7.17 Property Disclosure Statements

State laws require that a seller of real property consisting of one-to-four residential dwelling units deliver to prospective buyers a specified written disclosure statement concerning the condition of the property. The disclosure covers matters within the personal knowledge of the seller and the agent, and matters based on a reasonably diligent inspection of the property. This requirement extends to any transfer by sale, exchange, installment land sale contract, lease with an option to purchase, any other option to purchase, or ground lease coupled with improvements. These requirements also pertain to the resale of a manufactured home or a mobile home, even if classified as personal property, provided that the manufactured or mobile home is located on real property and is intended for use as a residence.

Exemptions vary by state and agents/loan officers are expected to be aware of their state's policies. The following transfers, in general, are exempt:

• Transfers required to be preceded by delivery to the prospective transferee of a subdivision public report or where a public report is not required because the offering of subdivided land satisfies all the criteria in State licensing law.

• Transfer pursuant to a court order.

• Transfer to a mortgagee by a mortgagor who is in default; transfer by a foreclosure sale, or pursuant to a power of sale, after such default.

• Transfer by a fiduciary in the administration of a decedent’s estate, guardianship, conservatorship, or certain transfers from a trust.

• Transfer from one co-owner to another.

• Transfer to a spouse or to a person or persons in the lineal line of consanguinity.

• Transfer between spouses resulting from a judgment of dissolution of marriage, or legal separation, or from a property settlement agreement incidental to such a judgment.

• Transfer by the State Controller of unclaimed property.

• Transfer resulting from failure to pay taxes.

• Transfer to or from any governmental entity.

Duties of Listing Agents

• Provide the seller with a copy of the required disclosures to fill out.

• Explain to the seller at the time of listing an agent must disclose to prospective buyers any material fact regarding a listed property which the agent knows or reasonably should know, even if the seller chooses not to disclose the fact or to make no representation about it.

• Assist the seller in assessing the property.

• Assist the seller with proper completion of the forms.

• Assist in delivering the completed disclosures to prospective buyers.

• Monitor the property and circumstances to help the seller ensure the continuing accuracy of the disclosures.

• Be sure the buyer signs the disclosures and returns copies to the seller.

Duties of Buyer Agents

• Take affirmative steps, if necessary, to obtain completed disclosures and deliver it to the buyer prior to the preparation of any offer or within specified number of days from acceptance (varies per State), unless otherwise agreed in the initial purchase agreement.

• Be sure the buyer signs the disclosures and returns copies to the seller or listing agent.

• Assist the buyer in assessing the disclosures regarding the property and advising the buyer to have inspections by experts where appropriate.

In completing the disclosures, the seller MUST fill in the form. The Company's agent MAY NOT complete the form on behalf of a seller.

A seller may, according to law, elect not to make any representations as to the characteristics and condition of the property by checking the appropriate boxes on the disclosures. If a seller has questions about whether the seller should check one or more boxes on the disclosures, the listing agent should inform the seller that it is not appropriate for a real estate agent to give legal advice and direct the seller to contact an attorney.

Some sellers may refuse to sign disclosures. The Company WILL NOT accept a listing for which a seller refuses to complete disclosures unless the State does not require a disclosure for that property type, the listing is an estate sale, bank owned foreclosure, or any other entity which is exempt from a transfer statement. If a seller refuses to sign disclosures, the listing agent should advise the seller that if a prospective buyer does not receive disclosures prior to making an offer on the seller’s property, the buyer may cancel any resulting contract prior to whichever of the following events occurs first: (1) the end of the third calendar day following receipt of the disclosures; (2) the end of the seventh calendar day following the date the contract was made; or (3) the end of the buyer’s contingency period.

If a material inaccuracy in the disclosures is discovered, or the disclosures are rendered inaccurate in a material way by the occurrence of some event or circumstance, State law requires the owner to correct the inaccuracy and deliver a corrected disclosure to the buyer. Therefore, a listing agent should be careful to keep the disclosures current. If the information becomes inaccurate because the property's condition has changed, a seller (and agent) could have liability for allowing known inaccurate information to be given to the buyer.

