BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
We receive numerous questions regarding providing guidance to sellers regarding the sellers’ obligation to complete the Transfer Disclosure Statement (“TDS”) and Seller Property Questionnaire (“SPQ”) or other supplemental disclosures in use in some areas. Please consider the following scenarios:
SCENARIO NO. 1: I am a listing agent of a single-family home. A TDS and SPQ is required. I sent the TDS and SPQ to the sellers by DocuSign and I advised them verbally to disclose everything that they know about the property. Is my handling adequate?
RESPONSE: Likely not. If the seller fails to disclose something because the seller did not understand the inquiry, the seller will blame you for not providing the seller with sufficient instructions. Consider the following additional situations:
Situation No. 1: Agent did exactly as described in your question. The seller did not disclose certain material defects. The seller was sued for non-disclosure. The seller’s attorney took the listing agent’s deposition and spent over two hours grilling the agent as to why the agent thought it was acceptable to earn a $60,000 commission, but could not find the time to adequately describe a seller’s duty of disclosure nor be available to answer the seller’s questions.
Situation No. 2: The sellers were previously involved in litigation, but the litigation was dismissed at the time of placing the property on the market. The sellers marked the box “no” to litigation affecting the property on the TDS. When the buyers sued the sellers for failing to disclose the prior litigation, the sellers’ defense was that the listing agent did not properly advise the seller with regarding to the question about any past or present litigation.
SCENARIO NO. 2: Agent provides TDS and SPQ to the sellers. The sellers fill them out. The listing agent takes the documents, copies the sellers’ answers into a DocuSign and then sends it to the sellers for signature. Is this an adequate practice?
RESPONSE: No. The agent should have no part in completing the first two pages of the TDS nor anything in the SPQ. The agent should not fill out those documents on behalf of their clients under any circumstances nor should the agent input the information into a document to be DocuSigned by the clients. If the agent makes an error in the transcription or inputting, the agent will be responsible. There is also an argument that the agent participated in the preparation of the document, making the agent liable.
SCENARIO NO. 3: I am a listing agent. My practice regarding sellers completing a TDS and SPQ is to sit with my sellers and go over every question and advise them as to how to respond to the questions. Is this an acceptable practice?
RESPONSE: In this instance, you have gone too far in terms of your intervention with the sellers’ responses. If the sellers make an error or fails to disclose a material fact, which results in a claim, the seller will say that the seller completed the disclosures in accordance with your instructions and therefore, you are potentially liable.
DISCUSSION: Part of the fiduciary duty of a listing agent is to educate and advise sellers on the their disclosure obligations. Listing agents need to properly advise the sellers regarding completing the TDS and SPQ as well as providing other disclosures, but should not go so far as to interfere or participate in the preparation of the TDS and SPQ. Suggested handling includes the following:
- It is recommended that listing agents provide sellers with the CAR forms Seller Advisory (“SA”) and Disclosure Inspection Advisory form (“Form DIA”) at or before providing sellers with the disclosure documents. This timing is essential.
- The agent should advise the sellers verbally and confirm in writing that the sellers should disclose every material known to them defect affecting the value or desirability of the property. The rule is: When in doubt, disclose. Agents should also advise sellers that all documents affecting the property should also be disclosed to the buyers, no matter how voluminous.
- A listing agent should review the TDS and SPQ once completed by the seller to ensure that (a) one of the boxes in Section I of the TDS is checked; (b) every box is marked and, if there is a “yes,” there is a reasonably understandable explanation. If there is a box that is not marked or blank, or an explanation that is missing or vague and ambiguous, the listing agent should return the disclosure documents to the seller with a request that further information be provided.
- If sellers have questions regarding whether to disclose, agents should consult with their broker or manager.
PRACTICE TIPS:
- Agents should advise their sellers of the importance of disclosures and provide CAR’s Seller Advisory and DIA, which explain a seller’s obligation to disclose.
- Agents should provide the sellers with the TDS and SPQ (or other local supplemental disclosure) in person or by email. They should not simply send it through DocuSign.
- While agents can discuss the disclosures with sellers, agents should not advise sellers as to how to disclose. Disclosures need to be in the seller’s own handwriting and wording.
- If an agent does not whether to disclose a fact, the agent should consult with their manager.
- For a list of examples of the types and kinds of documents that sellers should disclose, see Question 5 in the SPQ form.
- If a seller has a complex disclosure issue, such as litigation, agents should consider referring sellers to a qualified California real estate attorney.
This Weekly Practice Tip is an attorney client privileged document and 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.Seller Advisory Regarding Completing the Real Estate Transfer Disclosure Statement & Other Seller Disclosure Forms