Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
A friend of mine is looking to buy a personal residence in California (it's a hot market and most sellers refuse inspection contingencies in contracts, so buyer due diligence needs to be done upfront prior to contracting with seller).
My friend sent me an email from his agent that sounds a bit fishy to me, and I wanted feedback about whether this might be a California thing, some NAR thing or some legal thing I'm not familiar with (though I'm not looking for legal advice, of course).
Anyway, here's the relevant part of the email (note this is from the Buyer's Agent):
The big thing that strikes me as incorrect here is the part about the Buyer's Agent being required to disclose any found defects to the Listing Agent. Especially ridiculous that this buyer's agent thinks that defects communicated verbally by an inspector can/must be treated differently than defects communicated in writing.
Then again, perhaps I'm the idiot...
Is this a CA thing? Is there some law or NAR-related ethical standard I'm not familiar with? Or is the buyer's agent just smoking crack?
Both the seller and the seller's agent have a separate duty to disclose anything that would materially affect the buyer's decision to buy, with a few small exceptions. And there are statutory disclosure forms for exactly that purpose. Assuming both the seller and seller's agent aren't hiding something, it's not clear to me that they aren't in this case, they may be afraid you would come up with something that they don't know about and the ultimate buyer might not discover, if that is the case they would have to disclose your discovery, because now they know. The part about verbal disclosure being okay is nonsense, if the seller becomes aware of something negative, they need to disclose, regardless of how they came upon that knowledge.
That's my understanding anyway, having had to take that agency and ethics refresher course a bunch of time through the years.
Btw, there is a way with the CAR form to write with no contingencies and still effectively have a contingency, if you want to go down that path.
Involved In Real Estate · Winston-Salem, NC · Member since 2013 · 277 posts · 188 votes
12y
Maybe it's a CA thing, but in NC the buyer doesn't have to disclose ANYTHING, even if they know what's wrong with the property. That's why buyers are given a due diligence period. Whether the inspection is before or after contract seems irrelevant if it's true that the seller has to disclose. If an inspection is done after contract but the deal falls through with the lender, wouldn't the seller have to disclose what was found to the next potential buyer? Also, an agent is usually not a party to an inspection report - it is between the buyer and inspector.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
I hope someone in CA can chime in. None of it makes sense to me. How can the seller sue the prospective buyer for having an inspection that found defects, when it's buyer's agent who might be reporting the defects to the seller's agent? The prospective buyer didn't disclose anything.
Now that I'm studying for the license exam, I'm finding the stuff that agents say really troubling. I used to write it off "stupid things agents say" because, well, they're agents. Now I have to pay attention and figure out what they are talking about and if there is any shred of truth in it because it might apply to me. Damn.
Investor · Lowville, NY · Member since 2013 · 65 posts · 18 votes
12y
In NY, the report is the property of the client...in this case the buyer. The buyer can choose to disclose if they wish, but it's not necessary.
The seller can choose to not allow an inspection outside of being in contract (red flags raise here). If the buyer is in contract and something "significant" was discovered during the inspection, the buyer would naturally disclose this to the seller either look to negotiate, remedy, or back out of the deal.
Back to your scenario... Under what aspect of fiduciary responsibility would a buyer's agent have any mandate to provide a copy of the report to the seller's agent? Written or verbal should have no impact here. As outlined, I'd be looking for a new buyer's agent. My gut says they are trying to entice the buyer to enter contract and not acting in the client's best interest.
Back to your scenario... Under what aspect of fiduciary responsibility would a buyer's agent have any mandate to provide a copy of the report to the seller's agent? Written or verbal should have no impact here. As outlined, I'd be looking for a new buyer's agent. My gut says they are trying to entice the buyer to enter contract and not acting in the client's best interest.
My thoughts exactly. There is no responsibility (fiduciary or otherwise) of the buyer's agent to the seller or the listing agent. And I am 99% certain that the agent is either unintentionally incorrect or being intentionally deceiving, but wanted to get some reinforcement of that belief.
Both the seller and the seller's agent have a separate duty to disclose anything that would materially affect the buyer's decision to buy, with a few small exceptions. And there are statutory disclosure forms for exactly that purpose. Assuming both the seller and seller's agent aren't hiding something, it's not clear to me that they aren't in this case, they may be afraid you would come up with something that they don't know about and the ultimate buyer might not discover, if that is the case they would have to disclose your discovery, because now they know. The part about verbal disclosure being okay is nonsense, if the seller becomes aware of something negative, they need to disclose, regardless of how they came upon that knowledge.
That's my understanding anyway, having had to take that agency and ethics refresher course a bunch of time through the years.
Btw, there is a way with the CAR form to write with no contingencies and still effectively have a contingency, if you want to go down that path.
