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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 or are trying to gauge a property’s popularity you’ll often hear “disclosures” thrown about as if it was going out of style.

So, what are they? Disclosures typically refer to a set documents that sellers are supposed to complete that answers questions about the property they’re selling. Disclosure documents may also include pre-sale property inspections (general contractor’s, pest, roof, fireplace, sewer lateral, underground storage tank), reports about area natural hazards, a property’s permit history and reams of boilerplate advisories and notices. Ultimately from those hundreds of pages about 20-50 pages are relevant. Most seller’s agents want would-be buyers to have reviewed disclosure materials before submitting an offer. So knowing how many disclosure packages an agent has sent out will inform buyers if they face potential competition from other buyers.    

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 will be. There are standard forms the local REALTOR association and state association produce that most agents use.    

If completed properly (and legibly), a set of California disclosure documents can help buyers form a very complete picture of a property and its recent history. While there are other times (such as when a trustee/successor owner who inherits a property) where information is scant. Disclosure documents usually follow a general pattern and are usually hundreds of pages long.  The City’s tradition of having disclosure documents ready before property comes to market runs counter to standard practice in most places where there’s more time to investigate a property after a contract is signed. Having disclosures prepared early allows prospective buyers to assess a property before making an offer, which saves a lot of grief and heartache if an issue pops up after you get into contract.

Getting the 411 About the Property You Like: The Specific Forms 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. 

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. 

But are there pictures?

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

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? 

Buyers are supposed to do their diligence before buying any property. As buyer agents it’s our job to help you in that endeavor as a lot of the materials may be things that are unfamiliar to a buyer. Similarly, sellers are obligated to provide certain materials to facilitate that diligence but this doesn’t relieve a buyer from shirking off their diligence obligations.  

Regardless, sellers are to provide and buyers are to receive “material facts,” which is a term that has a certain meaning in real estate. Namely, what’s material and what is is defined as a fact that would potentially alter a buyer’s decision to buy the property or to alter their bid otherwise, i.e., how much a buyer will or would have bid for a property.

It’s a bit of a loosey-goosey standard because it is subjective and one that is really contextual. Importantly, this standard is one that is a potentially rife with pitfalls as one person’s hobby horse or fear may be a nothing burger to another. 

Important Diligence Links

While we can’t learn everything about a given property or parcel online there are a lot of resources that can help you learn get a much better sense of one before you ever set foot on it in person! 

 

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

  • Understand the relevance Disclosure documents and information has

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

  • How certain Disclosure Documents matter more than others

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.

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