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On Disclosure Documents: What Sellers Are Supposed to Say and What Buyers Will Expect

We Examine What The California Legislature Requires Sellers to Disclose About The Property They're Selling

When you’re out and about at open houses (when they ever come back) or are trying to gauge a property’s popularity you’ll often hear the word “disclosures” thrown around as if it was going out of style — how many disclosures are out? When are disclosures ready?

So, what are they exactly? And are they really hundreds and hundreds of pages? Do you really learn anything from them?  

‘Disclosures’ typically refer to the set documents that sellers are required to complete and provide buyers regarding the property they’re selling. San Francisco’s general practice of having disclosure documents available to buyers before property is in contract runs counter to standard practice in most places. In most parts of the country these documents and information are only provided (or discovered) after a seller accepts a buyer’s offer. The diligence period is when these things get exchanged or investigated.

But just like how we say a property is ‘in contract’ opposed to what most other folks in the country will say — ‘under contract’ (can you just imagine a house under a giant tarp/contract with a meek ‘umm, I’m here… okay, maybe not) — we front-load the process in San Francisco by having buyers look at disclosure information before making an offer so as to encourage serious offers only. Having disclosures prepared early allows prospective buyers to assess a property before making an offer and is intended to save people from surprise heartache and subsequent negotiations as your bid should already reflect any adjustments you would have otherwise asked for if you found an issue that impacted your overall valuation of the property.  

It’s kind of like asking for someone’s number...

Most times, when we work with sellers, we’ll caution our sellers against thinking that an offer is serious unless or until a would-be buyer has reviewed the disclosure documents. So knowing how many disclosure packages an agent has sent out will inform buyers if they face potential competition from other buyers.

What’s in a disclosure package anyway?

Disclosure packages can be lightweight, meaty, full of fluff or just-right. In theory, sellers are obliged to answer a set of questions about the property they’re selling on standardized, statewide and city-wide forms. Residential property disclosure requirements are more stringent about property conditions and neighborhood conditions, commercial property disclosures will focus on regulatory issues and/or environmental questions depending.  

The information is supposed to be from a seller’s personal observations unless you have an estate/probate sale and/or a sale by an absentee owner, in which case the quality of information usually isn’t as robust. Apart from the questionnaires disclosure documents usually include: a preliminary title report showing the property’s legal description along with levies, liens, and loans linked to the property; pre-sale property inspection reports (general contractor’s, pest, roof, fireplace, sewer lateral, underground storage tank, mold, and other specialty); quasi-customized reports about area natural hazards and environmental issue; the property’s marketing materials; the property’s permit history; if you’re considering a TIC or condominium, various documents about the HOA related to the rules, bylaws, budgeting, insurance and HOA finances; and, the reams of boilerplate advisories and notices from California and local realtor boards. Ultimately from those hundreds of pages about 50-100 pages are the most relevant.    

If I Know That You Know That I Know…

Buyers too have an obligation to investigate a property before buying as seller-provided reports or inspections aren’t necessarily a substitute for what a buyer can discover if they had their own inspectors or vendors. Indeed, the tradition before the past decade was that the buyer would hire their own inspectors to inspect a property either right before making an offer or right after their contract was accepted. Seller agents wouldn’t want to see those reports either because it would mean those reports would have to be given to other interested buyers. That being said, listing agents now often hire the same inspectors we’d hire as buyer agents so that the reports would be consistent.  

Disclosure Documents Are a Required Part of a Sale

California’s Civil Code requires sellers to disclose property conditions and material information affirmatively to would-be buyers. What’s a material fact? There’s no bright-line rule as the definition changes under different circumstances but it’s generally understood as a fact that will impact a buyer’s decision to make an offer on a property and what the offer price will be. The standard forms the local REALTOR association and state association produce that most agents use usually contain all of the questions and topics the Legislature requires.

So that’s nice ideal, But what do we really get?   

How It’s Supposed to Work. If completed properly (and legibly), a set of disclosure documents can help buyers form a very complete picture of a property and its recent history. Some disclosures are meticulous, detailed and quite clear. It’s almost a pleasure to read these documents and the properties these types of disclosures usually accompany also pretty special, attractive or desirable.

The Silent Type. While there are other times (such as when a trustee/successor owner who inherits a property) where information is scant, incomplete or, simply non-existent. But these properties are the ones geared towards flippers, developers or otherwise experienced buyers who will generally know what’s possible for a given property and/or what issues there will be. The emphasis for these types of property has more to do with investigating current planning and zoning policies than the property itself. 

