An important Seller Document in California Residential Real Estate is the Transfer Disclosure Statement.
In California, the Seller of residential real estate is required by law to disclose to the buyer all material facts known to him/her that affect the value or desirability of the property and the Transfer Disclosure Statement is the primary document used to provide the information to the buyer. Generally, as long as the Seller discloses a current or past issue, it becomes the buyer’s responsibility to investigate it to their satisfaction. The Transfer Disclosure Statement is typically provided to the Buyer within three (3) days of Contract Acceptance and is the basis for the Buyer’s further investigation as allowed by contract.
What does this important document contain?
Section 1 requires that the Seller provide to the Buyer copies of all inspection reports and/or disclosures in their possession. This includes copies of repair bills, permits, warranties, etc.
Section II (A) requires the Seller to disclose whether they are occupying the property and to check the boxes next to every item included with the home and lot:
- All appliances included in the sale
- Type of Heat and Air Conditioning
- If there are burglar, smoke or fire alarms
- The number of Garage Door Openers
- Hot Tub/Spa and whether it has a locking safety cover
- Pool, type of pool heater (if any) and whether there is a child resistant barrier
- Are the Water and Sewer public or private?
- Where the the exhaust fans are located?
- Are there window screens? Window Security Bars? If Security Bars, are there Quick Release Mechanisms on bedroom windows?
- Type and age of the roof
- etc.
This section also requires the Seller to disclose if any of the items are not in operating condition.
Section II (B) requires that the Seller disclose if they are aware of any significant defects and/or malfunctions in any of the interior walls, ceilings, floors, exterior walls, insulation, roof, windows, doors, foundation, slabs, driveways, sidewalks, walls/fences, plumbing/sewer/septic and other structural components. The difficulty with the section is that the definition of “significant defect/malfunction” isn’t very clear.
Let me give you a hypothetical example: Your toilets aren’t flushing as vigorously as they used to so you periodically have a Roto Rooter come out and run the plumbing snake through the pipes. As far as your concerned, the problem is corrected and you don’t disclose it, thinking it’s just normal home maintenance. Then you sell your home and within a few short months the buyer has the same slow-flushing problem only to discover that the sewer pipe from the house to the street is broken (the cause the recurring slow flush) and the cost to repair is $6,000. Suddenly, an undisclosed, slow flushing toilet is a significant malfunction that the buyer should have had the opportunity to investigate.
Section III (C) asks if you (Seller) are aware of potential issues including:
- Hazardous materials
- Property features shared with neighbors
- Any encroachments, easements or similar matters
- Room additions, structural modifications or other alterations made without the necessary permits and/or not in compliance with building codes
- Any zoning violations, non-conforming uses or violations of “set-back” requirements
- Any settlement, slipping, sliding, flooding, drainage or grading problems
- etc.
One major problem with this section is that the required answers are “Yes” or “No” but in many cases “I don’t know” is the appropriate answer. For instance, are you aware of the repair items (known as “other alterations”) that require a building permit? Most sellers aren’t. Fortunately, the Seller is allowed to attach as many additional Explanation Sheets as necessary to provide a clear and accurate picture.
Here is recent example regarding a “potential issue” involving a property line. Our Seller was the original owner of the home and owned it for 40 years. The new neighbor starting raising a ruckus that the common fence wasn’t properly located on the true lot-line. As you can imagine, our Seller thought the new neighbor was mistaken, however, they followed our advice and disclosed the potential lot-line issue. The Buyer, conducting appropriate investigation, ordered a property survey and much to everyone’s surprise (and the Seller’s absolute shock) the fence was not on the lot-line. The difference took the fence within 5′ of the backyard pool, removing 1/2 of a patio along the backside. Since the buyer conducted appropriate investigation and agreed to proceed with the purchase, all was well. Had this not been disclosed, causing the buyer to be involved in a dispute with the neighbor and then lose part of the backyard, the outcome may have been far different.
Perhaps now you can see why Seller Disclosure (or lack thereof) is the primary cause of litigation in real estate transactions. The bottom line is this: if in doubt, disclose!
