Agency relationships are more satisfying to both principal and agent if all parties understand the scope of the responsibilities of each in the transaction. Your real estate professional will be assisting you in many ways during the course of your real estate transaction. However, there are many other professionals who are better equipped to answer certain questions, perform certain tasks, or handle certain aspects of the transaction. Some issues are also the buyer’s or seller’s responsibility.
Every property has defects; some small and some large. Some sellers have lived with a defect that they view as unimportant but which may be important to a buyer. Of course, sellers, buyers, and agents have an obligation to deal honestly with each other. This section deals with what must be disclosed and the format in which it must be disclosed.
Question 1: What must a seller disclose about the condition of the property?
Answer: A seller must disclose known material defects about the property. Typically, a seller would make these disclosures on a Real Estate Transfer Disclosure Statement (TDS). However, if an item is not covered on a TDS, a seller must still make these disclosures about known material defects. In virtually all cases, a buyer will discover any problems once the buyer occupies the property. By disclosing all problems upfront, the seller can avoid the surprise that many times provoke a lawsuit. Even if a matter has been repaired, the seller should disclose the previous defect and the repairs completed.
Question 2: What is the Transfer Disclosure Statement (TDS)?
Answer: The Transfer Disclosure Statement is a form required by state law which the seller completes (unless exempt) and delivers to a buyer. Among other things, it asks the seller to list the various features of the property and disclose whether or not any of those features are in operating condition. It also allows a seller to state whether the seller is aware of a variety of common issues such as environmental hazards, permits, homeowners’ associations, and other matters that might affect the property. Some areas have additional local disclosures required by the county or city.
Question 3: What are the seller’s obligations regarding the TDS?
Answer: Generally, the seller must complete the TDS and deliver it to the buyer as soon as practicable before the transfer of title. Sellers should thoughtfully and carefully consider each question and answer it accurately, erring on the side of more, rather than less disclosure. Some transactions are exempt from this requirement. Agents do not have the obligation to verify statements made by the seller on this form.
Question 4: Does the seller have these same disclosure obligations in an “AS IS” sale?
Answer: Yes. The terminology “AS IS” simply means that the seller will normally not be paying for any repairs to the property. An “AS IS” sale does not exempt a seller from disclosing material information about the property. The seller must still accurately complete a TDS and deliver it to the buyer, unless otherwise exempt, and must still disclose other material facts affecting the value or desirability of the property.
Question 5: Must the seller correct the defects in the property?
Answer: No, the seller does not generally have an obligation to correct defects, known or discovered, unless there is a federal, state or local law requiring correction (e.g., California’s smoke detector installation laws), or unless the seller has agreed to do so in the contract. Otherwise, any correction of the defects is a matter of negotiation as part of the purchase contract.
Question 6: What are the buyer’s responsibilities in the transaction?
Answer: A buyer must take an active role in the transaction. Rather than passively waiting for the seller to volunteer information, a buyer must exercise reasonable care to protect himself or herself including ascertaining those facts which are known to or within the diligent attention and observation of the buyer.
All real property and improvements contain defects and conditions which are not readily apparent and which may affect the value or desirability of the property. The buyer should review the TDS with a particular eye to questions answered “unknown” or left unanswered. Keep in mind, the buyer should not rely on the agent to verify any statements by the seller. Because conditions and defects are often difficult to locate and discover, all buyers should obtain independent inspections by appropriate professionals to ascertain facts important to him or her.
Question 7: What obligations does a buyer have to investigate facts regarding a property?
Answer: The buyer should request any information important to the buyer that could affect the property’s value or desirability to him or her. Since neither the seller nor the agents are always aware of a buyer’s particular needs, the buyer must request information in areas of interest or importance to the buyer. Some information will be disclosed as a matter of course, but the buyer should also take responsibility to assure that all issues important to him or her are verified and addressed. At the very least, if there is an issue not addressed in disclosure documents or other reports, the buyer should affirmatively raise it.
For example, if the buyer is concerned about the future development of raw land in back of the property, the buyer should ask the agent. One way for a buyer to inquire about these issues is to write a list of any such concerns and give the list to his or her agent. The agent may not be the one who has the information, in which case he or she may be able to direct the buyer to a source or the appropriate professional who can provide the information through appropriate inspections by professionals or other means.
In the case of raw land, the county has records of who owns the property but may not have the plans for future development. Likewise, even current zoning prohibiting certain kinds of development may change in the future. However, if the buyer never raises the issue, the agent will not know that it needs to be resolved and will assume that the disclosure documents cover the areas of concern to the buyer.
