BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
On December 4, 2023, Broker Risk Management (“BRM”) held its Fall Risk Management Seminar. BRM received over ninety (90) questions, many of which we were unable to answer during this webinar. The following are questions and answers from that webinar which we thought would be of interest to our clients:
Q: Regarding credits for repairs, is it sufficient to use the Request for Repair form (“RR”) which contains a release of liability?
A: The release of liability language in the RR form states in paragraph 4B: “Buyer Releases Seller from any loss, liability, expense, claim or cause of action regarding the disclosed condition of the Property.”
It is BRM’s opinion that this simple release of liability is not sufficient to properly cover the seller and the real estate agent for liability arising out of that issue.
Q: If you sold a property previously and still have access to the entire file, including the broker file and/or a file you as an agent kept, do you need to provide the disclosures and reports from that file to a new buyer?
A: Yes. However, this is a reason for agents to refrain from keeping files. It is recommended that agents provide the files to their broker and the broker should retain the file. Please note that the California Department of Real Estate (“DRE”) requires that if agents are retaining files, they ensure that the files are kept in such a matter as to ensure their confidentiality. This means that agents cannot keep the files in a garage or the trunk of their car. The files must be kept on a computer and password protected or in a locked file cabinet.
Q: Should we provide inspection reports and disclosures even if they are eighteen (18) years old?
A: Yes. It does not matter how long ago the prior transaction or listing occurred or how old the disclosure is. The basic rule here is six simple words: “You Got It, You Give It.” If you do not provide those reports and disclosures which identify an issue which reoccurs after the close of escrow, the buyer can hold you and the seller liable for not disclosing that prior document.
Q: How long do we keep comparative market analyses in our files (“CMA”)?
A: CMAs should be kept in your file. The file should be given to the broker and the broker should keep the file in accordance with the broker’s practice and procedures. BRM recommends that a broker’s files be kept at a minimum of five (5) to seven (7) years.
Q: When sellers request that we not market a property and ask us to bring a buyer, do we have them sign anything?
A: Yes. There should be an addendum to the Listing Agreement specifically identifying exactly what the seller is requesting you to do and not do. To exclude a listing from the MLS, check with your MLS to determine which form they require. If using a CAR listing agreement, you may use the SELM form for this purpose. Also, it is accepted by many MLSs for this purpose.
Q: If a seller is not required to complete a Transfer Disclosure Statement (“TDS”) but has information about the property, should we nonetheless encourage them to complete a TDS?
A: No. If a seller is not legally required to complete a TDS, the seller should NOT complete one, but instead complete an Exempt Seller Disclosure (“ESD”) form (or the SFSD if using a San Francisco purchase agreement). Whether a seller is required to complete a TDS or not, a seller is still obligated to disclose all material facts known to them affecting valuation or desirability of the property.
Q: If a listing agent is hosting an open house and a neighbor comes in and begins disclosing things about the property that the seller never disclosed, how should those disclosures be handled?
A: Document the disclosures the neighbor, or any third party for that matter, is providing whether orally or in writing. Ask the seller about those disclosures. Whether the seller is aware of those disclosures or not, you, as the listing agent, must disclose that information to a buyer. It is recommended that you disclose that information as follows: Neighbor has advised agent of the following: [Add disclosures or information provided by neighbor]; agent has not verified this information; buyer to investigate the information.
Q: Our brokerage has changed ownership and therefore we no longer have access to old files. Are we required to provide them?
A: No. You are only required to disclose information which is reasonably accessible to you.
Q: I am representing a buyer. Should I ask the listing agent for prior disclosures and reports from sellers’ purchase of the property?
A: Yes. That is a recommended practice.
Q: I am aware of an experienced and high performing agent of many years who never fills out an AVID. The agent is not with our office. What are your thoughts in this regard?
A: Pursuant to Civil Code Section 2079, for 1 to 4-unit residential properties real estate agents are required to undertake a “reasonably competent and diligent visual inspection” of the property and disclose all information of which they are aware and which they identify in that inspection. An agent is not statutorily required to complete an AVID form itself, since that form was created by CAR. However, while an agent can fulfill their statutory inspection disclosure obligation on the three and half lines for that purpose in the TDS. CAR has established a standard of care for agents to complete their inspection disclosure obligation on the AVID, which now is the practice of most agents in California. Therefore, an agent who does not complete an AVID arguably falls below the standard of care.
Q: With regard to CAR’s NODPA contract, where do we look to see if a loan on a property is in default.
A: It should be identified in the preliminary title report. Look for a “Notice of Default,” or a “Notice of Sale” by a lender which is the start of a foreclosure process.
Q: What language should we use to give our sellers their options regarding payment of commissions to the listing and buyer agents?
A: Broker Risk Management distributed a Tip with an Advisory which sellers can sign setting forth their options. BRM also distributed a separate Advisory for buyers’ agents to use with buyers. Check with your manager or broker if you want to obtain copies.
Q: Is there any case law where a Buyer Representation Agreement has been ruled valid?
A: A Buyer Representation Agreement is a contract and therefore is enforceable. There are no cases finding it to be invalid. Therefore, the conclusion is that it is valid.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication 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 LLP. 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.