Beware The Ides Of March
By David Hamerslough and Victoria B. Naidorf
This phrase appears in Shakespeare’s play Julius Caesar, when a soothsayer warns Caesar of his approaching death, which occurred on March 15 in the year 44 B.C.E. Since Caesar’s assassination, March 15th has become synonymous with betrayal or doom, whereas prior to that date, the “ides” was simply the Roman term for the middle of the month, originally tied to the full moon.
This month’s article is our attempt to act as soothsayers in hopes of helping you avoid potential real estate claims. Our soothsaying is based upon actual claims that we, and other real estate colleagues, have been involved in over the last several months. While these claims do not have the magnitude of Caesar’s assassination, they have resulted in loss of productive time, increased stress, lost deposits and commissions, and the expenditure of significant attorneys’ fees on the part of buyers, sellers, and real estate licensees.
The Cancellation Epidemic Has Returned
Once again, cancellations of residential purchase contracts, primarily by buyers, have reached epidemic proportions. The primary reasons have been (1) buyers’ remorse over the price or condition of the property, (2) anxiety over employment/current economic and political trends, and (3) the buyers’ inability to obtain institutional financing.
Other recurrent themes in cancellation claims center on (1) contracts written without any contingencies and/or (2) failure of buyers to tender payment of some or all of the deposit and/or (3) communication regarding the reasons for cancellation by agents and/or their clients with each other or with the other side of the transaction and/or the preparation and distribution of cancellation documents without the clients first consulting with a qualified California real estate attorney.
Over the years, we have discussed cancellation epidemics in multiple articles. The issues, erroneous beliefs held by buyers and sellers, and our advice about avoiding these claims for the most part remain the same. The following are links to three of those articles that discuss this topic: May 19, 2021; April 5, 2022; and May 6, 2025.
One unfortunate surprise (often shock) that greets sellers after the buyers cancel is if their resale of the property in order to mitigate their damages results in the seller suffering a loss greater than the amount of the deposit (assuming that all the requirements of liquidated damages have been met). In that circumstance, the seller’s recovery is limited to the deposit that has been paid. If liquidated damages had not been agreed to, then the amount of recoverable damages for breach of contract under Civil Code § 3307 is the difference between the contract price and the fair market value on the date of the breach.
This seller surprise is more prevalent if the seller had accepted a preemptive and/or aggressive offer by one buyer that is significantly higher than the anticipated sales price or market value as reflected by other offers that the seller receives at or around the same time. We have referred to this scenario as the “outlier offer.” A seller can be helped to minimize the surprise effect with outlier offers by thoroughly understanding the different measures of damages and weighing the pros and cons of agreeing to liquidated damages in the event of a buyer breach of contract. Sellers are often so excited to receive outlier offers they simply want to accept but they must carefully consider the possibility of buyer non-performance and what will happen if the buyer breaches.
Surveying most brokers’ files reveals that in the vast majority of transactions, the parties have agreed to the liquidated damages clause. The overwhelming prevalence of that clause makes it appear that it is a common, automatic practice to include liquidated damages and raises the question whether any evaluation of this issue was made.
Given the prevalence of the liquidated damages clause being initialed, sellers rejecting this term may jeopardize their ability to ratify the contract. One reason for sellers to consider agreeing to liquidated damages is that if the all of the conditions for that clause are met, it may be easier to collect the damages. Sellers should weigh the pros and cons of agreeing to liquidated damages, including the impact of an outlier offer. Sellers should be encouraged to consult with a qualified California real estate attorney before contract ratification, especially when dealing with an outlier offer.
Claims Involving Institutional Investor Buyers (the Professional Buyer)
Well-funded, cash, “Professional Buyers” are advertising the benefits of dealing directly with these entities. Sellers who ratify these contracts have frequently not received advice from a real estate licensee or a qualified California real estate attorney. Based upon the contracts that we have reviewed, Professional Buyers do not use standard real estate industry contracts (e.g., C.A.R., PRDS). They create their own contracts that contain terms that are: (1) pro-buyer; (2) do not include statutorily required disclosures and advisories; and (3)do not include other provisions found in industry contracts. In some instances they start with a standard industry contract but then include a mandatory Addendum that excludes the buyer’s protective terms.
