RP:23-Contracts, listing agreements,MLS, brokers authority, net listings, CA RE Purchasing Agreement, disclosures

Contracts: A Review

A contract, as you know, is defined as a voluntary agreement between legally competent parties to perform or refrain from performing some legal act. Do you remember the difference between an offer and a contract? An offer is a promise by one party to act or perform in a specified manner provided the other party acts or performs in the manner requested. Until the buyers and sellers have both signed the papers, it is merely an offer. A contract is what happens once the offer is signed, and this fact is communicated back to the person who made the offer (offeror) - this must happen before it becomes a contract. Remember that an offer may be withdrawn prior to being accepted at any time. Once it is accepted, it is a contract between the parties. Real estate contracts must be in writing as set forth in the statute of frauds to be enforceable. The state of frauds mandates that (1) All contracts for the sale of real property must be in writing to be enforceable; AND (2) All leases for more than one year must be in writing to be enforceable. Examples of real estate contracts/and or contractual agreements are: Listing agreements - Agreements between sellers/landlords and brokers. Property management agreements - Agreements between landlords and property managers (brokers). Sale Contracts - Agreements between sellers and buyers. Buyer's/tenant's agency agreements - Agreements between buyer's/tenant's and a broker.

MLS and the Broker's Authority

A multiple listing service, or MLS, is a listing service that is usually operated by a group of brokers affiliated with a real estate association. (Note that in California, multiple listing services are also referred to by the acronym "MLLES".) A paragraph in the listing agreement may authorize that the listing be submitted to a designated MLS. Keep in mind that the broker MUST have written permission from the seller before he can submit the property to the MLS. Once the MLS receives the property listing, it will be placed on the MLS and disseminated to all members of the MLS. These MLS members may also solicit potential buyers for the property. It is for these reasons that an MLS listing receives significantly greater market exposure than a property not listed on an MLS. In addition, the MLS and broker often advertise the property on the Internet, bringing additional exposure for the property listing. Under the terms of the MLS, the listing broker controls the listing and agrees to split the commission (in some manner) with the cooperating agents. Let's review the additional broker's authority given in a listing agreement. Remember that a listing agreement authorizes the broker to: Place a "for sale" sign on the property; Place the property in a multiple listing service; Cooperate with subagents or buyer's agents; and Accept (on the seller's behalf) a prospective buyer's good faith deposit toward the purchase price.

Methamphetamine Contamination

After conducting a thorough examination of the property and copies of any law enforcement reports, forensic chemist reports, and any hazardous waste manifests, among other documentation, the local health officials will make the determination regarding the property's contamination. If the local health officials determine that the property is NOT contaminated, within 3 working days after making that determination, the local health officer MUST remove all notices posted on the premises. He must also prepare a written documentation of this determination, including the name and address of the property owner, and the findings and conclusions of the determination. Within 10 working days after preparing a written documentation of this determination, the local health officer must send a copy of the documentation to the property owner, and to the local agency responsible for enforcement of the State Housing Law; OR, if the local health officers determine that the property IS contaminated, an order prohibiting its use or habitation will be issued. No later than 10 working days after the date of the determination of contamination, the local health officer must first, if the property is real property, record a lien on the property with the county recorder. This lien records the date, the name of the agency, the property's legal description and the assessor's parcel number, the record owner of the property, and the amount of the lien, which is the greatest of EITHER $200.00, OR the actual costs incurred by the local health officer in conducting the investigation. This lien has the force, effect, and priority of a judgment lien. The officer must also issue an order PROHIBITING the use and occupancy of said property. This order must be served, either personally or via certified mail, to all known occupants of the property and to all persons who have an interest in the property, as contained in the records of the recorder's office of the county in which the property is located. The local health officer must not release the lien until either the property owner satisfies the lien OR the lien is otherwise released under applicable law.

