BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Recently, the market has taken another slight shift and inventory has shrunk. In approximately June 2022, with rising interest rates, increasing inflation, and a declining stock market, the real estate market began a swift decline. It is reported that in many locations, real estate sales prices have dropped as much as 25% to 35% in some parts of the State.
As a result of the change in market, it appears that sellers have withdrawn their properties from the market or chosen not to list their properties for sale at this time. This is causing a significant decline in inventory. As a result, buyers are having difficulties locating and purchasing property as it is now becoming a more competitive buyers’ market.
This diminished inventory is creating a situation where buyers are making offers on property and buying property sight unseen. There are obvious significant risks affiliated with buyers buying property that they have never seen. The following tip discusses different scenarios and recommendations for handling this situation. We have also attached an advisory to provide to buyers when properties are being purchased sight unseen.
Attached is a Buyer Advisory Regarding Buying Property “Sight-Unseen.” This form explains to Buyers why they need to personally view the Property and the steps they should take to properly protect their interests, including the need to include an investigation/inspection contingency in their Purchase Agreement.
This Advisory can be used by either the Buyer’s Agent or the Seller’s Agent; it does not matter which Agent generates the form as long as it is provided to the Buyer as soon as it is known that the Buyer has not, or will not, be seeing the Property for any reason which makes it impossible for the Buyer to physically go to and view the entire Property.
CONTINGENCIES: Making the purchase “subject to Buyer viewing the Property” is not adequate protection for the Buyer; the Buyer needs the ability to exercise a right to cancel (in good faith) if their personal, visual inspection of the Property and/or the neighborhood is unsatisfactory. The best protection for the Buyer is to include the existing investigation/inspection contingency (such as Paragraph 8C in the C.A.R. Residential Purchase Agreement) in the purchase agreement; that contingency should not be waived.
WALK-THROUGH OR FINAL VERIFICATION OF PROPERTY: It is not prudent for any Buyer to waive their right to conduct a final verification or walk-through of the Property that is specified in all standard purchase agreement forms; this is especially true with Buyers who have never seen the Property. The walk-through is a contractual right (not an obligation); its purpose is to enable Buyers to confirm for themselves that: (a) the Property is in the same general condition as on the day that they made their Offer (b) all Seller repairs have been completed as agreed, and Seller has complied with all other Seller’s contract obligations. All Buyers should be strongly encouraged, preferably in an email, to personally conduct a walk-through, especially if they have yet to see the Property.
NOTE: Buyers who are dissatisfied with what they see at the walk-through, may have limited options. The final verification does not create a Buyer right to cancel – it is not a contingency. Buyers who are upset with the condition of the Property at the walk-through should consult with their own qualified California real estate attorney to discuss what their options may be and whether they should close escrow.
The Buyer’s Agent should not conduct the final verification on behalf of the Buyer, regardless of why the Buyer cannot exercise their right to do so. The scope of the Agent’s duty to inspect as part of their competent,
diligent, visual inspection of the accessible areas of the Property is limited by California law and by the terms of
standard transaction documents, such as the Agent’s Visual Inspection Disclosure (CAR Form AVID). The statutory and contractual limitations which control the Agent’s inspection duty do not apply to (and do not
protect) Agents who take on the Buyer’s right to confirm the condition of the Property at the walk-through. The Agent may have to go onto the roof and crawl under the house if they agree to perform the walk-through.
PRACTICE TIPS:
- ALL AGENTS: Regardless of who you represent in a transaction, IF you learn that the Buyer has only seen pictures or videos of the Property, then the Buyer Advisory Regarding Buying Property “Sight-Unseen” (attached to this Tip) should be provided to the Buyer as soon as practicable.
a. The Advisory can be used by either the Seller’s Agent or the Buyer’s Agent.
b. If the Buyer refuses to sign the Advisory, the most important step is to document that the form was delivered to the Buyer or the Buyer’s Agent (if sent by the Seller’s Agent). It is not a contract document that needs to be signed to be effective; the signature merely acknowledges receipt. The Buyer’s signature is the best proof of delivery but it is not the only means to prove delivery. An email that clearly shows the Advisory was delivered to the Buyer or Buyer’s Agent is sufficient documentation for the Broker file.
c. None of the standard walk-through forms, such as the Verification of Property Condition (CAR Form VP) are legally required forms; the VP and other walk-through forms are a convenient mechanism for Buyers to document the results of their walk-through. If the walk-through is being waived by the Buyer, the VP can also be used to confirm the waiver (see the check box in paragraph 3 of that form) but an email from the Buyer regarding their waiver is sufficient proof; the Buyer is not obligated to sign any particular form.
- BUYER’S AGENTS: If your Buyer insists that you prepare an offer when you know that the Buyer has not and/or cannot personally inspect the entire Property, for any reason, the following steps should be taken:
a. Make sure that the Buyer receives and preferably signs the Buyer Advisory Regarding Buying Property “Sight-Unseen” as soon as possible and a copy is put into the Broker file.
b. Make sure that the Buyer has an investigation/inspection contingency in the Purchase Agreement with sufficient time to allow the Buyer to personally inspect the entire Property.
c. If the Buyer chooses to waive the investigation/inspection contingency and/or removes that contingency without ever going to the Property, send the Buyer an email confirming that they are proceeding against your advice and recommendation.
d. If the Buyer chooses to waive the walk-through or final verification of the Property, you should not perform that function for them. The Buyer can have a trusted friend or family member do the walk-through but it should not be done by the Agent. If no one else is available, document (preferably in an email to the Buyer) that the Buyer is proceeding against your advice and recommendation by choosing to waive their right to do the final walk-through.
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 2023 02/24/23