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SOME OF THE OLD-TIMERS REMEMBER when real estate contracts were written on one page. There were no mandatory disclosures because the traditional approach to real estate was caveat emptor (let the buyer beware). The current residential purchase agreement is now 11 pages long and the trend is clearly in favor of protecting the rights of consumers.
California real estate disclosure laws are not new. They have been around since the Easton v. Strassburger decision of 1984, where a real estate agent failed to disclose a landslide hazard which destroyed the value of a residential property in the city of Diablo. The law now requires that sellers and their agents disclose all known material facts and defects about the property which is for sale.
California, where real estate claims are twice the national average, is a leader in the disclosure movement. This is a significant trend because legal decisions in California often influence the outcome of lawsuits in other states. However, the real responsibility now lies with buyers and sellers and the independent experts they choose to advise them.
Buying real estate is not the same as buying a car. A car is a uniform product designed to rigid specifications and built in a factory. If your new car has a defect, you get a recall notice and you fix it. The value of your car is not affected by where you drive it or park it, or by other cars on the road. Real estate, on the other hand, is unique, immovable, constructed on-site by multiple professions (including owners and amateurs), and is affected by the land it occupies and everything which surrounds it.
Mandatory Disclosures
More than half the states now require some form of disclosure when real property containing one to four dwelling units is transferred. The California Department of Real Estate (DRE) publishes a booklet for consumers called Disclosures in Real Property Transactions which gives detailed current information about all the required disclosures. Ask you real estate agent for a copy of this booklet or contact DRE at www.dre.ca.gov or 916-227-0931 (Sacramento). The major required disclosures include the following.
- real estate transfer disclosure statement
- natural hazards disclosure statement
- Mello-Roos bonds and taxes (special assessment districts)
- ordnance location (ordnance refers to military weapons and ammunition
- earthquake guides
- smoke detector statement of compliance
- disclosure regarding lead-based paint hazards
- California environmental hazards pamphlet
- notice regarding the advisability of title insurance
- certification regarding water heater’s security against earthquake
- locations of registered sex offenders (Megan’s law)
- visual inspection by agents
- agency relationship disclosure
- disclosure of the negotiability of real estate commissions
- association disclosures to common interest owners
This booklet also includes sections on disclosures required when financing real property and disclosures which relate to subdivisions and transfers of businesses.
Most of these mandatory disclosures simply require that the sellers reveal what they already know. Both the buyer’s and seller’s agent must conduct a reasonably competent and diligent visual inspection of the accessible areas of the property and disclose what they find.
The seller does not have to conduct any expert investigations for the buyer’s benefit. However, if the seller has hired an expert they need to give a copy of the expert’s report the buyer. Also, the seller is not obliged to repair or correct any problems or defects, except by mutual agreement with the buyer.
Expert Investigations
The mandatory disclosures make it clear that sellers and their agents must disclose what they know and make the property available for inspections. However, the real message is that buyers have the right and duty to hire experts and conduct their own investigations.
Most real estate purchases are financed by lenders, who often require other types of investigations and reports. The most common lender requirements are a pest report, real estate appraisal and a preliminary title report. Lenders may also require environmental assessments, floodplain investigations and letters from planning and building departments.
Who pays for these investigations and reports? In Mendocino County it’s customary for the seller to pay for the termite inspection and the buyer to pay for the appraisal, the home inspection and other reports as needed. Some sellers who own unique, high-value or complex properties order their own appraisals to help them set the listing price. It’s also becoming more common for sellers to order pre-sale home inspections so they can find and correct any problems that might kill a future deal.
The following is a list of the most common investigations that buyers and sellers use to negotiate a sale and/or get a loan for residential property.
- pest report
- title report
- home inspection
- real estate appraisal
- roof inspection
- covenants, conditions and restrictions (CC&Rs)
- planning, zoning and permits
- school reports
- crime statistics
- energy audits
The following investigations apply to rural properties and bare land.
- septic site evaluation
- septic system inspection
- well inspection
- land survey
- road maintenance agreements
- easements
- California Department of Forestry (CDF) fire safety compliance
- timber cruise
- agricultural soils analysis (vineyard potential)
The following investigations apply to properties with potential environmental hazards.
- structural geology report (ocean front and hillside lots)
- environmental assessment (leaking underground storage tanks)
- floodplain investigation
- asbestos investigation
- lead paint investigation
- volatile organic compounds (VOC) investigation (formaldehyde, etc.)
- electromagnetic field (EMF) investigation
- radon investigation (uncommon in Mendocino County)
The following investigations apply to income properties.
- rent survey
- market analysis
- Americans with Disabilities Act (ADA) compliance
- fire safety inspection
- traffic report
Hiring an Expert
Experienced real estate agents should be aware of all the factors which affect the value, desirability and intended use of real property. Because there is so much to know, agents often specialize in a particular geographic area or property type. Real estate agents are generalists. Their skill lies in the art of the deal – negotiating contracts and creating a win-win solution for buyers and sellers.
Although some real estate agents have a great deal of knowledge and expertise, it is not their duty to give expert advice about structural defects, wells, septic systems, environmental hazards or even market value. However, they do have the duty to advise their clients about selecting appropriate experts to conduct tests, inspections and prepare reports. Your real estate agent should give you the names of several experts and let you make the choice.
The first thing to look for when hiring an expert is professional knowledge and experience. They should be licensed (if they belong to a licensed profession), familiar with the area and type of property they are investigating and have a reputation for excellence.
The second thing to look for is integrity and impartiality. The expert’s job is to give you his or her unbiased opinion. They should be under no obligation to favor the buyer, the seller or to make the deal. Nor should they be in a position to receive any special benefits from the outcome of their report.
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Chet Boddy, Real Estate Appraisal, Sales and Consulting
43300 LR Airport Road, #59, Little River, CA 95456
707-937-4011, office
707-937-4818, fax
chet@chetboddy.com
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Copyright © 2002 Chet Boddy, All Rights Reserved
Chet Boddy is a Certified General Real Estate Appraiser, Realtor and real estate consultant who has lived on the Mendocino Coast since 1976. Look for this and other real estate columns on Chet’s web site at www.chetboddy.com
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