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Court Requires Transfer Disclosure Statement on Mixed-Used Property Where A Residence Exists

In Richman v. Hartley, a California appellate court recently held that a Transfer Disclosure Statement is needed on a mixed-use property containing both residential and commercial structures. In Richman, defendant Hartley made an offer to purchase the Richmans’ real property in Ventura, California. The property was a single parcel improved with a commercial building and a residential duplex. Richman did not provide Hartley with a Transfer Disclosure Statement. The parties signed a non-standard Purchase and Sale Agreement, but Richman (the seller) was required to provide all appropriate disclosures to Hartley. The Agreement contained an as-is provision. The Agreement also stated that it was not contingent upon any inspections or any other conditions. The buyer failed to close escrow and the seller sued the buyer.

The buyer defended the lawsuit by claiming that it was a condition precedent to purchasing the property that he receive a Transfer Disclosure Statement (“TDS”). The seller responded by arguing that a TDS was not required because of the as-is provision and that the property was commercial. The buyer filed a motion for summary judgment asking the court to dismiss the case on the ground that a TDS was required before he was required to close escrow. The trial court found in favor of the buyer. The seller appealed and the appellate court affirmed the judgment.

The appellate court held that the TDS is required on any property containing one to four unit residential structures. Therefore, it is irrelevant that the property had a commercial building. The TDS was required as a residential duplex existed. The court also noted that a TDS may not be waived in an as-is sale.

Mediation in Real Estate Transactions

With the increasing use of ADR to resolve disputes in a variety of contexts, no industry has captured the effective utilization of ADR, and in particular, mediation, more than the residential real estate industry in the State of California. The utilization of mediation in real estate disputes has significantly reduced the number of real estate cases that reach the courts.

Pursuant to the language in the California Association of REALTORS® Residential Purchase Agreement and Joint Escrow Instructions (RPA), when a party files suit, or institutes arbitration without first offering mediation, that party waives the right to recover attorney fees. There are a number of exceptions, such as filing suit to record a lis pendens, or in foreclosing on real property. However, notwithstanding these limited exceptions, this mediation requirement has proven effective in residential real estate disputes by inducing the parties to mediate, the result of which the majority of such cases are settled before ever reaching the courts.

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Handling Listings and Offers

MEMO

To: All associates
From: Management

As a reminder, once we take a listing we have a fiduciary duty to the seller to obtain the best possible offer for that seller. In doing so, you should be placing the listing into the MLS as soon as possible. The listing should be kept active for a reasonable period of time so that the seller may receive the widest exposure available for the property. There will be situations where you may exclude the listing from the MLS temporarily if there is a valid reason for doing so (property under construction, tenant issues). In such situations, you are required to fill out the Exclude from MLS form and submit this form to the MLS at the time the listing is taken. (CAR form SEL -Seller Instruction to Exclude Listing from the Multiple Listing Service or Listing Information from the Internet SEL, or local Exclude from MLS form). Many REOs and Short Sale lenders are now requiring that the listings be placed in the MLS for a reasonable period of time before they will consider accepting an offer.

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Top 10 Pitfalls in Dealing with the RPA – Listing Agent

Listed below are Ten issues for Listing Agents to pay particular attention to when dealing with a residential sale.  They are listed in no particular order. This list is not meant as an exhaustive list of all issues that the Listing agent should evaluate, but rather focuses in on the particular areas that often create confusion and misunderstandings.

1.  Importance of Obtaining a Termite Inspection Report BEFORE receiving offers

Most offers submitted on residential properties include the Wood Destroying Pest Addendum and most of the time the seller is asked to complete at least the Section 1 Termite work in said addendum.  If the seller has not obtained a termite inspection report before the submission of an offer, the seller is in the position of agreeing to pay for Section 1 Termite work without any idea as to the extent of work that might be required.    Obtaining the Termite Inspection report before the offer is submitted eliminates this uncertainly and places the seller in the position of certainty when making a decision regarding paying for termite work.

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Top 10 Pitfalls in Dealing with the RPA – Buyer’s Agent

Listed below are Ten issues for Buyer’s Agents to pay particular attention to when dealing with a residential sale. They are listed in no particular order. This list is not meant as an exhaustive list of all issues that the Listing agent should evaluate, but rather focuses in on the particular areas that often create confusion and misunderstandings.

1.  Closing Costs

Very often, the buyer’s agent will put a clause in the Purchase Agreement requiring the seller to credit the buyer for buyer’s closing costs.  Many lenders will allow sellers to credit buyers up to 3% of the purchase price towards buyers closing costs, if the buyer’s closing costs turn out to be that much.   Herein lies the rub.  While the lender may indicate that the seller is permitted to pay up to 3% of the purchase price towards closing costs, when the actual closing costs are determined, often this amount is less than the 3% approved in the Purchase Agreement.  The lender will then not allow the seller to pay the full 3%, but only the actual closing costs incurred by buyer. This often creates a misunderstanding between buyer and seller.  Buyer assumes that buyer will receive this 3% regardless of the actual closing costs incurred.  The seller assumes that seller is only responsible for buyer’s actual closing costs.  The agents can avoid this misunderstanding with the use of more precise language in dealing with credits for closing costs.  Often, the language used is “Seller shall credit buyer 3% towards buyer’s closing costs” or “Seller shall credit buyer up to 3% towards buyer’s closing costs.”  It is suggested that this be expanded to state the following:  “Seller shall credit buyer up to a maximum of 3% of the purchase price towards buyer’s closing costs.  However, in the event that the amount of buyer’s closing costs that the lender will allow seller to pay turns out to be less than 3%, seller will only be responsible for the amount allowed by lender.”

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Buyer Broker Agreements

Proper Usage of Buyer Representation Agreements:

The California Association of Realtors (C.A.R.) publishes three different Buyer Representation Agreements:  1) Buyer Representation Agreement-Non Exclusive-Not for Compensation; 2) Buyer Representation Agreement- Non Exclusive; and 3) Buyer Representation Agreement-Exclusive.

The Buyer Representation Agreement-Non Exclusive-Not for Compensation is an excellent form to use when working with buyers. It explains the rights and duties of the buyer and the agent and, as the title indicates, it has no provision for compensation to be paid by the buyer.

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AVID Form

It is strongly recommended that you complete an Agent’s Visual Inspection Disclosure form on all one to four unit residential properties, whether you represent buyer or seller.  While this form is not legally required, all agents are required to conduct a diligent visual inspection of the reasonably accessible areas of the property and disclose the results of this inspection to the buyer.  The Agent’s Visual Inspection Disclosure form was designed specifically to assist the agent in meeting this obligation. It is not sufficient for an agent to sign off on the other agent’s disclosure without doing his own.  This form should be completed and delivered to the buyer at the outset of the transaction so the buyer has an opportunity to review this during buyer’s inspection contingency period.

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Top 10 Mistakes Made on the TDS

1.    The Agent fails to recognize the critical importance of providing a thorough TDS.  This includes a failure to properly educate the Seller of such importance.  It also includes the failure of the Agent to perform a thorough visual inspection of all accessible areas of the subject property.

2.    The Agent fails to have the sellers fully complete the Seller Property Questionnaire (C.A.R. form SPQ).

3.    The Agent delivers the TDS too late, resulting in the Buyer being able to rescind the transaction.

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