed property by the seller’s agent. This package is handed to prospective buyers before the seller accepts any offer to purchase the property.

Question 37

material fact

Answer 37

The broker with exclusive representation of their client takes reasonable steps to promptly gather all Material Facts about the property which are readily available to the broker or the broker’s agent.

Question 38

property profile

Answer 38

The Property Profile is a report from the title company providing information about a property ownership, encumbrances, use restrictions and comparable sales data.

Question 39

seller’s net sheet

Answer 39

A Seller’s Net Sheet is a document prepared by a seller’s agent to disclose the financial consequences of a sale when setting the listing price and on acceptance of a buyer’s price in a purchase offer.

It is reviewed with the seller each time pricing of the property is an issue. Issues may include:

• obtaining a listing
• changing the listed price
• reviewing the terms of a purchase offer or when substantial changes occur in the charges or deductions affecting the net proceeds from a sale since the net sheet discloses the financial consequences of the seller’s acceptance of a purchase agreement offer.

Question 40

agent’s activities

Answer 40

All records of an agent’s activities on behalf of a client during the listing period are retained by the agent’s broker for THREE YEARS. The THREE YEAR period for retaining the buyer’s or seller’s activity file for DRE review begins to run on the closing date of a sale or from the date of the listing if sale does not occur.