Required Disclosures

Agency Relationship Disclosure: As we discussed earlier in this course, the Disclosure Regarding Real Estate Agency Relationships form states that both the listing broker and the selling broker provide written declaration of which party or parties--buyer, seller, or both--to the transaction they represent. Under Civil Code Section 1102, the following "Disclosures upon the sale of real property" are set forth: Mold Disclosure: If the seller is aware of mold on the property, this should be indicated on the Transfer Disclosure Statement. Illegal Controlled Substances: If the seller has actual knowledge that an illegal controlled substance has been released on the property, he MUST disclose this IN WRITING to any prospective buyer. (This, too, is set forth in the Transfer Disclosure Statement.) Local Option Real Estate Transfer Disclosure Statement: Under Civil Code Section 1102.6a, in certain cities or counties, a seller might be required to provide specific information about the neighborhood or community. Natural Hazards Disclosure: This disclosure must be provided by the seller or his agent to the prospective buyer if the property is located within one or more of these SIX specified natural hazard zones: A special flood area; An area of potential flooding if a dam fails; A very high fire severity area; A wild land forest fire risk area; An earthquake fault zone; OR A seismic hazard zone. Note that under the Natural Hazards Disclosure, it should also be disclosed whether the property is located in an area that is subject to a Mello-Roos Community District, and/or a 1915 Bond Act assessment. If the property is in one of these two areas, then it is subject to a continuing lien securing the levy of special taxes to finance designated public facilities and services. In this situation, the seller must attempt to obtain a notice from the applicable local agency to disclose the tax details. Keep in mind that since many of these topics are technical in nature, and involve various agencies and government code sections, most sellers choose to pay a professional company to provide this information to the buyers.

Listing Agreements: Exclusive Authorization to Sell

Back in Unit 11, we discussed listing agreements in some detail. We're going to review some of that information, as well as describe listing agreements in greater depth in the next couple of screens. Let's begin with a closer look at the most common form of listing agreement used in the real estate business: the Exclusive Authorization and Right to Sell. The Exclusive Authorization and Right to Sell is a listing for sale of one or more specifically described parcels of real property. It does not authorize the broker to sign transaction documents for the seller. Prior to signing the listing agreement, the seller should be given the agency disclosure form, as we discussed in Unit 11. Now let's look at the broker's commission. Under the California Business and Professions Code Section 10147.5, it is required in the sale of residential property of not more than four units, including a mobile home, that the listing (or other document that initially establishes the broker's right to a commission, or changes the commission rate) contain, in not less than 10-point boldface type, the following provision before the compensation clause: "Notice: The amount or rate of real estate commissions is not fixed by law. They are set by each broker individually and may be negotiable between the seller and broker." Under a listing's "safety clause," there will be a period of time set forth for after the expiration of the listing, during which the broker will be entitled to compensation if the owner personally sells to someone who physically entered and was shown the property or who wrote an offer on the property. For this clause to be effective, the broker must, either before or within the time specified in the agreement, notify the owner in writing of the names of the prospective buyers with whom the broker has negotiated during the listing term. Remember that a broker may NEVER use a listing form in which the amount or rate of compensation is preprinted or otherwise inserted prior to negotiation with the seller.

More Purchase Agreement Information

Here is a quick look at the California Residential Purchase Agreement and Joint Escrow Instructions: Must include specific, fixed times for the delivery of disclosures and the removal of contingencies; Must allow the buyer to cancel, within a specific time, without first asking the seller to make repairs; The removal of contingencies must be WRITTEN; The seller MUST give Notice to Buyer to Perform before the seller is allowed to cancel the agreement; Must refer to a separate agreement for broker compensation; If there is a problem with wood-destroying pests, there may not be a pre-allocation of costs to fix this problem; An addendum must be used in order to accommodate pre-allocation requests; A deposit receipt has 3 copies: the master copy, the buyer's copy, and the seller's copy; and Any time a preprinted form is used, the handwritten parts have control over the printed parts, and BOTH PARTIES must initial ALL corrections. Keep in mind that acceptance of the property's condition is a contract provision, which is subject to inspections (to be conducted at buyer's expense). The buyer must EITHER communicate approval of the property's condition OR request the seller make repairs or take other actions. The buyer and seller will only have a set amount of time in which they may try to negotiate the buyer's requests. At that point, if the seller is willing to correct the items, the transaction will continue. However, should the seller be unable or unwilling to correct the items, the buyer has two options: he must either proceed with the transaction OR cancel the contract altogether.

