QUESTION: There is a national company that buys properties directly from homeowners and then re-sells those properties using various brokerage companies many of whom are REALTORS®. Unfortunately, some of the Agents used by that company are not REALTORS® and they do not use the local MLS; they post their listings on internet sites. Regardless of where the properties are advertised, the listing information states that the Buyer must sign the brokerage’s Purchase Contract Addendum.
I represent a Buyer who has just received the Seller’s Purchase Contract Addendum. It states:
“Buyer waives any right to receive a completed California Transfer Disclosure Statement [TDS] and Seller Property Questionnaire. Buyer will instead accept Seller’s standard form disclosure statement.”
The Seller will not agree to provide any disclosure forms created by the California Association of REALTORS®. The Listing Agent has advised us that the Seller’s Attorney created a very comprehensive form that is “better than both the TDS and SPQ” and, since the Seller is a corporation, that the actual TDS was not required. The Seller’s Contract Addendum also includes several provisions that are inconsistent with the CAR purchase agreement forms and we do not understand the legal significance of those provisions.
Is it legal to have the Buyer waive the TDS? Is a corporate owner who has never resided in the Property exempt? How should we advise the Buyer about the Addendum? Is there anything else that we should be concerned about?
ANSWER: Regardless of what the Listing Agent has claimed, it is illegal in the state of California for a Buyer to waive their rights to a TDS. Civil Code Section 1102(c) specifically states:
“Any waiver of the requirements of this article is void as against public policy.”
Any provision in a contract document concerning the sale of residential property 1 to 4 units, including mixed use property, which requires the Buyer to forego receiving the fully-completed TDS, must be pointed out to the Buyer and the Buyer needs to be told about the Buyer’s rights, in writing.
Even if the Seller’s attorney has created the most comprehensive disclosure form, no document can be used as a substitute for the state-mandated TDS. Civil Code Section 1102.6 specifically states that the statutory disclosures “shall be made on a copy of the following disclosure form” and the statute includes the actual TDS form. In other words, even if all of the requisite information is provided by the Seller, the Seller will still not be in compliance with California law because the TDS form is not being used. Any purported “substitute form” for the TDS omitting any portions of the form would also be a violation of state law.
Although there are many statutory bases for a Seller to be exempt from using the TDS, there is no exemption in Civil Code Section 1102.2 for Sellers who have never resided in the Property and/or for corporate sellers.
PRACTICE TIPS:
- Buyers should be warned, in writing, about the potential inconsistencies between the Broker’s Addendum and the standard Purchase Agreement form. The Buyers should be advised to review the Addendum with their own qualified California real estate attorney before signing it. If Buyers move forward without consulting an attorney, document that decision, preferably in an email with the following or similar language:
“I have previously advised you to speak with a California real estate attorney about your right to receive a fully-completed statutory Transfer Disclosure Statement (“TDS”). You have chosen not to follow this advice because [insert Buyer’s reason for not following your advice]. Since you intend to proceed with this transaction without following the advice that I and my broker have provided, please understand that you will be assuming the risk of any liability, costs or damages that may result because of your decision not to follow my advice.”
See also, Weekly Practice Tip: How to Handle Clients Who Will Not Follow Advice (Dated 11-16-18)
- If the Buyer signs the Addendum, it is still of critical importance for the Buyer’s Agent to make a reasonable effort to secure the fully-completed TDS from the Seller. Civil Code Section 1102.12 puts the burden on the Buyer’s Agent to obtain the TDS. That statute states:
“… the broker shall advise the [Buyer] in writing of his or her rights to the disclosure. … [and] shall maintain a record of the action taken to effect compliance …”
- The best way for the Buyers’ Agent to meet this statutory obligation is to send an email to the Seller’s Agent, with a copy to the Buyer, detailing the Buyers’ right to receive a fully-completed TDS and requesting that the fully-completed form be provided by the Seller. Following this Tip is Sample Letter #1 to the Listing Agent regarding the Seller’s statutory obligations and requesting that the Buyer receive a proper TDS.
- The Buyers should be encouraged, in writing, to review their rights with their own qualified California real estate attorney. Also following this Tip is Sample Letter #2 to the Buyer regarding the Buyers’ rights and the recommendation to secure the right kind of legal advice.