Reading the Tea Leaves. The middle way, where sellers are forthcoming generally, but there may be some items that need clarifying, is usually what most people will do. There’s a certain amount of context that we’re missing or that we’ll have to ask further about. But usually people try to do the right thing when they answer these questions. The variability comes from people being people and having different sensitivities and different subjective standards. Here’s where we try to look at other resources and information sources to figure out a given question or issue.

Getting the 411 About the Property You Like: The Specific Items That Are Most Useful  

Yes, we said hundreds of pages but some are more relevant than others. While disclosures were traditionally paper  they’re usually sent as one or two PDF documents (with varying scan quality). Depending on the audience, some folks may care less about a building's permit history because they’re remodeling the property anyway, while some folks fixate on it.  We consider the most relevant ones below:

Transfer Disclosure Statement and various Supplements (The “TDS.”)  The TDS is, perhaps, the most important document of the lot. Unless a property is being sold by a trust or estate, every owner must answer three pages of questions ranging from roof type, crime, if pets lived onsite to what type of defects exist on the premises. Because this document requires a seller or seller representative to sit down and answer questions affirmatively, TDS documents are more solemn. The hope is that sellers are following their duty to tell the truth about a property and that they are, in fact, disclosing any ‘material’ facts that could have an impact on buyers. You may be thinking that this standard is a bit broad and ambiguous as it could overly inclusive as easily as it can be under inclusive.

Other Supplements. There are other circumstances, locales and instances where supplemental forms are required. San Francisco, for example, has its own form that asks questions about rental history while there’s another form for TIC properties and, for income properties, there are forms about the tenants and their rents as well as the multi-unit pre-sale process the City requires.

And All That Other Stuff…

Most of the disclosure package’s pages are taken up by a virtual reference library of a wide variety topics that could impact a house including earthquakes, landslides, fires, mold, more mold, termites, lead paint, flying saucers, locusts … okay, maybe not the last two but there is a lot of literature about many topics that matter and others are inapplicable.  

Property Inspection Reports. It used to be that a buyer would have 21 days to inspect a property after an offer was accepted. Nowadays sellers and their agents will have hire the very same inspectors that buyers’ agents would call to have their properties inspected before coming to the market to encourage contingency-free offers. The inspectors typically come from one of five main companies and will walk the property and prepare a written report that’s sectioned into discussions of a property and its component systems and condition.    

Pest Report. In San Francisco, with its moist and temperate climate, wood structures and density, the prevalence for structural pest damage increases, i.e., termites, beetles and fungus. The average repair bill is around $8,000-$10,000 for most structures in the City with decks, doors jambs, window sills, or mudsill-earth contact being the chief cost centers.   

Sellers used to walk on pins and needles when it came to a pest or termite inspection as a bad report could scuttle an entire transaction. Formally known as a structural pest control inspection these inspections could wood-destroying pests or organisms. Pest reports are divided into two sections (work that should be done now and things that can wait), are supposed to be more objective that not and are registered with the state Structural Pest Control Board. The work recommended in a structural pest report might be done by the company preparing the report or the parties may use another contractor, or do the work themselves. Beware of pest reports and lenders because some lenders will require the pest report’s findings be cleared before a mortgage can fund if they find out about the report. 

  • Dry Rot. Dry Rot is a fungus (ew) that grows when a building’s wood framing repeatedly is exposed to water and dampness. If unchecked, that fungus will literally eat its way through the wood turning it into dust. On average it can take up to 7 years for dry rot to show any visual signs of damage or to manifest significant damage requiring repair. Damaged wood will need replacement (like filling a cavity) and the affected area will require chemical treatment.  
  • Wood-eating Beetles. As their names implies, wood-eating beetles are beetles that slowly eat away the wooden structure of a property. You can’t spot these guys but you can spot evidence of them (usually after 2 years) in pin-point-sized holes in exposed wood and tell-tale dust. If unabated, the beetles will eat the wood to dust. What’s the remedy? Spray and repair or replace.  
  • Termites. Termites are notoriously fast workers and can do serious damage in 1 to 3 months. You’ll see channels or tubes and deteriorated wood in their wake. Treatment is usually done by pumping orange-based chemicals into the ground to eliminate their colonies/nests. And, infestations are either “active” or dormant meaning for some reason the termites simply ceased their activity. Pest companies will still recommend treatment because you won't know when they could come back. Preventing unwanted termites usually consists of raising where a foundation meets the soil and monitoring traps.  

Agent Inspections. The seller’s agent is obliged to perform a reasonably competent and diligent visual inspection of the property’s accessible areas. This inspection and subsequent report is where agents should note — in very clinical terms — any defect, condition, or observation that’s intended to inform a buyer of the property’s condition. You’ll come to see that many agents are incredibly taciturn in these documents. Eventually, the buyer’s agent will do one of these reports as well.

