Good at anticipating public policy

By Heather McCartney • Jun 3rd, 2010 • Category: first tuesday blogs the news

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The state legislature has updated the transfer disclosure statement (TDS) form mandated to accompany all one-to-four unit residential property sales negotiated by a real estate licensee acting on behalf of a seller. The changes require not only non-exempt sellers, but all listing agents, to disclose the presence and condition of any carbon monoxide detectors, smoke detectors and water heaters on the listed property effective January 1, 2011.

More importantly for single family residence (SFR) buyers, the changes require those sellers to comply with smoke detector and water heater tank law by warranting they will deliver possession of the property with installed and operating smoke detectors and properly braced, anchored or strapped water heater tanks as a condition of closing escrow. [Civil Code 1102.6; Senate Bill (S.B.) 183].

While these smoke detector and water heater tank installation requirements shift the seller’s performance of these installations from the property conditions warranted in a purchase agreement to the TDS provisions, the TDS is of no concern to exempt sellers (unless they are signed by those sellers) since exempt sellers are not mandated to make their property disclosures using the form. Thus, agents must continue to use purchase agreement forms that provide for all sellers (including exempt real estate owned (REO) lenders) to comply with these installations since the TDS mandating compliance is typically and deliberately avoided by exempt sellers. That is not the direction of the public policy in this state.

first tuesday take: As a matter of consumer protection effected by brokers and agents in SFR sales transactions, first tuesday implemented identical warranty provisions in our own purchase agreement forms for residential property sales transactions more than a decade ago, a preamble to  the current California legislative decision to mandate following in our footsteps. We were also ahead of the legislation mandating the disclosure of the agency relationship of brokers in purchase agreements for all types of transactions in the early 1980s, and way ahead of the now commonly used buyer listing agreements.

All first tuesday SFR purchase agreement forms have long included a provision which requires compliant smoke detectors and an appropriately braced water heater to exist or be installed by the seller in the SFR property before the close of escrow. Importantly, that provision shall remain in our SFR purchase agreements. While it will be a surplus provision for sellers mandated to use the TDS, the purchase agreement with its smoke detector and water heater bracing provision will protect the buyer of an SFR on a sale by an exempt REO lender or estate – which presently and into the foreseeable future represents about 30% of all SFR sales in California.

We originally included this provision to ensure that the buyer was properly informed about potential safety issues within the home.  We are again rather pleased to see that we are anticipating good public policy for brokers, their agents and the buying public, and doing quite well at it. [See first tuesday Form 150 section 11.11]