Transfer Disclosure Statement…What You Need to Know

Westcoe Realtors, Riverside, California…Funny how seemingly all things in life are circular.  Wide ties are in, then out, then maybe back in (I cannot say for sure where they are right now…I try to avoid them!).  Big cars are in, then with gas the way it currently is, they are headed out…and let’s not even start with what food is supposed to be good for you and what is now out (meat anyone?).  The simple fact is that everything is generally subject to change, and in real estate, we are not exempt.  The term ”caveat emptor” for buyers of real estate (translation here is “buyer beware”) gave way to numerous seller disclosures, and now that is circling back to “as-is” (see previous blog).  In the end, it’s hard to tell what is what…and that is why Westcoe is writing this today.  Maybe we can clear some of the real estate smoke for you.

A LITTLE HISTORY

For many, many years, the burden of discovery in the purchase of a home fell directly on the shoulders of the buyers.  This was back in the day when the price a seller could get for his home was relatively close to what he paid for it.  Real estate life may not have been entirely fair, but is was simple.  A one page purchase agreement was all you needed, and when the escrow closed, whatever warts came with the home were now the property of the buyer.  Yes, there were exceptions to the above, but not many.  This would be in the time of 35 cent gas, no cell phones, and no computers.

Then things changed…some for the better, some for the worse.  The main catalyst for change (at least here in Southern California) was our old friend supply and demand…for with the huge influx of people migrating to SoCal for the benefits of the weather, housing prices began to creep higher as there were more buyers than sellers.  To make a very long story short, over a period of years (approximately 1950-1975) this lead to higher and higher prices for homes, speculators, investors, good markets, horrible markets, pricing swings that would make a teeter-totter jealous, and ultimately where we are now…with the single family home becoming more of a financial vehicle than a place of shelter.

Whether you feel this massive change in housing is a good thing or a bad thing is irrelevant…it is here.  What you need to understand is that once a home became very expensive relative to the times, then litigation ensued when things went wrong (because of all the money the house now cost), laws were enacted to protect those the government felt needed protection, and viola’…here we are…in the land of real estate disclosure.

And that leads to the explanation of today’s topic…THE TRANSFER DISCLOSURE (TDS for short.)

While we fully admit the real estate industry has become inundated with paperwork and forms over the past few years (some really confusing and basically useless), the TDS is one of the good guys.  Simply stated, this form puts the burden of describing the home and all it’s past and current history squarely on the back of who knows the home best…the seller.  No more hiding the hole in the wall with a picture, or painting out the signs of a water leak with fresh paint, or not telling anyone that you have called the cops 426 times over your common sense deprived, decibel 100, 2:00 am next door neighbors.  

Nope…now the seller must disclose these things and more so the buyer can really decide what price they want to pay for the home, or even if they now want to buy your charming little castle.  No more ”buyer beware”…because the penalties to the seller for not fully disclosing are stiff and ugly…so it is in everyone’s best interests to fill the form out accurately and completely so problems are dealt with now, not later.  So let us discuss a few facts about this disclosure form.

 First, the TDS is required in all sales of residential real estate with 1-4 units.  This exempts apartments over 4 units, commercial property, etc.  This form is primarily for single family housing.

Second, upon delivery of the completed form to the buyer, the buyer has 3-5 days (depending on whether the delivery is by hand or mail) to rescind the contract if they do not like any of the information contained in the TDS.

Third, the form must be filled out by the seller AND any of the real estate professionals involved in your transaction.  The agents are required to make a “visual inspection as that of a lay-man and note any issues they see.”  This means that the agent is not held to a higher standard than that of a “layman” since agents are licensed to practice real estate, not construction…but is also means that if there is a huge water stain on the ceiling, they should note same since a “layman” would notice this stain as well.

Fourth, some entities are exempt from supplying the buyer with this form, since the selling entity may have no more knowledge of the home than the man-in-the-moon.  Notable exempt entities are probate sales, executors of an estate, and banks who have obtained the property through foreclosure, to name a few.

Lastly, understand it is the sellers responsibility to merely DISCLOSE issues to you, not necessarily REPAIR these items.  Nothing in real estate law requires the seller to fix what is wrong, or bring the home up to current building codes, or even repair a safety issue with the home…the name of the form is Transfer Disclosure…not Transfer Repair.  Of course, our experience is that all this gets negotiated in either the offer or requested repair list, so eventually everyone is happy one way or another.

As to the Disclosure form itself, it is separated into 3 basic parts…1) what comes with the property (stove, sprinklers, heating, air, etc) and does any of it not work? 2) are there any malfunctions/defects in some of the major parts of the home (roof, floors, foundation, electrical system, etc.) and 3) some specific questions not included in the above areas (any room additions, neighborhood noise problems, zoning violations, lawsuits, etc.). 

The form itself is easy to navigate, and the questions are fairly specific…but it is vitally important that the buyer understand the following:  THE SELLER IS ONLY OBLIGATED TO DISCLOSE THAT WHICH THE SELLER ACTUALLY KNOWS.  We know that sounds simplistic, but the seller cannot be held liable for what he did not know at the time the home is sold to the buyer.  What does this mean?

For example, it means that if there is an electrical plug in a no longer used bedroom that is not working, the sellers may not know about it because they haven’t been in that room for years…or that the roof never leaked for the seller, but you buy the home in April and it does not rain until November (at which time the roof now leaks), in which case the roof is yours to fix…or that a sprinkler has a slow leak that never showed any signs for the seller but after your owning the home for 30 days, the accumulated water is now leaking into your home.  I could go on, but you get the picture.  Hence, the statement above…the seller is only responsible for what the seller should have known, and in the examples above, there was no evidence seller could not have known about the problem.

So what does a buyer do?

The bottom line is that the TDS is a great form for everyone, and is wonderful for informing the buyer about some of the history of the home from the person who knows the home the best…but a good real estate professional should always encourage the buyer to have a home inspection done by a competent home inspector.  The home inspector will inspect all of the things referenced above and more, many times informing all parties of items the seller had no previous knowledge of..and then they can be addressed at the proper time…which is before the close of escrow, not after.

In the end, as a buyer, you will have enough “stuff” to fix on your home in the many years you will own it…the TDS is there to help you understand just what “stuff” is there before the home is all yours.