An agent may not rely on a statement of the seller if the agent knows or reasonably should know that the statement is inaccurate. An agent, therefore, may not ignore the representations on the disclosures just because the seller completed it. If an agent, in his/her reasonable judgment and expertise, suspects that a disclosure statement is not accurate, the agent should seek further information from the seller. An example might be a seller who states that there has been no water in a basement in which there are obvious water stains and cracks. An agent's best course is to seek further information from the seller as to the exact nature of their statements and then accurately convey this information to any prospective buyer, in accordance with the obligation to disclose material facts.

Accuracy of Listing Information

Several "traps" of liability exist in taking a listing, which are covered below. Company agents should take careful note of these hazard areas and be particularly diligent in handling these issues.

1. Room Counts: The Company agents must be careful to accurately represent the number of rooms, bedrooms and bathrooms in a property. Generally, questions of whether an area constitutes a room, bedroom or bathroom are resolved by determining whether an appraiser would count the area as such. For example, basement rooms that are below grade are not generally considered rooms, bedrooms, or bathrooms for appraisal purposes. Another example is that a room normally must have a closet to be considered a bedroom. Also, "walk-through" rooms are not usually considered separate bedrooms. These ambiguous areas can be denoted by a symbol such as a "+" sign after the room count (e.g. 8+ rooms, 4+ bedrooms), or highlighted in remarks for the property, or other descriptive information.

2. Square Footage: Real estate agents are generally expected to be able to accurately calculate the square footage of most dwellings. When reporting square footage, whether to a party to a real estate transaction, another real estate agent, or others, a real estate agent is expected to provide accurate square footage information that was compiled using the Company’s measurement standards. While an agent is expected to use reasonable skill, care, and diligence when calculating square footage, it should be noted that the Company does not expect absolute perfection. Because all properties are unique and no guidelines can anticipate every possibility, minor discrepancies in deriving square footage are not considered to constitute negligence on the part of the agent. Minor variations in tape readings and small differences in rounding off or conversion from inches to decimals, when multiplied over distances, will cause reasonable discrepancies between two competent measurements of the same dwelling. In addition to differences due to minor variations in measurement and calculation, discrepancies between measurements may also be attributed to reasonable differences in interpretation. For instance, two agents might reasonably differ about whether an addition to a dwelling is sufficiently finished to be included within the measured living area. Differences which are based upon an agent's thoughtful judgment, reasonably founded on these or other similar guidelines, will not be considered by the Company to constitute error on the agent's part. Deviations in calculated square footage of less than five percent will seldom be cause for concern.

As a general rule, the most reliable way for an agent to obtain accurate square footage data is by personally measuring the dwelling unit and calculating the square footage. It is especially recommended that listing agents use this approach for dwellings that are particularly unusual or complex in their design.

As an alternative to personally measuring a dwelling and calculating its square footage, an agent may rely on the square footage reported by other persons when it is reasonable under the circumstances to do so. Generally speaking, an agent working with a buyer (either as a buyer's agent or as a seller's agent) may rely on the listing agent's square footage representations except in those unusual instances when there is an error in the reported square footage that should be obvious to a reasonably prudent agent. For example, a buyer's agent would not be expected to notice that a house advertised as containing 2200 square feet of living area in fact contained only 2000 square feet. On the other hand, that same agent under most circumstances would be expected to realize that a house described as containing 3200 square feet really contained only 2300 square feet of living area. If there is such a "red flag" regarding the reported square footage, the agent working with the buyer should promptly point out the suspected error to the buyer and the listing agent. The listing agent should then verify the square footage and correct any error in the information reported.

