Property Conditions and Disclosures - Part 2 - Chapters 24-27 Flashcards
Understand the affirmative duty a seller and their agent have to visually inspect and disclose their observations and knowledge about the property’s condition to prospective buyers
Unless a seller is exempt, sellers of 124 unit residential properties are required to fill out and furnish buyers with a statutory TDS when entering into a purchase agreement. Whether or not the seller is exempt from using the transfer disclosure statement, the seller’s broker and their agents are never exempt from:
- conducting a visual inspection of a 124 unit residential property, sold or acquired on behalf of any seller or buyer
- disclosing their observations and knowledge about the property on a transfer disclosure statement form or other separate document.
While there are transactions which will exempt the seller from preparing and delivering the statutory transfer disclosure statement to a buyer, like:
* by court order, judicial foreclosure or trustee sale, REO property acquired by a lender, co-owner to co-owner, parent to child, spouse to spouse, tax sale, from or to any govt agency,
The seller’s agent is never exempt from preparing and delivering a transfer disclosure statement to a buyer.
Ensure completion of the mandated obligation of the seller and their agent owed to prospective buyers to prepare and deliver a Transfer Disclosure Statement (TDS) presenting known conditions of improvements which might adversely affect the price and terms of an offer a prospective buyer might submit
The seller of a 124 unit residential property completes and delivers to a prospective buyer a statutory form called a transfer disclosure statement ( TDS).
The failure of the seller or any of the agents involved to deliver the sellers transfer disclosure statement to the buyer will not invalidate a sales transaction once it has closed. However, the seller and the seller’s broker are both liable for the actual monetary losses incurred by the buyer due to any undisclosed defects known to them or unknown due to their negligence.
If the transfer disclosure statement is belatedly delivered to the buyer – after the buyer and seller enter into a purchase agreement – the buyer may, among other monetary remedies, elect to:
- cancel the purchase agreement under a statutory 3-day right to cancel or
- make a demand on the seller to cure any undisclosed material defect affecting value which was known or should have been known to the seller or the seller’s agent prior to entering into the purchase agreement.
Also, the buyer cannot waive delivery of the statutorily mandated transfer disclosure statement. Any attempted waiver, such as the use of an AS-IS clause in the purchase agreement, is void as against public policy. The words AS-IS are never to be used in the context of real estate transactions. The words AS-IS imply a failure to disclose something adverse known to the seller or the seller’s agent, a prohibited activity.
Use a home inspection report (HIR) to identify and warrant property conditions as an important risk mitigation activity for the seller and seller’s agent in the preparation of a TDS
A competent seller’s agent will aggressively recommend the seller retain a home inspector before they Market the property. The inspector hired will conduct a physical examination of the property to determine the condition of its component parts. On the home inspectors completion of their examination, a home inspector report (HIR) will be prepared on their observations and findings, which is forwarded to the seller’s agent. The home inspector report (HIR) is used in the preparation of a seller’s transfer disclosure statement. Both are presented to prospective buyers before the seller accepts an offer to provide maximum mitigation of risks of claims made by the buyer on the seller and the seller’s agent.
The buyer of a 124 unit residential property has TWO YEARS FROM THE CLOSE OF ESCROW to pursue the seller’s broker and agent to recover losses caused by the Brokers or agents negligent failure to disclose observable and known defects affecting the properties physical condition and value.
‘as-is’ clause
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, but never AS-IS.
home inspection report (HIR)
A HOME INSPECTION REPORT (HIR) is a report prepared by a home inspector disclosing defects in improvements on a property and used by the seller’s agent to complete a TDS and assure perspective buyers about a properties condition.
NOTE - When the seller has not obtained or refuses to authorize the preparation of the home inspection report (HIR) prior to entering into a purchase agreement, the buyer is well-advised to order one on OPENING ESCROW to confirm the condition of the property before the expiration of any cancellation period.
Transfer Disclosure Statement (TDS)
The TRANSFER DISCLOSURE STATEMENT (TDS) is a mandatory disclosure prepared by seller and given to prospective buyers setting forth any property defects known or suspected to exist by the seller, generically called a Condition of Property Disclosure.
