BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Seller Advisory Regarding Completing TDS and Other Seller Disclosure Forms
Q: I usually work with Sellers. My clients are usually well-educated professionals but, notwithstanding their wide range of knowledge and experience, they are often confused about what they do and do not need to disclose. I advise them to be as candid as possible about what they know but they frequently ask me how much information they should provide. What is the best practice when dealing with Sellers who do not like or understand the standard Disclosure Forms?
A: Regardless of the educational background and experience of Sellers, Listing Agents have a fiduciary duty to provide Sellers with professional guidance on how to best complete the various types of Disclosure forms. To that end, Broker Risk Management, LLP recently updated its Seller Advisory Regarding Completing the TDS to not only discuss the Supplements to the TDS but also the Exempt Seller Disclosure forms.
The best approach is to provide the attached Advisory to all Sellers at the earliest stages of the listing so that they can take the necessary time to review their documents and prepare their responses to the questions on the Disclosure Forms.
PRACTICE TIPS
1. Do not treat this Advisory as “just something that the Sellers need to sign”. The best practice is to go through this Advisory with the Seller so that they understand their disclosure obligations before they receive the Disclosure forms. The most important concept is to recognize that as the Sellers’ fiduciary, Listing Agents must reinforce the seriousness of the disclosure process and Brokers should not make any attempt to downplay that process; documenting your efforts in giving timely, effective advice is the best way to manage your risks.
2. In non-disclosure lawsuits, Sellers often claim that the Listing Agent failed to properly and fully advise them on what their disclosure obligations were, thus blaming the Broker for their decision not to disclose their knowledge. Documenting your file that you spent time with the clients on this important issue and that you then had them acknowledge receipt of this new Seller Advisory before they completed the Disclosure Forms helps to establish that the Sellers received the proper advice in a timely fashion. Failure on the part of the Sellers to follow the good advice in the attached 3-page Advisory would then be the responsibility of the Sellers and not the Listing Agent.
DO NOT FORWARD TO CLIENTS. 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.
SELLER ADVISORY REGARDING COMPLETING
THE REAL ESTATE TRANSFER DISCLOSURE STATEMENT
AND OTHER SELLER DISCLOSURE FORMS
Property Address: __________________________________________________________________________
All Sellers in California have an affirmative duty to disclose to Buyers all material conditions, defects and/or issues known to them that might impact the value or desirability of the Property. Failure to do so may lead to a claim or a lawsuit against you which can be very costly and time consuming.
As a Seller, you may be required to fill out one or more of the following Disclosure Forms: 1. Real Estate Transfer Disclosure Statement (“TDS”); 2. Seller Property Questionnaire (“SPQ”); 3. PRDS Seller Supplemental Checklist (“SSC”); 4. San Francisco Seller Disclosure; and/or 5. an Exempt Seller Disclosure (“ESD”).
You should follow the general suggestions below when filling out any or all Disclosure Forms.
PREPARING TO COMPLETE YOUR DISCLOSURE OBLIGATIONS:
1. Read and carefully review all questions in the Disclosure Form(s) to make sure that you understand the full extent of the information that is being requested in each question.
2. Locate any prior Disclosure Forms, reports, studies, repair estimates, plans, appraisals, invoices, photographs, or other documentation that includes information, of any age or date, that may be responsive to any of the questions or otherwise relate to the Property. This documentation may include what you have created for your records or posted online (on any form of social media, including blogs, personal websites, Facebook, etc.) or received as a member of an HOA or as a Board member of an HOA.
3. Use your existing documentation to refresh your memory of past and current issues, condition and/or problems and then provide a copy of that paperwork with your fully completed Disclosure Forms.
4. Walk all the way around the inside and outside of the Property with the Disclosure Forms in hand to better remember issues, conditions, problems, defects, repairs or other concerns.
5. Allow plenty of time to fully complete the Disclosure Forms.
6. Your knowledge may be based upon what you have been told orally (e.g., in a conversation with a neighbor) or received in writing (such as a repair estimate, report, invoice, an appraisal, or sources as informal as neighborhood or HOA newsletters).
