Is It Time To Reconsider The Buyer Questionnaire?

By David Hamerslough

January 9th, 2018

"Needs and wants" is a phrase often used in residential real estate transactions. Once an agent starts to work with a buyer, the agent usually makes an effort to discover that buyer's needs and wants (e.g., price, location, square footage, condition, features and amenities, school district, etc.). Typically, this inquiry takes place in conversation between an agent and a client, although it may be supplemented by electronic/written communication.

Approximately 15 years ago, in response to issues facing the real estate industry, two colleagues of mine and I drafted a proposed buyer questionnaire and presented it to the PRDS Forms Committee. The questionnaire covered not only needs and wants but also the buyer's prior knowledge and experience, concerns, personal pressures (e.g., financial, time, work, family requirements), etc. It was far more detailed than the simplistic buyer questionnaires that had been used in the early to mid-1980s. The Committee decided not to adopt the questionnaire.

Since the Supreme Court's decision in Horiike v. Coldwell Banker, one of these colleagues and I have been revisiting how real estate brokers and agents can meet their fiduciary obligations as outlined by California law, including what the Horiike court characterized as the "duty to learn the material facts that may affect the principal's decision."

Some of the questions we have been considering include the following: How do brokers and agents learn the material facts that may affect a principal's decision? Is it done orally, in writing, or by some combination thereof? When does this process take place? How is this process documented, if at all? What constitutes a material fact? Needs and wants may provide part of the information that is part of this process, but are those factors the only ones that determine what constitutes a material fact? What role, if any, does a client's prior knowledge and experience, any concerns they may have, risk tolerance, personal pressures, etc. play in learning what material facts are going to impact that client's decision? At what point in a transaction does this process take place? Is this process repeated as additional information is acquired during an escrow? To what extent are all of these issues impacted by market conditions and any other potential pressure (e.g., finances, time, work, or family) that the client is facing? To what extent is an inquiry regarding these issue an invasion of a client's privacy? To what extent is this inquiry going to cause a negative reaction with a client? To what extent can these concerns be addressed by how any request is presented, when it is presented, and what explanations are provided? To what extent is this process impacted by a dual agency?

The foregoing is not an exhaustive list of the questions or issues that may impact how and whether an agent learns the material facts that may affect a principal's decision. What California law has identified is the standard, but to date there have been no specifics as to how, in practical terms, to meet the court's standard.

Some general guidance already exists under California case law. The Horiike decision relied on prior appellate decisions (Field v. Century 21 and Assilzadeh v. California Federal Bank) to support its ruling. These decisions along with the Salahutdin v. Valley of California decision form the basis for the jury instruction (CACI 4107) regarding fiduciary obligations. This instruction states, among other things, that the "facts that a broker must learn, and the advice and counsel required of the broker, depend on the following factors: (1) the facts of the transaction; (2) the knowledge and experience of the client; (3) the questions asked by the client; (4) the nature of the property; and (5) the terms of sale."

An assessment of these factors may not turn solely on identifying a client's needs and wants. While a client's needs and wants may impact and/or be impacted by these factors, these factors may require some knowledge of a client's concerns, past experiences, risk tolerance, and any number of other issues that may cause a client to purchase property and may affect how they make decisions relating to that purchase.

So, one question for 2018 and beyond is whether it is time to reconsider a buyer questionnaire. Can a questionnaire assist an agent in not only determining a buyer's needs and wants but also the other factors that California law identifies as having an impact on meeting the fiduciary obligation to a client? There are multiple ways in which an agent can determine these material facts; a buyer's questionnaire may be one way that could be considered.

My perspective on this subject is influenced by the fact that I am a lawyer who tends to view things from a risk-management perspective on behalf of my broker and agent clients. Brokers and agents tend to view these issues from a sales perspective. The problem is whether a balance can be reached between these two perspectives to create a practical means of meeting the standard set by the court. I believe that such a balance can be reached. I believe that any negative connotation with a questionnaire can be handled by how and why the questionnaire is presented to a client and how one explains why the information being sought will allow an agent to better represent their client and will allow the client to make a more informed decision. Using a questionnaire may also assist in setting realistic goals and expectations for the client.

The overriding issue is what information is being sought in the questionnaire. Any questionnaire that is used must balance information that is potentially important to the decision-making process against information that may invade a client's privacy. What information is included also has to take into consideration any disclosure issues raised by the potential of a dual agency. The questionnaire that my colleagues and I drafted approximately 15 years ago still exists and is ready for use. The threshold issue is whether the industry is ready to start using a buyer questionnaire. Please give me your feedback, and I will provide the results of that feedback in next month's article.

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