It is also appropriate for an agent to rely upon measurements and calculations performed by other professionals with greater expertise in determining square footage. A new agent who may be unsure of his or her own calculations should seek guidance from a more experienced agent. As the new agent gains experience and confidence, he or she will become less reliant on the assistance of others. In order to ensure accuracy of the square footage they report, even experienced agents may wish to rely upon a competent state-licensed or state-certified appraiser or another agent with greater expertise in determining square footage. For example, an agent might be confronted with an unusual measurement problem or a dwelling of complex design. When an agent relies upon measurements and calculations personally performed by a competent appraiser or a more expert agent, the appraiser or agent must use comparable standards and the square footage reported must be specifically determined in connection with the current transaction. An agent who relies on another's measurement would still be expected to recognize an obvious error in the reported square footage and to alert any interested parties. The agent must always disclose the source of the square footage and incorporate the following into the MLS and the seller’s disclosures: “Buyer to verify square footage before the close of escrow.”

Some sources of square footage information are by their very nature unreliable. For example, an agent should not solely rely on square footage information determined by the property owner or included in property tax records. An agent should also not rely on square footage information included in a listing, appraisal report, or survey prepared in connection with an earlier transaction. If you have the experience to measure, please do so.

When calculating square footage, agents of the Company should carefully follow these guidelines. When inputting the property in the MLS Associates should use the following text in the description “Buyer to verify sq.ft prior to the close of escrow”. This should also be in the transfer disclosure agreement.

3. Lot Size: Lot size and acreage should only be determined from an accurate survey. The agent should NOT attempt to measure lot size on her/his own.

4. Taxes: Taxes should be determined from county tax records or the owner's tax bill. The agent should not rely on the statements of the owner as to tax amounts.

5. Modernization Information: Good selling features about a property are often the updates or upgrades made by the owner. In order to accurately advertise these items, the Company requires that the owner verify any information given to us before it can be used in any promotional material on the listing.

Items such as "new" roof, "new" air conditioner, "new" furnace, "new" bathroom, "new" kitchen, etc. are misnomers because of the difficulty in defining what "new" means. Substantiation of the information means the owner must supply the Company with receipts, canceled checks, or other proof of payment of upgraded or rehabbed items. Once provided, the Company will accurately advertise and promote these good selling features with language like "New roof, 1990","New furnace, 1989","Kitchen remodeled, 1991."

If it is not possible to substantiate modernized features, they can be advertised or promoted as "Newer" or "Recently", as in "Newer furnace" or "Recently remodeled bathroom".

Signatures

The Company desires that listing agreements be enforceable in every possible situation to ensure that the Company and agent will be paid under the terms of the listing agreement. Because of these factors, agents must secure listing agreements with the proper signatures before the listing will be promoted or advertised in any way. Agents should be especially aware of the several situations listed below.

1. Spousal Signatures: A spouse must ALWAYS sign a listing agreement unless a waiver of marital rights given by the non-signing spouse exists (e.g., separation agreement, prenuptial agreement), a copy of the waiver has been given to the Company and legal counsel or Broker for the Company has confirmed that the agreement constitutes a valid waiver of the non-signing spouse’s rights.

Most often this situation arises when the property is titled only in the "selling" spouse's name and the "non-selling" spouse claims that he or she has no interest in the property. Typical situations are a widowed person who has remarried or a divorced person who has remarried. Exceptions exist, in states like California, where the spouse who is not on the title ALWAYS has a marital interest and MUST sign the listing agreement unless one of the exceptions note. Marriage laws vary per state. Please contact the Company Compliance Director with any questions.

2. Property in Estate: When property is in an estate, ALL heirs AND spouses must sign. If a Personal Representative (Executor) has been named, it is possible that the Personal Representative has authority to sell the property. The agent must secure a copy of the court decree or specific section of the will which empowers the Personal Representative to sell property. The power of sale granted the Personal Representative by a will may not be acceptable until after a certain period of time has passed following the date that the Personal Representative has been appointed. In this situation, management for the Company will consult with legal counsel to determine if the power to sell in the will is acceptable.

3. Trustees: If a property is held by a trust, the trustee will normally be empowered to sell. However, the agent must secure a copy of the part of the trust which empowers the trustee to sell. Some trusts require the signatures of more than one trustee to sell as in the case of an individual and corporate trustee (bank). In this circumstance, the trustee's spouse does not sign the listing agreement because the trustee is acting in a representative capacity.