Natural Hazards Disclosure Reports. Based on a property’s location, a handful of companies prepare 100-page-plus reports showing risks associated with gas lines, landslide, forest fire and liquefaction risks as well as toxic these disclosures for such items as gas lines, previous industrial uses, area ground contamination, and other information such as property tax and assessment obligations and overhead airplane paths for example. 

Specialty Reports. When circumstances warrant there will be special reports for things like mold after a water leak for example; a geotechnical report (for hillside properties); sewer later report (for older properties, or as required in certain areas of the Bay Area);

Estimates and Plans. Ranging from fully entitled, job-card ready remodeling plans for a renovation, demolition, and replacement to sketches, to idea drawings there are lots of options when it comes to a property with ‘entitled’ plans. This is when we have to drill down to see if the plans have been approved by the Planning Department and the Department of Building and Inspection as the differences could mean months, if not years, of difference.  

But are there pictures?

Snapshots of What We See Out there (aka, what many reports will talk about)

Things to Look For in Single-Family Houses and/or 2- and 3-unit Buildings in San Francisco

Things to look out for in Single-Family Houses

And in Condo and/or More Modern Buildings

Multi-Unit and Newer Buildings

Warranted vs Unwarranted. Permitted vs. Non-Permitted.

You have or will see a note in a set of property disclosures where there’s something about a property’s physical condition that’s being mentioned as unwarranted or done without benefit of permits. What’s being described that way?

Is it the actual construction work quality? An unpermitted bedroom, bathroom? Is it a non-conforming use that runs afoul of the Planning Code? 

There are varying degrees and possibilities of what of work being done “without benefit of permits,” or a space being “unwarranted.” Some designations are easy to fix; others aren’t so easy.

Here are some possible permutations out there in San Francisco:  

Ideally...

From good to not as good...

  • currently code-compliant with permits, on tax records
  • previously code-compliant with permits, on tax records, but no longer to code.
  • code-compliant,open permits, not on tax records
  • code-compliant but no permits, not on tax records

Commonly...

From not-so-good to kinda' pear-shaped.

  • not code-compliant, open permits, space not on tax records
  • not code-compliant, no permits, not on tax records
  • no permits, complaint made

Ouch...

Things are getting worrying, financing may not be as favorable or even available.

  • no permits, complaint made, violation found, notice of violation
  • violation, unsafe, yellow tagged
  • violation, unsafe, red tagged (like after a fire or collapse) 

How much this question of warranted/unwarranted, permitted/non-permitted matters will depend on who’s doing the asking...

A Prospective Buyer

May impact offer price and how property gets valued.

An Appraiser

Non-Permitted Work: will not tend to notice

Unwarranted Rooms: will follow local practice (usually will count space/room) but subject to lender/ appraiser guidelines.

An Aggressive Insurance Company

May try to deny coverage or exclude from coverage if an accident takes place in an unwarranted space (e.g., why were you having a party in a ’storage’ room?)

An Aggrieved Neighbor/Ticked Off Tenant

Could make a complaint to DBI or call the Rent Board saying something isn't up to code or that the space they've been living in is 'illegal.' 

A Building Inspector

If they come to property because of a complaint will be a very different experience than if they were scheduled to come see work that you applied to do (with permits). 

The Assessor

If they get wind of extra living space or suspect that the sales price deviates from the norm they may come a knockin' because it'll trigger a reassessment that may add a lot more value than Prop 13 would otherwise allow (which is why many people don't apply for permits to do work or remodels in the first place).  

Warranted or Unwarranted?

AH, BUT HOW DO YOU DO DISCLOSURES?

Disclosures — Kevin+Jonathan Style

“I’ve been in the business for 30 years and I’ve never seen disclosure documents better than yours.”

— East bay Buyer’s Agent

 

The California Legislature requires sellers to provide buyers a huge amount of consumer protection in the form of disclosure documents meant to inform a buyer. The sheer volume and denseness of the documents may have the exact opposite effect.

We are required to provide would-be buyers a long list of standardized disclosure documents that can add up to hundreds of pages of paper. It’s rare that a listing agent views piles of papers as an opportunity but we see them as just that. Here’s how most fall short:

Hide the Ball. Disclosure documents usually consists of hundreds of pages of boilerplate notices, advisories  and blurry reports that leave a buyer with that glazed-over look. Many buyers may fail to appreciate any information particular to a property that may be buried in the disclosures. Most agents and sellers think their disclosure obligations are satisfied because they gave a buyer this stack of papers (e.g., constructive notice). While that may be true it’s riskier on a practical level as a buyer who feels as if something has been hidden from them will become a less trusting buyer making any transaction more difficult. 

