Source: https://journal.firsttuesday.us/brokerage-reminder-the-as-is-clause-instigating-negligent-failure-to-disclose/52170/?replytocom=165907
Timestamp: 2019-08-20 10:42:34
Document Index: 477984864

Matched Legal Cases: ['§1102', '§1102', '§1102', '§1102', '§1102', '§1102', '§2079', '§2079']

Brokerage Reminder: The “as-is” clause – instigating negligent failure to disclose | first tuesday Journal
Posted by ft Editorial Staff | Apr 25, 2016 | Brokerage Reminder, Latest Articles | 4
Mandated on one-to-four unit residential property
The seller of a one-to-four unit residential property completes and delivers to a prospective buyer a statutory form called a Condition of Property Transfer Disclosure Statement, commonly known as a Transfer Disclosure Statement (TDS). [Calif. Civil Code §§1102(a), 1102.3; see RPI Form 304]
The seller’s use of the TDS form, with a few non-conventional sales exceptions, is mandated for use when making disclosures about improvements. Here, the seller is required to prepare a TDS with honesty and in good faith, whether or not the seller retains an agent to review its content before handing it to prospective buyers. [CC §1102.7]
When preparing the TDS, the seller sets forth any property defects they know or suspect to exist. Defects to be disclosed in the TDS include any conditions known to the seller which might negatively affect the value and desirability of the property for a prospective buyer, even though they may not be an item listed on the TDS. Thus, disclosures to the buyer are not limited to classic conditions preprinted for comment on the form. [CC §1102.8]
Agents continue to perpetuate the misconception that “as is” means the property is sold in its present undisclosed condition. For many agents, “as is” has become synonymous with “no disclosure required.” Seller’s agents nearly always provide the minimum disclosures and do so only AFTER the buyer has submitted an offer and negotiated the purchase price.
Speculators have greatly contributed to this environment where proper concern for disclosures by seller’s agents is essentially eliminated. When speculators are active, they are determined to buy any property on the market, no matter its condition.
The words “as is” do not mean “no disclosure required” by the seller, regardless of the type of real estate transaction or sophistication of the buyer. Since disclosures are mandated, “as-is” treatment is outlawed.
“As is” provisions are disruptive of proper conduct unnecessary to disclose the condition of the property. As mandated, information giving notice of defects is presented in the seller’s TDS prepared at the time of the listing and handed to all prospective buyers of the property. The seller simply discloses the defects, whether or not they agree to make repairs.
When defects are disclosed as required prior to entering into a purchase agreement, negotiations may call for the seller to correct some or all of the disclosed defects. When corrections and repairs are not negotiated, the buyer takes ownership of the property subject to all those defects “as disclosed” by the seller or their agent in the TDS no later than the seller’s acceptance of the buyer’s offer. [CC §1102.1(a)]
While it is the seller who prepares the TDS, the TDS is delivered to the prospective buyer by the agent who is directly handed the buyer’s purchase agreement offer. When the sales transaction is negotiated principal-to-principal — directly between the seller and buyer without the participation of a transaction agent — the seller remains obligated to deliver the TDS directly to the buyer. [CC §1102.12]
The failure of the seller or any of the agents involved to deliver the seller’s TDS to the buyer does not invalidate a sales transaction once it has closed. However, the seller and the seller’s broker are both liable for the actual monetary losses incurred by the buyer due to an undisclosed defect known to them or unknown to them due to their negligence at the time the offer was accepted by the seller. [CC §1102.13]
Thus, the buyer is best served when they receive and review the TDS before the seller accepts their purchase agreement offer.
When the TDS is delivered to the buyer after the seller enters into a purchase agreement — the delivery being untimely and contrary to the spirit of TDS rules — the buyer may:
Mandatory inspection by the seller’s agent
observable by the broker or their agent on a reasonable inspection of the property; and
affecting the property’s market value. [CC §§2079 et seq, 1102(a), 1102.3]
Despite legislation requiring disclosures be provided to the buyer as soon as practicable (ASAP), the purchase agreement published by the California Association of Realtors (CAR) fails to reference or provide for the underlying law requiring timely disclosure. Furthermore, the related provisions included in CAR’s purchase agreement call only for the delayed and untimely delivery of these required reports and disclosures within an arbitrarily set time period of seven days. Only then does the buyer discover any intentional misrepresentation or deceit involved at the time of contracting. This form surely contributes to the general failure of agents to timely disclose for lack of an alternative provision noting disclosures in compliance with the mandates.
Legislation clearly prescribes the time for proper delivery of property disclosures. Although some exceptions exist, in most cases “timely” means before the seller’s acceptance. When disclosure is delayed beyond acceptance, contingency provisions merely satisfy the statutorily provided additional remedy, giving the buyer the right to cancel, in addition to all remedies for fraudulent behavior that already exist.
Editor’s note —Brokers and agents are the gatekeepers of the real estate industry. By definition and legislation, they must possess professional integrity. Complying with disclosure requirements is part of the honest dealing with members of the public they are commit to as licensees. Real estate law does not allow a “buyer beware” treatment. Yet, CAR’s form provides exclusively for delivery of the mandatory disclosures to the buyer after the purchase offer has been accepted, while in escrow, rather than on the commencement of negotiations to set the price, terms and conditions as mandated.
