If you are a buyer or a seller of residential real estate today, disclosures are extraordinarily important. One document that the seller must give the buyer is called the Transfer Disclosure Statement (C.A.R. form TDS). It is always unfortunate when sellers fill out disclosure forms, they want to get it over with and they rush through it. Sellers should be advised that they should take the time to carefully and thoughtfully disclose any and all defects of their home. It is understandable that sellers want to put a happy face on their home, but this is the time to be brutally honest and that means even if it affects the value. Most lawsuits between the sellers and the buyers can usually be traced to what wasn’t disclosed. There is an adage in the real estate industry- when in doubt about if something should be disclosed- DISCLOSE! In the California Residential Purchase Agreement (C.A.R. form RPA-CA) paragraph 9 it states that the seller is selling the home in its present physical “as is” condition. Sellers mistakenly think that means it is up to the buyer to make their own discoveries- you get what you see. Most buyers will have the property inspected by a professional inspector, but that does not relieve the seller from disclosing known material facts and defects.

What if the seller knows that the city is planning to widen the street in front of the subject property? That is a material fact. It needs to be disclosed. If you are a buyer, it would be wise when making an offer, you also include in the purchase offer that the sellers also provide a Seller Property Questionnaire (C.A.R. form SPQ). The TDS is required by law and the SPQ is not; however the SPQ will provide much more information on top of the TDS. So Sellers spend some quality time making your disclosures. It will go a long way in helping you avoid lawsuits. And Buyers, don’t gloss over seller disclosures. Read them carefully and ask questions.

Carbon Monoxide Detectors. Carbon Monoxide is a gas produced whenever any fuel, such as gas, oil, kerosene, wood, or charcoal is burned. A person cannot see or smell carbon monoxide. There is now a California law dealing with the issue of carbon monoxide poisoning. The law requires carbon monoxide detectors to be installed in every dwelling unit intended for occupancy. The Real Estate Transfer Disclosure Statement (C.A.R. form TDS) under section 2 now gives the seller the opportunity to state if carbon monoxide detectors are presently installed in the dwelling. Buyers need  to be aware of whether there are detectors or not. As of July 1, 2011 the law requires that all existing single-family dwelling have carbon monoxide detectors installed. For all other existing dwellings (Condominiums etc) carbon monoxide detectors must be installed on or before January 1, 2013. How many detectors should be installed varies. At a minimum detectors should be installed outside each bedroom. There are penalties for noncompliance, but the property owner must first receive a 30 day notice to correct. Buyers may consider making it a condition of the sale that the sellers are required to install carbon monoxide detectors. But even if they don’t they are advised to follow the law and install them at their own expense. They are not expensive and in most cases very easy to install. By not installing them the result can be fatal to themselves or to a family member. The best advice to anyone owning a dwelling that is occupied by humans is to make sure that carbon monoxide detectors are installed and working properly, even before the law states you have too. They will a save life.

California Real Estate Forms (PDF)

Paragraph 16, Final Verification of Condition (CAR form RPA-CA). This paragraph seems to get lost as far as most buyers are concerned. But it is very important to a buyer. The buyer wants to make certain that the property is in the same condition as of the date of acceptance of the purchase agreement. If the seller has agreed to make repairs at the request of the buyer, those repairs also need to be confirmed. This paragraph gives the buyer usually five days to make a final inspection of the property before the close of escrow. In paragraph 9, Condition of Property (CAR Form RPA-CA) of the purchase agreement, unless otherwise agreed, the property is being sold in its present physical (as-is) condition subject to a physical inspection by the buyer and any agreed to repairs by the seller. Paragraph 15 Repairs (CAR Form RPA-CA) states that any repairs by the seller will be completed prior to the final verification of condition. It also goes on the state that the agreed to repairs may be made by the seller or through others. But any repairs must comply with applicable law. In other words if the repairs require a permit, then a permit must be obtained. Repairs are also to be completed in a good, skillful manner. It can’t be sloppy. The seller also has to supply to the buyer receipts for repairs provided by others and if the seller makes the repairs then receipts for the costs must be provided. So if you are a buyer it just might be advisable that instead of the seller having responsibility for any repairs, you might have the seller issue a credit, to you, through escrow for agreed to repair costs. That way the buyer does not have to worry if the seller made the repairs or made the repairs in the correct way. The buyer can have those repairs completed after escrow closes and can have complete control to make sure they are completely correctly and that should give every buyer a little more peace of mind. It may seem easier to have the seller make those repairs, but you may be sorry you agreed to it.