Reduced Readability, Increased Liability. Most property disclosure documents are simply tossed into a scanner without any regard for legibility.

Pro-forma Tedium. Many sellers and their agents view disclosure documents as a chore (and yes, they are) and try to breeze through completing them as fast as possible. Any while many forms are inapplicable there some forms that really do matter and really do carry a tremendous amount of weight. But which ones? 

Our approach to disclosures is focused and clear—thus offering you more protection after the sale

We view disclosure documents as another opportunity to engage buyers and to inform them simultaneously. Our documents are converted to ‘pdf’ format not scanned when possible.

Therefore, our documents are legible. We prepare and include a well-crafted, custom informative Q+A cover page that seeks to address the most common of buyer questions truthfully and objectively. In the past, we’ve had buyer agents saying our disclosures almost scared off their clients.  We view that as a win because we want to go with the buyer who’s serious and who is buying our listing with their eyes wide open rather than going into contract with us blindly as that shortsighted buyer’s escrow is more likely to fall apart. 

How important is your property sale to you?

We figured as much. This is why you want to work with Kevin+Jonathan to ensure you have all the bases covered

Attending to as many details as possible, accounting for as many possibilities and looking at your success from every angle. That's what you get with Kevin+Jonathan. 

Start Here: What’s a ‘Material Fact?’ 

Good news: we regularly work either as buyer or seller agents and can, therefore, bring you the necessary perspective that proves pretty helpful when it comes to buyer diligence efforts and seller compliance with the applicable disclosure standards.

Questions as to what’s important and what’s irrelevant are based on an objective standard that is inherently subjective: information that would have the impact of altering a reasonable buyer’s decision to make an offer for a property in the first place and, if so, a buyer’s offer price. This information falls under the definition of a “material fact.” Sellers are obliged by the Legislature to disclose material facts to would-be buyers, who are also entitled to conduct their own investigation of the property they’re buying. 

As you’d guess, what’s material and what’s immaterial will vary on whomever is doing the considering as one buyer’s hoppy horse/pet issue may be a complete nothing burger to another buyer. Finding the right balance of disclosure without overdoing and being able to pick up on the most important bits of information is something we’ve been complimented on time and time again and is something that plays on our strengths and background as being a reporter, lawyer, EMT and ICU nurse. 

Important Diligence Links

In addition to a standard Natural Hazards report from JCP or Property ID, there are a lot of resources out there to consult. While we can’t learn or ‘know’ everything about a given property or parcel, online resources can sure help us get a much better sense of a property before ever setting foot there. 

 

Disclosures are so very important. We're here to help you...  

  • Understand why disclosures are relevant

  • What information is supposed to be within the Disclosures versus what is and what's not 

  • How certain Disclosure Documents matter more than others

  • Understand the limitations of what we can know before owning the dang property 

The Standards.

Sometimes disclosures will be long and extended while many other times they will be sparse as people are fearful of opening up a Pandora's box of starting to say something but then being incomplete. Regardless, there's no such thing as perfect information nor can we know everything about a given property either. We'll just have to have the requisite amount of faith in the process too. 

THE MOST SPECIFIC AND RELEVANT 

Of the hundreds of pages we'll get (usually by PDF these days) only 30-40 are the most relevant and specific to a given property. Here are the ones we'll see the most (and should expect to see). 

  • Real Estate Agency Relationship Disclosure | a form that tells everyone what us agents have a fiduciary duty to protect client interests
  • Real Estate Transfer Disclosure Statement (TDS) | essentially a Q+A for the property that the seller must complete (if it's a probate or trust sale, the standards are less) 2020 Update: Courts have held that Section 1 of this document must be completed regardless. A lot of times trust sales try to skip this section (as trusts are exempt from having to complete this form, but they too need to complete the form in part). 
  • Local Supplements to the TDS | more seller Q+As tailored for specific cities or circumstances (TIC Addenda, San Francisco Seller Statement, Peninsula Forms, Vacant Land Disclosures, etc.) 
  • Building Permit History (”3R”) | the official building and zoning records for San Francisco of what was done to the Property according to records (compare with what was really done). Interestingly the online version is more comprehensive. This will vary for other cities. 
  • Preliminary Title Report | information about current owners, property taxes, assessments, current loans and liens
  • Inspection Reports | Seller-provided contractor inspection reports; pest reports; specialty reports, e.g., sewer, roof, fireplace, geotechnical, architectural, historic, mold, UST. CEQA (for commercial: Phase 1 and Phase 2) etc. 
  • For Investment Properties: Tenant Estoppels and Questionnaires | SF protects tenant rights to the extreme, if completed, these forms will show rents, tenant information and protected status if applicable. For 3-unit buildings (and more) advisory about SF's right-of-refusal program for pre-approved non-profits
  • For commercial and investment: Rent rolls, leases, etc. |Leases, agreements, receipts versus projections 
  • Trust Disclosures | If the property is being sold by an estate where the owner is no longer alive; effectively let's you know that you may not get a lot of the above information
  • Agent Visual Inspection Disclosure | Both buyer and seller agents are meant to do a walk-around a given property that's meant to be objective. Keep in mind it is only visual in nature and not a place where someone looks into walls but there should be some background provided. There will be lots of variation about how detailed agents get into as many don't want to expose themselves to liability. 