COMPLETING ALL DISCLOSURE FORMS:
1. Do Not leave any questions blank or unanswered; answer all questions and provide all documents, information and explanations to every “Yes” response in the blank lines or add an Addendum to the Disclosure Form.
2. If you do not know the answer to any question, then you are “not aware” and should answer that question “No”.
3. The Disclosure Forms are designed to get Sellers to provide Buyers with as much information as possible, and thus many of the questions on these forms may list multiple issues, conditions or problems and/or have subparts. It is important to address each aspect of each question and provide precise details so that Buyers will understand the “who, what, where, when and how”.
4. The Disclosure Forms are written using very broad language. You should not limit the information, documents, and/or explanations that you provide Buyers.
5. Be specific and provide facts for each response; you should not let subjective beliefs limit, qualify or downplay your disclosures. Avoid words such as “never,” “minor,” “insignificant,” “small” or “infrequent;” these terms may reflect your opinion but that opinion may not be shared by Buyers, professionals or others.
6. Consider all issues, conditions or problems that impact your Property even those that are not necessarily on your Property but are related to a neighbor’s property (such as shared fences, lot-line debates) or exist in the neighborhood (such as noise, smells or other nuisances).
7. Even if you have learned to live with an issue, condition or problem, disclose it.
8. Even if you believe that an issue, condition or problem has been repaired, resolved or stopped, disclose it but do not speculate, predict or guarantee the quality or effectiveness of the repair or resolution.
9. If there is conflicting information, data, and/or documents regarding any issue, condition or problem, disclose and identify everything.
10. Do not assume that you know the answer to all questions; for example, unless you personally obtained or received copies of permits, do not assume that anyone who did work on the Property obtained permits.
11. If you are relying on written or oral information you received from someone else, even if you disagree with that information or unsure as to its truth, disclose and identify the source of that information.
COMPLETING SPECIFIC TYPES OF DISCLOSURE DOCUMENTS:
REAL ESTATE TRANSFER DISCLOSURE STATEMENT (“TDS”)
Section I allows Sellers to incorporate and provide reports and disclosures that relate to the information requested in that Disclosure Form. Providing those “Substituted Disclosures” does not eliminate your responsibility to fully and completely disclose all known information that is requested in the TDS.
Section II A asks you to check a series of boxes to indicate what appliances, fixtures and other items exist on the Property and asks whether any of those existing items are “not in operating condition,” a term which is not defined. Consider whether the checked appliances, fixtures and items fully function as if they were new and, if not, disclose any issues, limitations or problems. The TDS is not a contract and it does not control what items must remain with the Property after close of escrow; the Purchase Agreement determines what items must remain.
Section II B asks if you are aware of any significant defects/malfunctions in certain identified areas of the Property. There is no definition for “significant defects/malfunctions”; do not assume this terminology places any limits on what you need to disclose. If you check any of the boxes, please provide as much information as possible regarding the issues, conditions or problems that you know about the checked areas.
Section II C asks sixteen questions regarding the Property and surrounding areas. These questions are written very broadly and contain multiple issues, conditions and/or problems. Make sure that you respond as to each issue, condition or problem. If you respond “Yes” to any question, please provide as much information as possible.
If you are answering any of these questions “No” because you lack familiarity with the Property or the topic of any question, then you should fully explain the reasons, such as you have not seen the Property in a long time or at all. Buyers need to understand that your “No” answer reflects the lack of awareness of the item, not that you are representing that the problem, condition or issue does not exist.
Question 16 in Section II C asks about certain legal issues, conditions or problems. First, it asks you to disclose any lawsuits by you or against you threatening to, or affecting, the Property. Next, it asks about matters related to construction defects and references Civil Code Sections 900, 903, 910 and 914. These code sections are part of a law that is widely known as SB 800 or Title 7 and which generally applies to residential real property built by a “Builder” (as defined in Section 911) and sold for the first time on or after January 1, 2003. Section 900 of that law provides for a limited one-year warranty from the Builder. Section 903 refers to an “enhanced protection agreement” if such is provided by the Builder. Sections 910 and 914 reference prelitigation procedures and remedies in the event of a claim against the Builder.