Question 8: What are the agent’s disclosure responsibilities in the transaction?
Answer: The agent must disclose material facts which the agent knows and are not observable by the buyer. The agent must also conduct a visual inspection of the property as set forth in question 12. The agent is not required to discover problems relating to areas that are not accessible. Since conditions and defects are often difficult to locate and discover, and since the agent often relies on the statements of the owner of the property, the agent does not guarantee, and in no way assumes responsibility for, the condition of the property.
The agent may reflect the results of any visual inspection of accessible areas in the agent’s portion of the TDS, but this does not mean that all defects have been discovered. This is why inspections, contingencies, and other disclosures (such as the TDS), as well as the written agreement between the buyer and seller, are vital.
Question 9: How does a buyer protect him or herself from defects discovered after the close of escrow?
Answer: There are home warranties and other insurance policies available that cover certain types of defects. These are usually purchased separately. However, neither the seller nor the agents involved warrant the condition of the property against defects which occur or are discovered after the close of escrow, unless they specifically agree in writing.
Though the seller and the agents must make certain disclosures, this does not mean that the seller or agents warrant the property to be free from defects or agree to correct defects that occur or are discovered after the close of escrow. Requesting contingencies and inspection rights are critical to a buyer as they enable a buyer to ascertain the condition of the property before the close of escrow and negotiate possible solutions to any problems before electing to go forward with the transaction.
Inspections and Investigations
Question 10: Since the seller must make disclosures, is it still necessary for the buyer to obtain inspections and investigate the property?
Answer: Yes. Many times the seller does not know about a defect or problem. For example, a seller may not be aware that a repair was done incorrectly and therefore the problem still exists. Alternatively, something that may be unimportant to the seller (i.e., a defect that they have lived with for years) may be an issue for the buyer.
The agent’s visual inspection may also not reveal issues of importance to the buyer. An inspection by an appropriate professional can help the buyer determine the condition of the property and address issues that the buyer deems important. Since the agent will not always know what is important to the buyer, the buyer should communicate, in writing, any issues of significance to his or her agent.
Question 11: Does the buyer have a responsibility to obtain information about the property?
Answer: Yes. A buyer must exercise reasonable care and ascertain facts within his or her diligent attention and observation. A buyer should make careful observations, examine the property, and request or otherwise obtain any records important to the buyer. These requests should be made in writing.
Question 12: Does the agent have a responsibility to obtain information about the property?
Answer: The agent has a responsibility to conduct a careful visual inspection of the property itself and disclose the results of the visual inspection. In addition, the agent is not obligated to inspect inaccessible areas, offsite areas, examine public records, search public records for such things as permits, zoning requirements or inspect the areas outside of the unit itself of a condominium or planned development.
Question 13: What types of non-physical conditions should the buyer investigate?
Answer: The type and scope of the investigation the buyer makes will depend on the specific needs of the buyer. A buyer may have various plans for the property, such as remodeling, renting or other use. Since neither the seller nor the agents involved may know of the buyer’s intent, the buyer needs to satisfy him or herself as to these matters. The following are just some of the property’s non-physical conditions which the buyer may wish to address:
- Governmental requirements and limitations
- Absence of required governmental permits, inspections, certificates, or other determinations affecting the property
- Limitations, restrictions, and requirements affecting the use of the property
- Rent and occupancy control
- Neighborhood or area conditions
- Proximity and adequacy of law enforcement, crime statistics, proximity of registered sex offenders and/or other criminals
- Proximity to fire protection and other governmental services
- Proximity to commercial, industrial, or agricultural activities
- Existing and proposed transportation, construction, and development which may affect noise, view, or traffic, airport noise, noise or odor from any source
- Wild and domestic animals; other nuisances, hazards, or circumstances
- Possible lack of compliance with any governing documents or homeowners’ association requirements
- Adequacy and condition of common areas and facilities of common interest developments (e.g., condominiums)
- Violations of governing documents or of homeowners’ association requirements of common interest developments
- Information regarding homeowners’ associations, including, but not limited to, minutes, financial statements, pending special assessments, claims, and litigation
- Conditions and influences of significance to specific cultures and religions, or to the personal needs, requirements, and preferences of the buyer
Keep in mind that an agent’s visual inspection duties are generally limited to the physical condition of the property. Since a buyer may have a wide range of concerns, including non-physical aspects of the property, a buyer desiring additional information or investigation of issues should discuss these with the agent and, if the agent consents to inquiring further, should get a written agreement to that effect. Many times, the agent will respond with directing a buyer to the appropriate inspector or consultant.
