BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Agent’s Inspection of Property – When Required
Q: I am representing a buyer on a probate sale of a single-family residence. I told the listing agent that I was going to the property to conduct my agent’s inspection of the property. The listing agent stated that neither he nor I have to do that inspection because probate sales are exempt from the TDS requirement. Is he right?
A: In a word, NO. The law is clear that real estate licensees involved in the sale of residential property containing one-to-four dwelling units and manufactured homes must conduct a “reasonably competent and diligent visual inspection” and to disclose to a prospective purchaser all facts that materially affect “the value or desirability of the property that such an investigation would reveal.”
The Standard of Care that must be exercised by an agent in this inspection is measured by “the degree of knowledge through education, experience and examination” required to obtain a CalBRE license.
1. WHAT TYPES OF PROPERTY ARE COVERED BY THIS LAW?
Transactions involving 1-4 residential dwelling units which are:
A. Sales;
B. Leases with an option to purchase;
C. Ground leases of land on which one-to-four dwelling units have been constructed; or
D. Real property sales (installment land sale) contracts.
2. AGENTS’ INSPECTIONS ARE REQUIRED ON REO, PROBATE AND TRUST SALES.
It is true that on certain types of transactions, such as REO sales, Probate sales and Trust sales (except where the trustee/seller is a natural person, is the trustee of a revocable trust and was either an occupant in possession of the property within the preceding year or a former owner), the seller is exempt from completing and providing a TDS to the buyer. In those types of transactions, even though the seller is exempt from the TDS requirement, BOTH AGENTS ARE STILL REQUIRED TO CONDUCT A DILIGENT VISUAL INSPECTION OF THE PROPERTY as described above.
3. TRANSACTIONS WHERE AGENTS’ INSPECTIONS ARE NOT REQUIRED.
However, real estate agents (and sellers) do NOT have a statutory duty to conduct a visual inspection of:
A. Residential property sold as part of a subdivision in which a BRE public report is required (5 or more units); or,
B. A unit in a new subdivision in which a public report is not required because it is a:
1. subdivision of improved, single-family homes;
2. in which all improvements are complete;
3. there are no common areas; and,
4. the units are located entirely within the boundaries of a city.
4. IF AN AGENT INSPECTION OF THE PROPERTY IS REQUIRED, WHAT AREAS NEED NOT BE INSPECTED BY THE AGENT?
If an agent is required to conduct a diligent visual inspection, the agent is NOT required by the statute to inspect:
A. Areas that are reasonably and normally inaccessible;
B. Areas off the site of the subject property;
C. Public records or permits concerning the title or use of the property;
D. Common Areas: If the property is a part of a PUD, condominium, or stock cooperative, no inspection by the agent is required apart from the unit that is offered for sale, IF the seller or listing broker supplies the HOA documents required by Civil Code §4525 (as listed on zipForms form HOA2). CC§2079.3
E. Mixed-Use Properties: In a mixed-use building the agent is only required to conduct his/her inspection of the residential portion, and not the commercial portion of the property.
5. DOES AN AGENT HAVE DISCLOSURE RESPONSIBILITIES EVEN THOUGH AN AGENT INSPECTION OF THE PROPERTY IS NOT REQUIRED?
Yes, in the following two situations:
A. KNOWN FACTS: Agents must ALWAYS disclose any material facts KNOWN TO THEM which affect the value or desirability of the property. That duty does not change just because the agent is not required to conduct an inspection of the property.
See Weekly Practice Tip: “Disclosing Unverifiable Information”
B. RED FLAGS: In the case of Field v. Century 21, the court stated that in certain circumstances, the fiduciary duty of an agent representing a buyer may be greater than that required by the Civil Code. Thus, an agent’s fiduciary duty to his or her buyer may require the licensee to note “red flags” even in residential 5 or more unit properties or other types of properties. Unfortunately, the Field decision does not give any specific guidelines but, in all transactions, if you notice any “red flags,” or are aware of any other material facts that would affect the value or desirability of the property, disclose them.
PRACTICE TIPS:
1. FORM: If you are required to do an agent’s inspection of the property on a transaction where the seller is exempt, simply use the “Agent’s Visual Inspection Disclosure” form (zipForms form AVID) to be given to the buyer.
2. For more information on completing the AVID form, see Weekly Practice Tip “Completing the AVID the Right Way”
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is attorney-client privileged and 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.