SUPPLEMENTS TO THE TDS
The TDS does not include questions regarding everything that Sellers need to disclose to Buyers, such as whether there has been a death on the Property within the last 3 years. Another example of a legally-required disclosure that is not in the TDS became effective January 1, 2017: Sellers of single-family residences built prior to January 1, 1994 must disclose if the Property has any noncompliant plumbing fixtures which means: (1) any toilet using more than 1.6 GPF; (2) any showerhead that has a flow capacity of more than 2.5 GPM, and (3) any interior faucet that emits more than 2.2 GPM.
Because of the limitations in the TDS, the California Association of REALTORS® created a statewide Supplement to the TDS called the SPQ. PRDS, another REALTOR® organization, created a detailed Supplement to the TDS called the SSC that is designed for use in San Mateo and Santa Clara Counties. In San Francisco, the local Association of REALTORS® created a San Francisco Seller Disclosure for use in that city. These Supplemental Disclosure Forms enable Sellers to fulfil their obligation to disclose all known material facts regarding the Property and/or the neighborhood that are not asked about in the TDS. Sellers completing a TDS should fully complete either the SSC or the SPQ.
EXEMPT SELLER DISCLOSURE FORMS
Some Sellers of real property may be legally exempt from competing the TDS. For example, Probate and Bankruptcy Court sales and sales by governmental entities are exempt from the obligation to provide a TDS. Some property that is owned by a Trust which has Trustee(s) acting in the capacity of a Seller may also be exempt but not all Trustee(s) are exempt. If a qualified California real estate attorney has advised you that you are exempt from completing the TDS, then you are not obligated to complete that form or any Supplement to the TDS.
However, being exempt from completing certain Disclosure Forms does not completely eliminate those disclosure obligations that apply to all Sellers under federal, state or local laws, ordinances or regulations and/or by contractual agreement with the Buyer. Therefore, both CAR and PRDS have created Exempt Seller Disclosure Forms to aid exempt Sellers in meeting their disclosure obligations. Pay particular attention to the “catch-all” question in each Exempt Seller form (Question 4.J in the CAR form. Question 2 in the PRDS form) which asks you to disclose your awareness of any other material facts or defects affecting the property. These “catch-all” questions are designed to prompt you to fully comply with your disclosure obligations.
FINAL RECOMENDATIONS:
It is important that you fully complete the TDS and/or any other Disclosure Forms as honestly as you can. To that end, your Listing Agent strongly recommends that you consider the following points when completing your Disclosure Forms:
· If you are aware of any planned or possible changes to your neighbor’s property (such as an addition), changes in the neighborhood (such as new construction or road changes) that may affect traffic, views, noise levels or other issues, conditions or problems, disclose those plans or changes even if you are not certain whether the change(s) will ever occur.
· Disclose any lawsuits, whether filed in the past, are presently filed, or that will be filed, regarding the Property or the neighborhood (such as an HOA dispute) even if you believe that the case has been resolved. Provide as much detail as possible about any lawsuit, including the name of the case and the County where the case was filed.
· If any disclosure that you have made becomes inadequate, incomplete, inaccurate or changes over time, including right up until the close of escrow, you should update and correct your Disclosures Forms in a timely fashion.
· If you have any questions about the applicability of any law to the Property, your Listing Agent recommends that you consult with a qualified California real estate attorney for advice. Your Listing Agent cannot and will not tell you if any law is applicable to the Property.
· If you need help regarding what to disclose, how to disclose it or what changes need to be made to your Disclosure Forms, the best advice is to consult with a qualified California real estate attorney for advice. Your Listing Agent cannot and will not tell you what to disclose, how to disclose it or what changes need to be made to your answers.
· When in doubt, the best answer to “Do I need to disclose …?” is always “YES, disclose it.”
I/We have received and read this 3-Page Advisory.
Date: __________________ Seller: __________________________________________
Date: __________________ Seller: ___________________________________________