Question 14: Is the seller required to fix defects that are discovered as a result of any inspection prior to the close of escrow?
Answer: That will depend on the purchase contract. Unless specifically agreed to in writing, a sale of real estate does not include any warranty as to any system, component, or aspect of the property. Many purchase contracts have a maintenance provision, however, that requires the seller to maintain items such as landscaping during escrow. Agents do not warrant the property or its features.
Question 15: Is the seller required to fix defects that are discovered after the transaction closes?
Answer: Generally no. This is why it is so important that buyers follow through with their obligation to investigate the property before completing the transaction. As stated earlier, agents do not warranty the property or its features and a seller does not generally warrant any system, component, or aspect of the property unless he or she specifically agrees to do so in writing.
Many purchase contracts have a maintenance provision, however, that requires the seller to maintain items such as landscaping during escrow. Defects or problems that occur after the transaction closes are the responsibility of the new owner. Home warranty or maintenance policies can be purchased to cover some items. Homeowners’ insurance may also cover certain defects.
Question 16: What aspects of the property should the buyer inspect?
Answer: The buyer should investigate every physical or non-physical aspect of the property and surrounding neighborhood about which he or she is concerned. The following are some, but not all, of the conditions the buyer should investigate or inspect and which professionals are qualified under each category:
- Condition of Systems and Components: built-in appliances, foundation, roof, plumbing, heating, air conditioning, electrical, mechanical, security, pool/spa, and other structural and non-structural systems and components, any personal property included in the sale, and energy efficiency of the property.
- Appropriate Professional: Home Inspector, Contractor, Energy Inspector
- Size and Age: Square footage, room dimensions, lot size, and age of property improvements.
- Appropriate Professional: Certified Appraiser for measurements; County records for the age of the property
- Lines and Boundaries: Property lines and boundaries. Fences, hedges, walls, and other natural or constructed barriers or markers do not necessarily identify true property boundaries.
- Appropriate Professional: Surveyor (property lines and size of a lot may be verified by survey)
- Waste Disposal: type, size, adequacy, capacity, and condition of sewer and septic systems and components. Property may not be connected to sewer, and applicable fees may not have been paid. Septic tank may need to be pumped and leach field may need to be inspected.
- Appropriate Professional: Sanitation Engineer; Septic Tanks and Systems Consultants and Engineers; City or County (for applicable sewer fees and connections required)
- Water and Utilities; Well Systems and Components: water and utility availability and use restrictions. Adequacy, condition, and performance of well systems and components.
- Appropriate Professional: Well and Water Consultants; Well and Drilling Contractors; Local Water Utilities
- Environmental Hazards: asbestos, formaldehyde, radon, methane, other gases, fuel or chemical storage tanks, contaminated soil or water, hazardous waste, waste disposal sites, electromagnetic fields, nuclear sources, and other substances, materials, products or conditions.
- Appropriate Professional: Environmental Consultant/Engineer
- Geologic Conditions: geologic/seismic conditions, soil and terrain stability, suitability for future or current use, and drainage.
- Appropriate Professional: Geologist; Soils Engineer.
- Lead-based Paint: testing for the presence of lead in paint, dust, soil, water, and/or any other areas in it around the property site.
- Appropriate Professional: Certified Lead Inspector
Question 17: How should a buyer or seller select a service provider?
Answer: There are many types of service providers or vendors including lending institutions, loan brokers, title insurers, escrow companies, inspectors, structural pest control companies, contractors and home warranty companies.
Unless otherwise agreed, the person hiring the provider ultimately makes the selection. Service providers should be selected based on their qualifications, the scope of their service, the satisfaction of previous clients, and the price of their service.
Keep in mind that if agents provide the buyer or seller names of providers or other professional persons,
- The agents do not guarantee the performance of any providers, and
- The buyer and seller are free to select providers other than those referred or recommended by the agents.
Many service providers are members of professional trade associations. A list of such associations and/or governmental agencies overseeing the provider’s function is located here.
Question 18: How do I select a home inspector?
Answer: As with any professional, a buyer will want to check a home inspector’s references and ask questions, such as whether the inspector has a contractor’s license, carries professional liability insurance, belongs to a professional trade association, and provides written reports. Buyers should find out what items the inspector’s report covers to ensure that items important to the buyer will be addressed. The scope of the report and any limitations or disclaimers should also be examined.
Selling or purchasing property is an important step in one’s life. All parties involved play a role in obtaining the information needed to make informed decisions regarding the property. It is critical that the buyer and the seller actively participate in this process to ensure that their needs are addressed.