A common pattern for these Professional Buyers is to ratify a contract, conduct inspections, and then renegotiate a lower price based on the inspections. Many of the sellers in this situation have sold because of some emotional or financial distress. If they don’t agree with the price reduction, the Professional Buyer has threatened to walk away and pointed out the requirement for the seller to disclose the reports/information to a future buyer. In some instances, the Professional Buyer has only identified alleged issues/defects and has not even documented them with reports from qualified, licensed inspectors. The additional distress of having to resell the property under these circumstances has caused many sellers to simply capitulate to the price reduction.
Our involvement with these claims has been on behalf of sellers who have experienced regret over signing purchase contracts or who have sought assistance in responding to the request for a price reduction. While we appreciate that most of these transactions do not involve real estate licensees, we hope that by identifying this type of claim, real estate licensees will be in a position to advise sellers whom they may be trying to work with about the need to obtain advice from a real estate licensee or a qualified California real estate attorney on such issues as value, industry forms, disclosure obligations, etc. before entering into any contract.
Historical Documents/Information
Issues involving historical documents/information continue to play a significant role in cancellations/deposit disputes as well as claims for a lack of full and complete disclosure against sellers and real estate licensees. While we know that we have raised this issue before, claims involving this issue continue to be made.
In cancellations/deposit disputes, attorneys for the buyer will often attempt to justify a cancellation on the basis that the historical documents/information were not provided or demand that amended disclosures be provided based upon a discrepancy between the disclosures and the marketing for the property or findings in inspection reports. The objective is to create a contractual basis to cancel the contract because of the amended disclosures. In conventional disclosure cases, escrow closes, the buyer then discovers some issue/defect in the property, and requests are ultimately made for historical documents/information, which then provide a basis to establish actual knowledge of the issue/defect on the part of the seller/real estate licensee and the failure to disclose it.
Here are some recommendations for sellers’ and buyers’ agents to consider so as to be better able to manage this issue:
- As a listing agent, provide the seller with a disclosure information advisory prior to having sellers fill out the disclosure documents.
- How long has the seller owned the property? Remind sellers that the longer they have owned the property, the more likely it is that repair work and/or improvements have been undertaken and it must be disclosed. Ask the seller to retrieve all such documents, including photographs if available.
- What do the seller’s responses to the disclosures suggest regarding whether they have fully responded to the questions asked in the disclosure documents and/or understood the scope of their disclosure obligations? A seller who provides a response of “No” to all questions in the disclosure forms, including those specifically related to historical documents/information, may not have appreciated the scope of their disclosure obligations. Once again, the length of the seller’s ownership is something to consider as part of a review of the responses provided by the seller in the disclosures.
- Find out if the seller has their documents from the purchase of the property. Sellers often have the documents, but it may take them some time to retrieve that material. Make sure sellers understand that difficulty in retrieving these documents is not a justification for not providing them.
- Determine if your brokerage has been involved in any prior transactions involving the property and whether those files exist. If so, suggest that the sellers review them to determine whether their responses are consistent with those prior transaction documents. Include any such documents as part of the sellers’ disclosure package.
- Sellers need to understand that if any repairs, improvements, modifications or additions were undertaken during their ownership or to get the property ready for sale, then that work needs to be disclosed. Ask the seller for copies of any documents (including photographs) relating to this work and include that material in the seller’s disclosure package.
- Recognize that sellers may not understand the breadth and scope of the questions in the disclosure documents regarding historical documents/information. The following examples may illustrate this point: (a) the seller identifies only current inspection reports; (b) the seller identifies improvements to the property rather than whether any historical documents exist; (c) the seller recently purchased the property but identifies that they have no documents from that purchase (including disclosures); (d) the marketing material identifies improvements, but the seller does not identify any documents/information regarding these improvements; and (e) an inspection report indicates prior work or repairs, but, again, there is no documentation/information regarding that work or repairs in the seller’s disclosures. In all of these circumstances, agents should consider following up either with the seller or with the seller’s agent on these issues.
- Make sure to document any discussions with the seller or with the seller’s agent regarding these issues. This way, differences in recollection that may occur once a claim arises can potentially be avoided.
The Ides of March is rapidly drawing near, and now is the time to prepare yourselves for the potential problems that may arise.