4. Seller Incapacitated: If a seller is not mentally competent to sell, a guardian must be appointed by the court and the guardian must obtain a court order to sell the property. Until such time, the property cannot be sold even if a child, sister, niece, nephew, etc. is also on the title. If the subject property is also jointly owned in this fashion, the spouse of the "second signer" (child, sister, niece, nephew, etc.) must also sign the listing contract. It is possible that a properly drawn Durable Power of Attorney may provide a means to sell this type of property. However, before relying on the Durable Power of Attorney, Company management will consult with legal counsel to determine whether the existing Durable Power of Attorney is acceptable. See also the paragraph on Powers of Attorney, below.

5. Divorces: A person is NOT legally divorced until a court orders. A person "in the process of divorce" cannot sign the listing agreement alone. The spouse must also sign, regardless of whether the spouse is living on the premises or the couple has a "legal separation," unless a valid waiver of marital rights exists (see section on Spousal Signatures above). Once divorced, the person may sign alone, however, if the county records continue to show the property in both names, the agent must secure a copy of that part of the divorce decree which awards the property to the signing spouse for the Company files. Marriage laws vary per state. Please contact the Company Compliance Director with any questions.

6. Power-of-Attorney: A Power-of-Attorney authorizing the sale of real estate is acceptable for signature on a listing contract. However, not all powers-of-attorney authorize the sale of real estate. A copy of the recorded Power-of-Attorney authorizing the sale of real estate must be secured for the files of the Company.

Seller Net Proceeds Calculations

It is the policy of the Company to calculate estimated net proceeds for sellers as often as appropriate. The first estimate should be given on the listing call or as soon as possible after listing the property. Even though some information may not be available, such as exact loan balances, or prepayment penalties, the agent should use all existing information to prepare as accurate an estimate as possible and note any missing information.

When information becomes available, estimated net proceeds should be recalculated. This is particularly appropriate when an offer is presented and when each new offer or counteroffer is received.

There are many reasons for using seller net calculations. First, it is an important service to a client. Secondly, it is important for the Company to know whether it is likely that there are sufficient proceeds to pay off the indebtedness on the property and the real estate commission. Finally, the Company must know whether the seller of the property can deliver marketable title. If the indebtedness exceeds the listed price, immediate discussions must occur with the seller and the lenders to determine whether the property can be sold with clear title given the level of indebtedness.

It is also important to note that as a possible material limitation on the client's ability to complete the transaction; this condition may be considered a material fact to be disclosed to the buyer.

Estimated Seller Net Proceeds Calculation forms are available from the settlement or escrow company and many times through your local MLS.**
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Lock Box Procedures

The Company, as part of the local Board of REALTORS® common lock box system, encourages the use of lock boxes on all listings as a safe, secure, and efficient tool in marketing property. Specific permission from the owner must be obtained on each listing before installing a lock box.

Open House Procedures

The "how-to" of holding open houses is covered below under the Conducting Open Houses section. The Company must also maintain a policy that adequately informs owners of their responsibilities in consenting to open houses. Agents must strongly recommend to owners that they take common sense precautions with any valuables in the house during the time of the open house. This includes removal of all jewelry boxes, collectibles of value, (sentimental or dollar value), small audio or video equipment, or other items which may be of value. Owners should also be informed that their homeowner's insurance company is the responsible party for any losses on an open house.

As in all other areas, an agent may not act carelessly or recklessly. If for no other reason, an agent must be diligent in conducting an open house to maintain good business relations and rapport with the owner. Agents /Loan Officers of the Company are specifically prohibited from using listed properties for personal use, including but not limited to meetings of any sort that are not related directly to the sale of the client’s property.

Reviewing Documents - Internal Verification Procedures

The Company maintains a system of checking and verifying both listing contracts and documents and sale contracts and documents for accuracy, enforceability, and compliance with state rules. Within 24 hours of completing any new listing or purchase contracts, the agent will upload the documents into Skyslope so that the Reviewer can review the executed contract. Each agent is expected to cooperate fully and promptly with any requests for verification, further information, or correction of any oversights in the documents.

For other related policies, see the section on Risk Reduction Policies.