- If Buyers are required to sign an Addendum or a Purchase Agreement which waives the Buyers’ right to receive a TDS and/or changes the standard provisions of a real estate industry offer form (such as striking out how contingencies are to be handled or limiting the Buyers’ rights if the Seller Defaults), Buyers should be advised in writing that the Seller’s contract document is not a standard form and that the Buyers should not sign it without first consulting with the Buyers’ own qualified California real estate attorney. The necessary language to document that the Buyers were warned about that issue is also contained in Sample Letter #2.
- Some corporate Sellers who are re-selling properties may be using their own Purchase Agreement form which may well substantially change Seller’s obligations and Buyers’ rights. If a non-standard contract is used:
A. READ the entire Purchase Agreement created by the Seller and compare it with the standard contract form you use; note what changes have been made. In addition to waiving the TDS, that form may change how contingencies are to be handled, the timing of required events, notice requirements and termination rights. These changes should be pointed out to the Buyers and, if the Buyers sign the Agreement, then any TC on the transaction needs to also have that information.
B. Since these corporate Sellers had their own attorneys create the contract form rather than use standard industry forms, it is extremely likely that the terms will favor the Sellers on various legal issues which Brokers and Agents cannot advise on. It is thus critical that Buyers be advised to consult with their own qualified California real estate attorney prior to signing any of these non-industry documents.
- Brokers who do not use the MLS and simply advertise on websites, such as Loopnet.com, may not be obligated to pay commissions even though they may advertise that they or the Seller “will cooperate” with Buyers’ Agents. Therefore, prior to presenting any offer on Listings that are not on the MLS, the Buyers’ Agent needs to secure a commission agreement signed by either the Seller or the Listing Agent.
This Weekly Practice Tip is an attorney-client privileged document for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2020 & 2021 02/09/21
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SAMPLE LETTER #1
TO LISTING AGENT REGARDING
BUYER(S) CANNOT WAIVE RIGHT TO TDS
Dear [Insert name of Listing Agent] :
As the Agent for the Buyer(s), we are requesting that the Seller(s) comply with the Real Estate Transfer Disclosure Statement Law (Civil Code Section 1102, et seq.). That law requires the Seller(s) to provide the actual TDS as it appears in the statute; it is illegal in the state of California for a Buyer(s) to waive their right to that documentation under Civil Code Section 1102(c). Unless the Seller(s) is exempt from one of the types of sellers listed in Civil Code Section 1102.2, the law does not allow the Seller(s) to use a substitute form to complete the Seller’s disclosure obligations.
The TDS must be fully completed and signed by the Seller(s) and then provided to the Buyer(s).
Please provide the fully-completed and signed TDS form within _____ days. If the Seller(s) continues to refuse to comply, then that refusal needs to be given in writing to the Buyer(s) so that the Buyer(s) can determine whether or not to proceed with this transaction. In the interim, the Buyer(s) will be advised to consult with their own qualified California real estate attorney.
Thank you for your courtesy and cooperation with respect to this matter.
Very truly yours,
Name of Agent
Copy to: Buyer
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SAMPLE LETTER #2
TO BUYER(S) REGARDING
BUYER’S RIGHT TO RECEIVE TDS
Dear [Insert Name of Buyer(s)] :
The Seller(s) is required to provide you with the state-mandated Real Estate Transfer Disclosure Statement (“TDS”); that form contains a checklist to give you notice of problems or potential problems with the Property. Any request of you to waive your right to receive the TDS violates California law, is against public policy and is void. If you do not receive a fully-completed statutory TDS form, you may have the right to cancel the purchase agreement before the Close of Escrow.
The Seller’s Contract form asks that you waive your right to receive the TDS and related disclosures on a California Association of REALTORS® Form (the CAR Form TDS). From our experience, the form that this Seller uses as a substitute for the CAR Form TDS is missing certain elements that must be included in the form. We recommend that you not sign the [insert name of corporate Seller] [insert either Addendum or Purchase Contract] and that you reject any request to waive your statutory rights.
Since your right to receive a fully-completed, statutory form TDS involves an analysis of your legal rights and we cannot provide you with legal advice, we will not be able to advise you further on the legal implications of the actions by the Seller. We therefore recommend that you speak with a qualified California real estate attorney to discuss your rights to receive the fully-completed statutory TDS form before you consider accepting the Seller’s contract document. If you choose to go forward and accept this Addendum without securing appropriate legal advice, you are proceeding against my advice and the advice of my Broker. You may also be accepting the deficiencies in the Seller’s substitute form.
Please let me know your decision.
Very truly yours,
Name of Agent
Attachments (Blank copy of TDS, email to Listing Agent)