The statement above is not intended as legal advice. Buyers and Sellers should always consult with real estate attorneys if they have questions about the contents a real estate contract.

California Real Estate Forms (PDF)

Paragraph 3(c) 1 & 2 California Residential Purchase Agreement and Joint Escrow Instructions (CAR form) RPA-CA). This is one paragraph sellers seem to miss all of the time and they shouldn’t. First of all the loan(s) that the buyer is proposing to complete the sale is a contingency of the purchase agreement (unless they are proposing some other type of financing such as all cash). 3(c) 1 is for a first loan and 3(c) 2 is for a second loan, if necessary. The seller wants to make sure that both of these paragraphs are fully completed. If they are not then the seller should make a counter offer regarding the contents of each paragraph. For example if the buyer is going to apply for a conventional loan, the paragraph should specify if the loan is a fixed rate or an adjustable rate. It should also specify the maximum interest rates for each. It should also state the maximum amount of points the buyer will pay. So if the buyer inserts a maximum fixed rate of 2% in today’s market, then most sellers would probably consider that unrealistic or they should. All the seller has to do is make a counter offer at something like 4.75% maximum fixed rate. If the seller were to miss the 2%, then that gives a buyer an easy out if they so choose. The buyer has until a certain date to remove the loan contingency. The seller could sit there for 17, 20 days (or the amount of days the buyer and seller agree to) and then the buyer tells the seller; hey we can’t find a 2% loan. If the seller didn’t know that a 2% loan was unrealistic, then at least their agent or broker should have known. In the end all the sellers did was waste a lot of time, entered escrow and took the home off the market. Now they have to cancel escrow and probably return the buyer’s entire deposit. Sellers don’t miss this paragraph 3(c) 1&2.

The statement above is not intended as legal advice. Buyers and Sellers should always consult with real estate attorneys if they have questions about the contents a real estate contract.

California Real Estate Forms (PDF)

Paragraph 6(c) of the California Residential Purchase Agreement is a paragraph all buyers should pay close attention too. This paragraph concerns withholding taxes for the seller. The seller is required to present to the buyer one of three forms.

1. A Buyer’s Affidavit (CAR form AB-11) which states that the purchase price of the residence the buyer is acquiring does not exceed $300,000 and that the buyer will occupy the property as his or her residence. By the buyer making those statements he or she is establishing an exemption from withholding a portion of the sales price of the property. Buyers should be aware that California has a different purchase price for the seller to be exempt and that is $100,000 or less. So if the purchase price is between $100,000 and $300,000, then the seller is exempt for Federal tax withholding and NOT exempt for California withholding.
2. Seller’s Affidavit of Non-foreign Status and/or California Withholding Exemption (CAR Form AS). This form will put the buyer on notice that the seller is either stating they are exempt or nonexempt from withholding taxes. This form also requires that the seller(s) provide their tax ID number or social security number.
3. Qualified Substitute Declaration of Possession of Transferor’s Affidavit of Non-foreign Status (CAR Form QS). The qualified substitute may be an escrow company, title company, or attorney responsible for closing the subject transaction or the transferee’s broker (buyer’s broker). Usually it is an escrow company. The main reason the qualified substitute was created was because many sellers did not like the idea that by providing #2 above, the buyers would have the seller’s tax IDs or social security numbers.

If none of these forms are provided to the buyer then the buyer must request that escrow withhold taxes for both Federal and California. The withholding for Federal is 10% and for California is 3 1/3%. Why is all of this important to buyers? If the buyer does not take precaution to make sure the seller is exempt from withholding taxes, the buyer may very well be liable to both Federal and California for the taxes the seller may have owed.

The statements above in no way are to be considered either legal advice or tax advice. Buyers are encouraged to seek professional guidance from their attorney or tax advisor.