New Laws Impacting Residential Real Estate
By David Hamerslough
November 9, 2018
Effective January 1, 2019, there are a number of changes to existing real estate law. CAR sponsored what they characterized as “clean up” legislation designed to “update the real estate law to conform it to existing practice, eliminate antiquated or confusing laws, clarify existing law, and introduce plain language where appropriate.” This article briefly discusses some of these changes.
Examples of the use of plain language include the replacement of the following terms:
Listing Agent is replaced by the term Seller’s Agent or Seller’s Brokerage Firm
Selling Agent is replaced by the term Buyer’s Agent
Associate Licensees is replaced by the terms Salespersons and Broker Associates
Agency disclosure law has been changed to eliminate the delivery of the third disclosure required under existing law. Existing law requires the disclosure form to be delivered (1) by the listing agent to the seller before the seller signs the listing; (2) by the buyer’s agent to the buyer before the buyer signs the offer; and (3) by the buyer’s agent to the seller before sending the offer.
The new law eliminates the third step in this process. The agency disclosure form will now be delivered (1) by the seller’s agent to the seller before the seller signs the listing and (2) by the buyer’s agent to the buyer as soon as practicable prior to the buyer signing the offer.
This legislative change does not eliminate the risk of an agent suffering a commissiondectomy. This unfortunate procedure exists under current California appellate law when an agent fails to deliver the agency disclosure form to the seller prior to the seller signing an agreement to pay a commission. The failure to do so makes the agreement to pay the commission voidable. In order to avoid this risk, the seller’s agent should deliver the agency disclosure form to the seller before having the seller sign any type of commission agreement.
Agency confirmation will now include both the names of the brokers and the agents involved in the transaction. The license number of all agents and brokers will also be required as part of the confirmation. The phrase “dual agent” will now be used to indicate dual agency as opposed to the phrase “representing buyer and seller.” In order to avoid an unintended dual agency, the broker and agent will need to be consistent in the agency confirmation of their identification of the party who they are representing in the transaction.
Another change is the agency disclosure law is the expansion of what must be kept confidential in a dual agency. Under current law, the information that remains confidential and therefore does not need to be disclosed only extends to the price that either a buyer or seller will pay or accept. Under the revised law, confidentially now extends to “confidential information, including, but not limited to, facts relating to either the buyer’s or seller’s financial position, motivations, bargaining position, or other personal information that may impact price, including the seller’s willingness to accept a price less than the listing price or the buyer’s willingness to pay a price greater than the price offered.” As an example, this extension should clarify that a seller’s need to sell quickly because of personal or financial reasons (e.g. divorce, loss of employment, or financial hardship) will not need to be disclosed.
There are changes to the law regarding the TDS. Electronic delivery of the TDS is now allowed. The buyer has five days from the date the TDS is emailed to rescind if the TDS is sent after the contract is presented.
The statute now contains a definition of a fully completed TDS. A fully completed TDS requires that the seller and seller’s agent respond to all questions in sections two and three respectively and sign the TDS form or, in the case of an agent, sign an AVID where that form is used to memorialize the agent’s visual inspection. There is no requirement that the buyer’s agent complete their visual inspection in order for the TDS to be fully completed.
This statutory definition of when the TDS is fully completed is the same as is provided for in the CAR purchase contract. It is different from the definition that is contained in the PRDS contract. The PRDS contract requires that the seller respond to all questions on the TDS and sign the form and that the seller’s agent and buyer’s agent complete their visual inspection of the property, and either sign the disclosure form or an AVID.
The difference in these definitions is consistent with the use of up-front disclosures in this geographic area, as compared to how disclosures are handled in many areas where the CAR contract is used. An added benefit of the PRDS definition is that it helps ensure that the buyer’s agent completes their visual inspection of the property and avoid the consequences of inadvertently failing to do so.
The statutory definition does not address the definition of a fully completed supplemental disclosure form. The distinction between the CAR and PRDS contracts remains the same; the CAR contract does not contain a definition of a fully completed Seller Property Questionnaire, while the PRDS contract defines a fully completed Supplemental Seller’s Checklist as one where the seller has responded to all questions and signed the form.
The other significant change to the TDS law concerns the trust exemption. Historically, all trustees of all trusts were exempt from completing a TDS. The legislature then created an exception to this exemption. If four criteria were met, the trustee would be required to complete the TDS. Those four criteria were (1) a sole trustee; (2) who is a natural person; (3) of a revocable trust; and (4) who has either owned the property in their own name or lived in the property within one year of the sale.
This language proved challenging to apply. The legislature has responded by eliminating the word “sole” from the language of the exception. Under the new law, it does not matter how many trustees there are; the trustee(s) must fully complete and sign the TDS if all of the following criteria are met: (1) it is a revocable trust; (2) the trustee is a live person; and (3) the trustee either owned the property in their own name or lived in the property within the last year. If any of these criteria are not met, then that trustee is not required to complete a TDS.
Whether these criteria are met should not be determined by relying on the title of the trust document. As an example, a revocable trust can become irrevocable upon the death of the trustor. A good source to discuss whether the trust exception applies is the trust attorney who prepared the trust. In addition, under the new criteria it is conceivable that one trustee of a revocable trust might be required to complete a TDS while another trustee would not be required to do so.
The PRDS forms committee is in the process of updating PRDS forms to incorporate these new changes.
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