Your best practice is to always deliver property disclosures to buyers prior to their setting a property’s value in the process of making an offer. Disclosures impact the value of the property, whether up or down. When the buyer is unable to review and consider the contents of these mandated disclosures before submitting an offer, the buyer is forced to blindly set the price offered — which the seller needs to counter to be assured the buyer has received and reviewed their TDS.
Here again, speculators acquiring property often disregard conditions beyond those visible on a drive-by of the property or from public records. They are in open combat to get properties, and get them now. For them, determining the property’s condition first is too tedious and inhibits their acquisitions since other speculators are moving in with the same aggressive attitude. However, this behavior has corrupted the mindset of listing agents by many buyers’ disregard for disclosures in recent years.
Targeted property sales and exempt sellers
A seller’s exemption from providing a buyer with a statutory TDS does not exempt the seller from disclosing material facts known to them. Transactions which exempt the seller from preparing and delivering the statutory TDS form to a buyer as the means for disclosing property defects include transfers:
on the resale of real estate owned (REO) property acquired by a lender on a deed-in-lieu of foreclosure, or by foreclosure;
However, the seller’s agent is not exempt from preparing and delivering a TDS to a buyer. Whether or not the seller is exempt from using the TDS, the seller’s broker and their agents are never exempt from:
conducting a visual inspection of a one-to-four unit residential property, sold or acquired on behalf of any seller or buyer [CC §2079]; and
The seller is never excused or excluded from disclosing known material facts, nor are any of the agents involved in the transaction excused from performing their due diligence and visual inspections. When you deliver property disclosures to the buyer in a timely manner, the buyer has the opportunity to evaluate the property’s market value based on full disclosure.
For every transaction you are involved in, you need to remind yourself that when any aspect or fact about the property may have any influence on the buyer’s decision to purchase the property, or the price they are willing to pay for the property, it needs to be disclosed ASAP — once negotiations toward entering into a purchase agreement commence.
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Dennis Smith	on June 10, 2016 at 1:40 pm
What about the RPA which states: “Paragraph 11: Condition of Property: unless otherwise agreeing writing: (i) the Property is sold (a) “AS_IS” in its PRESENT physical condition as of the date of acceptance…”?
How do you reconcile that statement with your article “Any attempted waiver, such as the use of an “as-is” clause in the purchase agreement, is unenforceable as against public policy. The words “as is” are never to be used in the context of real estate transactions.”
I can and will use “as disclosed” and provide the disclosures in the MLS.
Dennis Smith //www.SanDiegoHomes4u.com
ft Editorial Staff	on June 13, 2016 at 9:51 am
Many agents and sellers misinterpret the “as-is” clause to mean they are not required to disclose material facts or defects. They erroneously interpret it as equivalent to “buyer beware,” or “what you see is what you get.” Worse, during the Millennium Boom and Great Recession, many agents took advantage of this clause to shirk their disclosure obligations.
While CAR’s RPA states “Seller shall DISCLOSE KNOWN MATERIAL FACTS AND DEFECTS affecting the property,” this is often overlooked because of the “as-is” statement that precedes it. Replacing “as-is” with “as disclosed” would prevent this misinterpretation and explicitly obligate agents and their sellers to correctly fulfil their disclosure obligations.
William Matz	on June 14, 2016 at 5:09 pm
Actually, “as is” is better than “as disclosed” Remember, the TDS does not require disclosure of items that are readily apparent. Accordingly, “as disclosed” would not eliminate seller responsibility for obvious items that are not required on TDS [“disclosed”], whereas “as is” would make clear that seller is not offering to fix anything whether obvious or disclosed on TDS. However, the article correctly highlights the common misconception that “as is” somehow eliminates disclosure obligations; it definitely does not.
Carlos Lopez	on July 17, 2017 at 7:07 pm
Who says recidivism rates are of or concerning ex-cons on a crash course with the CDC. If Smith is his real name, looks like you could be wearing a disguise, is well on his way to a head on collision with the CalBRE. Straighten up and fly right, lad. This is only a legislative effort to maintain several aspects of several industries after , I could be wrong, but sounds like Easton V Strassburger. This case was decided in the District Court of Appeal, and followed a progressive, consumer orientated policy developing around the country, while for some reason our state courts, too include the legislature in this game, lagged far behind. When the “iron is hot”, this to say that the proper factual circumstances presented themselves in a case on appeal (A bad ,bad guy and a good deed doer good guy is just the beginning, the facts must fit in a developmental aspect so as to avoid legal leaps in faith or what would appear in the written decision as twisted reasoning and a lack of judicial discretion; common law is developed case by case.) (Judges are known to look for or encourage lawyers to bring them cases they happen upon with particular facts, this, informally and usually at “Boat Partys”) and , while they are not suppose to make law, not their job, they just can’t stand it and come out with the bell. So, there it is, the Supremes hadn’t or wouldn’t, get it before them, and no split between the districts coming their way soon enough? The temporal aspect is important, because its what probably motivated the the Court in Easton. Consumers at all levels were being injured in the course of conducting business (Hardly a proper business purpose) and each , include the legislature here, would not “get off the dime” This is why I am taking the time to respond. Modernly, separation is the result. We take our toys and go home. Again this includes the legislature. (The Tea Party too) I was going to reference the Judges IQ and his exclusive opportunity to figure this stuff out, but decided against mentioning it as a possibility. Anyway, so dust yourself off, click your Pinchers together and jump in the political bucket, don’t, stand outside it, better or worse, start campaigning, lobbying and reaching across the isle. But always follow the law.