BROKER RISK MANAGEMENT
RISK MANAGEMENT TIP
INQUIRY: I am a listing agent of vacant land. The buyer’s agent has requested that the seller complete a Transfer Disclosure Statement (“TDS”) and that I prepare an Agent Visual Inspection Disclosure (“AVID”). I do not believe these forms are appropriate, but would appreciate your opinion on disclosure issues affecting the sale of vacant land.
ANSWER: A TDS and AVID are not required for the sale of vacant land. It is also not advisable to use a TDS when it is not required. Instead, the seller should complete the California Association of Realtors Seller Vacant Land Questionnaire and the agents should disclose anything of which they are aware regarding the property.
A TDS is only required on property, which contains one to four residential units and for which an exception does not apply. (Please refer to CAR’s Legal Memo entitled, “Transfer Disclosure Statement Exemptions” at https://www.car.org/riskmanagement/qa/disclosure-folder/tds-exemptions. It is not advisable to use a TDS when it is not required. Instead, for vacant land, a Seller’s Vacant Land Questionnaire should be used. For a single-family residence, one to four units, where a TDS is not required, an Exempt Seller Disclosure (Form ESD) should be used. Because land sales are exempt from completing a TDS, it may seem that the seller could or should complete the Exempt Seller Disclosure (Form ESD); however, this form is only designed for properties with 1-4 residential units.
If a TDS is used when it is not required by law, it could subject the seller to liability. Consider the situation where a seller is not required to complete a TDS, but fills it out at the agent’s request and writes that the seller is not aware of any drainage issues. In the next winter, the property floods. The buyer sues the seller on the grounds that the seller should not have marked the box that they were not aware of any drainage issues when, in the buyer’s opinion, a reasonable seller in that seller’s position should have known about the drainage system or made inquiries before making that representation. (Please note that we defended this exact case.) The seller filed a cross-complaint against the listing agent for improperly advising him to complete a TDS. Both the seller and the listing agent paid approximately $35,000 each in settlement of the claim.
An AVID is only required on one to four residential units, as well. Please note that the same exemptions for a TDS do not necessarily apply to an AVID. Agents selling vacant land are required to disclose all information of which they are aware affecting the land. However, they are not required to fill out an AVID. Agents are required to disclose information of which they are aware, such as information they obtain from the seller, identify with their senses (ie. that which the agents sees, hears smells) or of which they have independent knowledge from any source. For example, an agent who specializes in the sale of land in a particular rural location, may have personal knowledge of biological issues, flood plain issues, water restrictions, restrictions on permitting, etc. If that agent has knowledge of those issues, it needs to be disclosed to the buyer.
An agent representing a buyer on vacant land should consider the intended use of the property by the buyer and advise the buyer to undertake sufficient investigation to satisfy any concerns the buyer may have. For example, if a buyer is purchasing a vacant lot and intends to build a 5,000 square foot house on the property, the buyer’s agent should recommend that the buyer visit the local governing body (county or city Building Department) to ensure that the buyer can build the house the buyer desires. There may be local regional building restrictions. Buyers (not the agents) should investigate the costs of and access to sewage/septic, water, utilities, road access, etc. It is also advisable that the buyer’s agent advise the buyer to speak with an engineer, surveyor, architect and/or contractor to discuss fees and any potential limitations on construction such as setbacks, zoning issues, and availability of utilities.
PRACTICE TIPS:
- Do not use a TDS in the sale of vacant land. Rather, use a Seller Vacant Land Questionnaire.
- Do not complete an AVID on vacant land. However, both agents are required to disclose any information they have affecting the value or desirability of the property.
- Whether you are representing a seller or buyer, do not check public records at the local building department or other public agency to provide to the buyer. The law does not require you to do so and, if you do, you are acting beyond the standard of care and could be exposed to additional liability.
- If you are representing a buyer on the sale of vacant land, recommend that the buyer (a) review the records at the local building department and any agency that may have jurisdiction such as the Coastal Commission or other regional bodies, and (b) also to consult with professionals regarding the buyer’s intended use of the property, including, but not limited to: surveyors, contractors, architects, civil engineers, soils engineers.
- If you do not specialize or have a solid understanding of selling vacant land, you should consult with your manager or associate a more knowledgeable colleague in your office to assist you in this listing and/or sale.
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.