FOR CONDOMINIUMS AND NEW CONSTRUCTION

California has a bunch of laws specific to HOAs and planned developments. As such, there are certain documents that need to be prepared for buyer review. 

  • Condominium/HOA Documents | All about your association and development (CC&Rs, budget, bylaws, financial documents and certification, reserve studies, meeting minutes, master insurance policy) 
  • TIC Documents | Lots of information about tenancy in common units
  • Public Report, SB 800 Notices, Budget Reserve Study | For new construction condo developments there are more specific documents needed from the DRE and the developer  

MORE GENERAL AND BOILERPLATE

California is a disclosure-heavy, consumer protection state, here's where that will show.

  • Lead-Based Paint Disclosure | previously prized for deep hues and colors, lead-based paint, it turns out, is harmful; discovering that fact came relatively recently which means that a lot of the older homes in the City will have some paint some where.
  • Square Footage Advisory | just warning you now but people measure things differently and there are different sources for those numbers; just remember that you like the place and it won't live differently because of some silly number
  • Area Manmade & Natural Hazard Reports | sounds and looks scarier than the situation really may be, but interesting reading nonetheless usually issued by Property I.D. or JCP/LGS
  • Smoke/CO Detector requirement notices and compliance | the sellers must install these (unless it's a fixer...) appraisers will look for these regardless 
  • SF Energy & Water Conservation Certification | the sellers must comply and inspect before close, i.e., new toilets, weather stripping
  • Market Conditions Advisories | general information about the marketplace in the City, square footage, market conditions in the State and about real estate generally 
  • Supplemental Tax Statement | SF takes too long to give you updated property tax bills, so budget for it
  • General Stuff About… | Even more about lead paint, earthquake risks, energy conservation practices
  • 2020 Update: assorted coronavirus disclosures discussing the hazards of the virus generally. If anyone onsite had the virus should be disclosed.  
  •  

Vanguard Properties believes information to be correct but has not verified this information and assumes no legal responsibility for its accuracy. Buyers should investigate the property and any issues or questions to their own satisfaction before proceeding with a purchase.

HELLO.

Hi, we’re Kevin Ho and Jonathan McNarry of Vanguard Properties in San Francisco, California. We’re partners in life and in business. Together with our big black Labrador retriever, Raffi, we are top producing Realtors in San Francisco’s competitive and valuable residential real estate market.

We truly love what we do and are passionately committed to our clients, their needs and advancing their interests. We represent both buyers and sellers with many repeat clients but we are always expanding our client base. Our belief is that by working with you you will make better informed decisions in this most important of areas of life.

We invite you to contact us to learn more and to start your success story now.

SOME STUFF TO KNOW.

To that extent possible, the information here is copyright protected. But other information such as links, articles and the like are only reproduced here for market education purposes. Remember to research all matters discussed here to your own satisfaction.

Terms & Conditions

Real estate is always changing and evolving. It's complex and can be as fickle as it is surprising. And while the information and knowledge on this site is considered to be accurate and correct, it cannot be warranted. Market conditions in San Francisco, California, and the world can change with a tweet or a sneeze and is beyond anyone's control.

In San Francisco, things like local, state and federal tax regulations can change with big implications. Other things like rent control rules, eviction control, lending practices and standards, building and zoning regulations are just a few of the other things that can change with little or no notice. All of these things and other intangible factors can and will impact market values and performance. 

Kevin is a licensed California attorney but focuses on real estate about 99.9 percent of the time. It's important to note that while you can’t take the attorney out of him he will not be acting as your attorney here. This speaks to the larger point that you should also seek out qualified folks who work in their respective sectors if you have further questions. 

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Kevin K. Ho, DRE 01875957/SBN 233408

Jonathan B. McNarry, DRE 01747295

Vanguard Properties
2501 Mission Street, San Francisco, CA 94110
555 Castro Street, San Francisco, CA 94114

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