It is not the norm to require an inspection prior to opening escrow. Even in hot markets where inventory is limited. I have only seen this in situations where the house is a heavy fixer and there is a bidding war among investors. The listing agent doesn't want wholesalers tying it up or rehabbers trying to renegotiate the deal 2 weeks into escrow because of a crack in the chimney or a leak in the roof.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
12y
Originally posted by @Account Closed:
Both the seller and the seller's agent have a separate duty to disclose anything that would materially affect the buyer's decision to buy, with a few small exceptions. And there are statutory disclosure forms for exactly that purpose. Assuming both the seller and seller's agent aren't hiding something, it's not clear to me that they aren't in this case, they may be afraid you would come up with something that they don't know about and the ultimate buyer might not discover, if that is the case they would have to disclose your discovery, because now they know. The part about verbal disclosure being okay is nonsense, if the seller becomes aware of something negative, they need to disclose, regardless of how they came upon that knowledge.
David -
We're talking about the buyer and buyer's agent here. Not the seller or listing agent.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
12y
Originally posted by @Mike S.:
It is not the norm to require an inspection prior to opening escrow. Even in hot markets where inventory is limited. I have only seen this in situations where the house is a heavy fixer and there is a bidding war among investors.
This is in San Francisco, where most houses have multiple offers at or above asking within 1-2 days of listing...
It is not the norm to require an inspection prior to opening escrow. Even in hot markets where inventory is limited. I have only seen this in situations where the house is a heavy fixer and there is a bidding war among investors. The listing agent doesn't want wholesalers tying it up or rehabbers trying to renegotiate the deal 2 weeks into escrow because of a crack in the chimney or a leak in the roof.
It may not be the norm, but I've only had to go into contract with an inspection contingency once in the past two years. Really depends on who the competing buyers are. Some markets have plenty of owner occupant cash buyers.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y
A couple of things about the email don't make sense for me. The last line line about the seller suing the buyer for disclosing, through the agents, something to the owner that now must be disclosed to future buyers...has to be pure BS (the suing part). Also, what is the difference between being under contract, and not being under contract, as far as defects "revealed" to the seller? Also, the "obligation of the buyer's agent to provide a buyer's inspection report to the seller's agent" strikes me as odd, at least anywhere outside of CA. I don't really think the buyer's agent is trying to be deceptive or dishonest, perhaps just overly cautious, and maybe just incorrect. His broker may have a conservative approach, and pounds that into his agents. I would certainly ask for further clarification, and some written verification of his beliefs. An important question about the Inspection Clause, on the CA standard purchase agreement; does anyone know if it's a unilateral walk away Claude, for any/no reason, OR is it one of those "only if major defects are found that were not apparent...."? I'm too lazy right now to google it up, and we need some CA agents input on this.
Both the seller and the seller's agent have a separate duty to disclose anything that would materially affect the buyer's decision to buy, with a few small exceptions. And there are statutory disclosure forms for exactly that purpose. Assuming both the seller and seller's agent aren't hiding something, it's not clear to me that they aren't in this case, they may be afraid you would come up with something that they don't know about and the ultimate buyer might not discover, if that is the case they would have to disclose your discovery, because now they know. The part about verbal disclosure being okay is nonsense, if the seller becomes aware of something negative, they need to disclose, regardless of how they came upon that knowledge.
David -
We're talking about the buyer and buyer's agent here. Not the seller or listing agent.
The buyer's agent has to inspect and sign the TDS (Transfer Disclosure Statement) same as the seller's agent and seller. As far as the TDS goes there is little or no difference between a seller's agent and a buyer's agent.
The part about suing is nonsense.
@Wayne Brooks it used to be buyer had to find something major to escape via the inspection clause, but a few years back they made it a walk away with no explanation required.
Scottsdale, AZ · Member since 2014 · 48 posts · 12 votes
12y
@J Scott So does that mean that if they go under contract and then have an inspection that discloses major damage they do not have the legal option of backing out of the sale? If that is the case then you have to do the inspection before going under contract. It's too big a risk to buy something without an inspection. I can't believe it would be legal to prevent someone from doing an inspection before under those circumstances.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y
@J Scott Sounds like the agent is being straight up about the disclosure issue, and the seller doesn't want to run the risk of having a potential future disclosure issue, from someone who is not even under contract at an acceptable price.....both understandable. The inspection clause seems like a clear walk away situation, so from the buyer's side it seems like no harm, no foul.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
12y
as long as buyer does his inspection, and doesn't tell his agent the deets it's all good. In San Fran the market is (again) bonkers. Many all cash, over asking, no/zero/nada/zip contingencies. So if a buyer wants a pro's opinion, best to bring them in during the 10-14 showing days that the prop is on the market before the seller sits back and sees how deep people are willing to bend to have the privilege of buying his home! San Francisco, fun, fun!
@J Scott So does that mean that if they go under contract and then have an inspection that discloses major damage they do not have the legal option of backing out of the sale? If that is the case then you have to do the inspection before going under contract. It's too big a risk to buy something without an inspection. I can't believe it would be legal to prevent someone from doing an inspection before under those circumstances.
