BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
On January 22, 2024, Broker Risk Management (“BRM”) provided a webinar exclusively for its clients addressing new statutes affecting real estate agents and brokerages and the release of new and revised forms by the California Association of Realtors. The following are questions and answers from that webinar, which were not addressed or which we thought would be of interest.
Question: Regarding the “Flipper Law,” doesn’t a seller have to disclose all improvements or repairs made to a property and whether the seller obtained permits?
Answer: A seller is required to complete a Transfer Disclosure Statement (“TDS”) pursuant to Civil Code §1102.6. In the TDS, a seller is required to disclose if they are aware of any work performed at the property without permits and whether any work does not comply with the local Building Codes. A Seller Property Questionnaire is not statutorily required, but is required pursuant to CAR’s Residential Purchase Agreement. Neither of these disclosures specifically requires a seller to disclose improvements or repairs. However, such disclosure is a best practice and recommended. Further, it is recommended that a seller disclose whether any improvements or repairs were made by a handyman or the seller. It is also recommended that irrespective of the “Flipper Law,” a seller should disclose all improvements or repairs made to the property, including whether the repairs were done pursuant to required permits.
Question: Regarding online notaries, is it legal in the State of California?
Answer: While the California legislature has passed a law legalizing online notarization of documents, that law will not go into effect until the California Secretary of State approves a system. Therefore, online notaries in California cannot be utilized at this time. With regard to out-of-state notaries, it is recommended that they not be utilized.
Question: The law now prohibits listing agreements beyond 24 months. Does this apply to trusts?
Answer: Yes.
Question: Regarding notices to tenants, I know you recommended against delivering notices to tenants, but can we deliver notices to inform them that we are selling the property?
Answer: It is strongly recommended that you refrain from providing any notices to tenants. If a property is in a location where there are strict rent control laws, you could violate those laws by serving a notice that you intend to sell the property. It is recommended that a seller deliver any notices or utilize counsel to address communications with the tenant.
Question: How do you recommend I handle the management of my own rental property?
Answer: Please consult with your manager or broker regarding company protocol for managing your own property. Assuming your manager or broker allows you to manage your own property, you should do so separately from the brokerage, unless your brokerage specializes in property management. This means that you should not use CAR Zip forms with your company’s name on them (If you use CAR forms, delete the broker name from the bottom of the forms); do not use your company office for any tenant business (do not have rent checks sent to your office or meet with your tenant at the office); do not list your personal rentals on your brokerage’s MLS account; and do not use your company email in communications with your tenant.
Question: Should we continue to use Broker Risk Management’s insurance advisory or should we use CAR’s advisory?
Answer: BRM almost always defers to CAR’s forms to avoid conflicts in forms between brokerages. Therefore, it is recommended that CAR’s insurance advisory be used. Please note that BRM’s insurance advisory has been withdrawn from BRM’s library of forms.
Question: The new law limits security deposits to one month. Does this apply to a pet deposit?
Answer: Yes, it applies to a pet deposit, which combined with the rest of the security deposit cannot exceed one month’s rent. If the landlord allocates a portion of that one month’s rent to, say, a pet deposit, that portion of the deposit can only be used for pet damage. Therefore, it is generally not a good idea.
Question: If we are listing an income property, how should we handle the disclosure of the financials?
Answer: Ask the seller for copies of the financial statements. Provide the financial statements to the buyer’s agent with the following statement, “I have attached financial statements prepared by the seller. Agent has not verified any of the information in the financial statements. The buyer should investigate all aspects of the property and direct any questions regarding the financials to the seller.” Do not: create pro formas or projections; copy over the financials; or edit or summarize them in any respect. It is important that seller’s financials be delivered to a buyer in the same form with the same information as the seller provides.
Question: If a seller sells both a primary home and an ADU, is it considered two houses on one lot? Do we need two Transfer Disclosure Statements and Seller Property Questionnaires?
Answer: It is considered two homes, but it is within the seller’s discretion to complete one or two sets of disclosure forms. It may be more practical to complete one set of seller’s disclosures to avoid any confusion and to ensure that disclosures are made on both structures.
Question: We often deal with sellers who are out of state. How do they get documents notarized?
Answer: Work with a title company. Title companies will set forth the specifications for notarizing documents that will be acceptable to the title company for purposes of issuing title insurance and ensure recordation.
Question: What are the new Small Court claims limits?
Answer: For an individual, the small claim limit has increased from $10,000.00 to $12,000.00 and for a non-natural person (i.e., partnership, corporation, or limited liability company), it has increased from $5,000 to $6,250.
Question: If a seller sells their single-family home they have rented out for the last few years, do they need to furnish an income/financial statement?
Answer: They should provide a financial statement if the buyer intends to use the property as income-producing. If not, then that disclosure is likely irrelevant. However, if the buyer requests the information, the seller must provide it. The seller should provide any property management records including any complaints by tenants or repairs made to the property.
ATTORNEY-CLIENT PRIVILEGED COMMUNICATION. Do not forward to sellers, buyers or third parties. This Weekly Practice Tip is 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.