BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
The following are additional questions and answers arising from Broker Risk Management’s webinar regarding a closer look at the RPA:
QUESTION No. 1: What is a private transfer tax? Is it a fee imposed by the city or county?
ANSWER: It is not a fee directly imposed by a city or county. It is a tax imposed on properties within a specific development or area. For example, a city, county or district could require a developer to establish an environmental impact fund where each homeowner has to pay a percentage of the sales price of their property into that fund to preserve the local environment. These taxes generally will show up on a preliminary title report.
QUESTION No. 2: What is an “entity buyer”?
ANSWER: It is any buyer which is not a natural person (i.e., trust, partnership, limited liability company, corporation).
QUESTION No. 3: If a buyer has not decided if they wish to purchase title insurance, beyond that required by the lender, how do we complete Paragraph 3.Q.(h)?
ANSWER: It is suggested that you include the buyer’s title insurance, which they can later waive, if they so choose. However, buyers should not make such a decision lightly. If after the close of escrow there is a claim against the title, the failure of a buyer to purchase title insurance can result in the buyer incurring significant legal fees defending the title, loss of use of some or all of the property, or even loss of title to the property. If there is a lender with title insurance, that insurance policy will protect the lender’s interest, but will not protect the buyer. Before the buyer decides to forgo purchasing buyer title insurance, provide the buyer with BRM’s “Buyer Advisory Regarding Purchasing Title Insurance” bundled with this tip.
QUESTION No. 4: Regarding deposit disputes, if a buyer deposits more than 3% into escrow and has not agreed to liquidated damages, can they keep the full deposit?
ANSWER: That is a complicated question. The parties agreeing to liquidated damages predetermine damages in the event of a buyer’s default. In other words, if a buyer breaches the contract, the damages are limited to the deposit; the seller cannot collect more. However, California law states that there is a presumption that up to 3% of the purchase price of a residential property is a reasonable liquidated damages. If a seller seeks to claim a deposit in excess of 3%, the burden of proof shifts to the seller to show that the seller has incurred actual damages in excess of 3% or that the excessive amount being sought by the seller is justified. If however, a liquidated damages provision does not apply or is not initialed, the seller can pursue the buyer for all the seller’s actual damages (i.e., if the market drops and on the resale the seller incurs damages in excess of 3% or the deposit, the seller can assert a claim for damages against the buyer for that amount).
QUESTION No. 5: If a seller intends to stay in the property beyond 29 days, we generally use an addendum. Is there something else we should be using?
ANSWER: Yes, if a seller stays in the property for 30 days or longer, a lease should be executed. See CAR form Residential Lease After Sale (zipForms form RLAS).
QUESTION No .6: How do you handle receiving an offer on an old CAR form?
ANSWER: With the seller’s permission, you can request that the buyer’s agent rewrite the offer on a current form, or the seller can issue a counter offer, rewriting the offer on a current form. It is important that agents use the most current CAR forms as the forms are continually updated to address changes in California law. Failure to use current forms could be alleged to fall below the standard of care and the DRE could find negligence leading to a license violation.
QUESTION NO. 7: Regarding an agency disclosure, if buying and selling agents are in the same office, are they considered a dual agency?
ANSWER: Yes. Two agents licensed with the same broker representing parties in the same transaction constitute a dual agency.
QUESTION No. 8: Buyers will sometimes write offers on multiple properties at the same time and get them accepted, then subsequently choose one. Are these buyers acting in good faith?
ANSWER: No. If a seller discovers that a buyer is writing multiple offers for different properties at the same time with an intent to purchase only one, the sellers could take the position that the buyers are acting in bad faith. Broker Risk Management recommends that buyer agents decline a buyer request to write offers on more than one property at a time if buyer intends to purchase only one.
QUESTION No. 9: What happens if you waived the contingency for review of seller documents, but there is a required document that the seller hasn’t yet provided?
ANSWER: The late delivery of a seller document does not revive a removed contingency. Paragraph 14B(3) of the RPA states that if a seller document is delivered later than required, buyer has 5 Days after delivery to approve or cancel the contract. However: “If Delivery of any Report occurs after a contractual contingency pertaining to that Report has already been waived or removed, the Delivery of the Report does not revive the contingency but there may be a right to terminate for a subsequent or amended disclosure under paragraph 11G.” (i.e., specified statutory cancellation rights)
Attachment: Buyer Advisory Regarding Purchasing Title Insurance
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 PC. 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 practice.