Kristen, it is absolutely possible to buy a property without an inspection contingency. If you bid on a HUD as an investor, you get no inspection contingency. A seller can always refuse to accept an offer because it has an inspection contingency. In a hot market, sellers may well refuse all offers with contingencies. There is no legal requirement that sellers must allow inspection or any other contingencies. If you know what you're doing, leaving out the inspection contingency doesn't create much additional risk and makes your offer stronger than ones with this contingency.
Btw, there is a way with the CAR form to write with no contingencies and still effectively have a contingency, if you want to go down that path.
@Account Closed -
Can you elaborate on how this would be done?
Thanks!
If you have no contingencies, you still have by default three days to deliver emd to escrow. During those three days you can do your inspection and simply not deliver emd if you aren't happy. I haven't looked at the CAR for for a while so don't hold me to this but I believe the seller is limited to issuing a written notice to perform, with the right to cancel should you fail to perform (i.e. bring emd to escrow). Well, okay, then cancel, that was the point of not bring the emd:) This is a last resort because it will no doubt sully your reputation, but it's there, and I know buyers do it. Even if you aren't contractually covered, which I think you are, seller will most likely simply move on and forget about it ... seller has no emd to hold hostage, has only been off market for three days therefore minimal damages.
Scottsdale, AZ · Member since 2014 · 48 posts · 12 votes
12y
@Account Closed Who would it sully your reputation with? If you inspected and found out there was, say, a massive amount of damage to the foundation that had not been disclosed and you backed out, would it still sully your reputation?
@Jon Holdman What kinds of things can you do to know it is okay to go ahead with a no contingency offer?
Sure, if you discover a significant problem, no worries, in that case it's probably more on the seller than the buyer. If you use it to escape simply because you didn't do your homework or you change your mind for no good reason then folks aren't going to be happy and that will start to get around.
As a lender, I had a borrower do that once. We talked a lot, I gave him a proof of funds, I worked with his agent, I visited one of his rehabs, then, when he finally made an offer and it was accepted he bailed on the deal by not bringing his emd to closing, both the agent and I were stunned. I never heard form the guy again and don't want to, and I'm sure the seller and agents feel the same.
Scottsdale, AZ · Member since 2014 · 48 posts · 12 votes
12y
@Account Closed That guy sounds like a total flake. I can't imagine ever doing something like that. My only concern would be the worst case scenario if I discovered something extremely wrong after we went under contract. But I would have done everything I could to evaluate and assess the property prior to that.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
Inspect the property yourself. I can understand home owners who rarely buy houses wanting to do inspections. But if you're going to be in this business you need to be able to do this yourself. Its not rocket science. And I've had inspections point out a bunch of obvious stuff and miss significant things. The value of an inspection is really to serve as a last step in negotiating the price.
The other common contingency is financing. If you are getting a loan you need to be careful leaving that one out. But if you're paying cash, you don't need it.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
12y
@Account Closed What you say about bailing out at COE is all well and good, except one wee little problem- you're definitely loosing your deposit money! In CA with expensive properties you're going to blow $20-30 grand doing that. And that's the disincentive for flakeyness.
@Account Closed What you say about bailing out at COE is all well and good, except one wee little problem- you're definitely loosing your deposit money! In CA with expensive properties you're going to blow $20-30 grand doing that. And that's the disincentive for flakeyness.
The point sometimes gets lost in all the responses to these threads and I sometimes need to be more concise in my responses but the point here is how in CA using the standard CAR form do you make a non-contingent offer but still have a legitimate out without losing your emd. To review, I'm suggesting, and you can correct me if I'm wrong, that, as a buyer, after acceptance of your offer, if you fail to bring your emd to escrow within the CAR form default of 3 business days, that the seller is contractually limited to issuing buyer a written notice to perform, wherein, the notice to perform limits seller to the right to cancel the already accepted contract with no rights to keep the emd (which he (escrow) never received btw) and no rights to claims of damage and no rights to specific performance and no rights to your first born, etc.
Regardless of the contractual accuracy of what I'm saying, this is how serious investors are making non-contingent offers in CA to be competitive. It's not pretty but when you are making many offers and you get slammed in the face with a property that you are under contract for and things aren't as you expected what are you going to do, simply hand over the emd and walk away ... not very often!
We're not talking about COE (Close Of Escrow), Amit, it's about bailing within the first three days of acceptance (the defacto inspection contingency without an inspection contingency). Also, it's very rare that somebody loses there entire emd, it's usually negotiated to be PITI for the time it was off the market.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
12y
@Account Closed Yeah I suppose if your offer is no contingencies and you get it ratified without a deposit, you have those 3 days. But in many competitive situations, most people include the deposit check with their offer.
But what I do notice is that some deals that are no contingency/all cash/close in 15 days magically get extended once in escrow. In other words, to be competitive a lot of people write that way to get excepted, but then try to weasel in a bank loan, or resolve an abatement issue, etc. This happened on a 4 unit I liked here in SF. I knew the competing terms (I dropped out eventually). Well that baby was supposed to have closed 3 weeks ago! Still pending. It'll also be interesting to see what the actual selling price was...And how it compares to what I was told was the accepted high bid.