Provide the terms for the remedy of safety issues in a real estate transaction
When the transfer disclosure statement is filled out by the seller and picked up by the seller’s agent, the agent then conducts their mandated visual inspection of the property to observe any property defects and safety conditions which they know do not meet current building codes. These observations are noted on the sellers transfer disclosure statement.
Identify common safety standard issues and violations found on 124 unit residential properties
AUTOMATIC GARAGE DOORS - all installed after January 1st 1991 are required to have an automatic reverse safety device which meets code. In addition, garage door openers installed after January 1st 1993 are required to have a sensor which, when garage door movement is interrupted or misaligned, causes a closing door to open and prevents an Open Door from closing.
CHILD RESISTANT POOL BARRIERS - A construction permit issued after 1997 for a pool at a single family residence requires the completed pool to comply with certain safety requirements such as an approved safety cover for the pool.
WATER HEATERS - All existing residential water heaters are to be anchored, braced or strapped to prevent displacement due to an earthquake. A residential seller needs to State whether the water heater is anchored, brace or strapped. A separate form is NOT required to be filled out if the water heater is marked as being in compliance on a TDS form. If the water heater meets safety requirements, the seller notes the compliance by marking the box on the TDS next to ‘anchored, braced or strapped. If the water heater is NOT in compliance, the seller is advised to include a written statement on the TDS disclosing that fact.
RESIDENTIAL SECURITY BARS - on residential property are required to have release mechanisms for fire safety reasons.
SMOKE DETECTOR COMPLIANCE - Residential Properties also require the State Fire Marshal (SFM) approved smoke alarms. If installed on or after January 1st 2015, whether battery powered or hardwired, smoke alarms need to:
- display the date of manufacture
- provide a place where the date of installation can be written
- incorporate a hush feature
Operable hardwired and battery operated smoke alarms which were approved and listed when they were installed do not need to be replaced immediately and are considered compliant. However, when an existing smoke alarm no longer works, the replacement smoke alarm is to meet current requirements. Local ordinance may require sooner replacement.
safety conditions
SAFETY CONDITIONS are property conditions which do not meet current building codes and might affect property value.
visual inspection
A VISUAL INSPECTION is an inspection of a listed property performed by the seller’s agent and undertaken to observed effects to be noted on a condition of property disclosure, called the transfer disclosure statement.
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)
A seller, through their agent, request the preparation of a home inspection report (HIR) to be used to prepare the mandatory sellers transfer disclosure statement (TDS). Both will be handed to prospective buyers in a marketing package. The TDS and HIR inform prospective buyers about the precise physical condition of the improvements on the property before an offer to purchase is made.
The home inspection is a non-invasive examination of the mechanical, electrical and plumbing systems of the dwelling, as well as the components of the structure, such as the:
- roof
- ceiling
- wall
- floor
- foundations
The home inspection describes any observed or suspected material defects, and makes recommendations for each condition. Defects are material if they adversely affect the price a reasonably prudent and inform buyer would pay for the property when entering into a purchase agreement.
Exercise care in the selection of a qualified home inspector
Reliance on an HIR are prepared by an inspector relieves the seller and a seller’s broker from liability for errors in the Transfer Disclosure Statement (TDS) which are unknown to them to exist.
Qualifications to look for in a home inspector include:
- educational training in home inspection
- the length of time in the home inspection business or a closely related field
- errors and omissions insurance coverage
- professional and client references
- membership in a recognized Association of professional home inspectors such as the California real estate inspection Association or the American Society of home inspectors.
Use an energy efficiency audit report by a Department of Energy-certified Home Energy Rater to market property
A buyer and their agent may also wish to assess the Energy Efficiency of the property and the cost of making Energy Efficiency upgrades. A home energy audit is performed by a Department of Energy Certified Home Energy Rater.
The Rater is trained and certified by one of the Department of Energy’s certified providers:
- California Certified Energy Rating and Testing Services (CalCERTS)
- California Home Energy Efficiency rating system (CHEERS)
- California Building Performance Contractors Assocn (CBPCA)
NOTE - 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 regulations established by the California Energy Commission.
California Home Energy Rating System
The CALIFORNIA HOME ENERGY RATING SYSTEM (HERS) is a California state system used to create a standard rating for Energy Efficiency and certified professional raters.
home energy audit
A HOME ENERGY AUDIT is an audit conducted by a home energy rater evaluating the Energy Efficiency of the home.