California Real Estate Purchase Agreement

In California, the Real Estate Purchase Agreement is most commonly referred to as the "deposit receipt." This contract between the buyer and seller outlines the terms for the purchase of real property, and acts as a receipt for the buyer's deposit toward the purchase of the property. The purchase agreement sets forth all the details regarding the broker's commission, and generally outlines any guidelines for the escrow instructions. The following regulations apply to Real Estate Purchase Agreements in California: Offer: The prospective buyer stipulates the price AND terms of the offer, which are put on the purchase contract form. Under California regulations, ALL OFFERS received by the broker MUST be presented to the owner, even if the offer is for $1.25 for a 6-bedroom home in Beverly Hills--regulations are regulations. Acceptance: Upon the seller's acceptance of the offer, the communication of this acceptance may be sent to the buyer in person, by mail, or by fax. Once this occurs, a binding contract has been achieved, because there has been an offer, an acceptance, and a notification of the acceptance. Keep in mind that ANY TIME before the buyer receives notification of the seller accepting the offer, the buyer can legally withdraw the offer and not be held liable on the contract. A broker must show that he/she has reasonably supervised the transaction. Signed copies of the offer and the acceptance must be left with ALL parties at the time they sign the documents. If the terms of the offer (or a counteroffer) are unacceptable, the seller CAN REJECT the offer outright. (Should this happen, then no contract exists because there was no acceptance.) The buyer MAY make another offer if he so chooses. If the seller thinks the offer received is basically a good one, but for a change in price or terms, the seller can make a counteroffer back to the buyer. Once a counteroffer is made, the buyer's original offer becomes invalid. If the buyer accepts the offer the seller has made to him, the same process must take place as with a regular offer: the counteroffer must be made in writing, the buyer will accept the offer in writing, and the seller must receive notification of this acceptance.

More Environmental Hazards: Lead-Based Paint

Lead exposure is VERY harmful, especially to pregnant women, their unborn babies, and children. Lead can cause damage to the brain, kidneys, nervous system, and blood. Lead-based paint disclosure is necessary for any residential structures built prior to 1978. The seller must provide the following: Disclosure of any known lead in the dwelling; A HUD pamphlet; and Risk assessment opportunity (which gives the right to rescind contract for 10 days). Lead is undetectable except by a professional, and should only be mitigated by a professional. All owners of residential property MUST provide lessees with information on the potential health hazards associated with lead, and an informational brochure regarding lead-based paint dangers. On the federal level, the Residential Lead-Based Paint Hazard Reduction Act and enabling regulations require affirmative action on the part of the sellers, landlords, and real estate agents, and renovators disturbing more than two square feet of old paint in houses built before 1978, to ensure that lead-based paint hazards are addressed in the sale and leasing of homes and apartments constructed prior to 1978. Disclosure of knowledge of Lead Paint on any sale or lease of a residential property is mandatory. In California , the seller or lessor MUST provide the buyer or lessee with a lead hazard information pamphlet, which includes a disclosure form, and disclose the known presence of any lead-based paint. The California Association of REALTORS offers a Lead Warning Statement in its Residential Purchase Agreement and Deposit Receipt; OR, CAR offers an addendum form that can be made part of a residential purchase or lease agreement, or other contract. This form is the Lead-Based Paint Hazards Disclosure, Acknowledgement, and Addendum Form. Regardless of the exact form used, the agent, on behalf of the seller or lessor, MUST ENSURE COMPLIANCE WITH THE legal requirements. The buyer then has a 10-day opportunity to inspect before he is obligated under the contract.

Methamphetamine

Legislation requires local health officers to make an assessment of a property after receiving notification from a law enforcement agency of potential contamination or of known or suspected contamination by a methamphetamine laboratory activity. Within 48 hours after receiving this notification of potential contamination of property by a methamphetamine laboratory activity, the local health officer must post a written notice in a prominent location on the premises of the property. The notice, emphasized with the word "WARNING" in large, bold type at the top and bottom of the paper, must provide the agency's contact information, the reason the property has been seized, and contain strict guidelines and penalties for any unauthorized person who enters the premises. Under this legislation, until that property owner receives a notice from his local health officer stating that the related property "requires no further action," this property owner must notify the prospective buyer in writing of the order AND provide the prospective buyer with a copy of the actual order. The prospective buyer must provide a written acknowledgement that he has received this copy of the order. The property owner in such a situation must provide a written notice to all prospective TENANTS that have completed a rental application for rental of the affected dwelling unit, OR other property of the remediation order. The owner must also provide any prospective tenant a copy of this order, and the prospective tenant must then acknowledge in writing that he or she has received the notice and the pending order. Such written acknowledgement MUST be made BEFORE the prospective tenant signs his or her rental agreement, and then this notice must be attached to the rental agreement. Should the owner of such a property NOT follow these regulations, the prospective tenant may LEGALLY void the related rental agreement.

More Required Disclosures in California

Many of the following disclosures are required in residential real estate transactions, to protect consumers of entering into an agreement on a property with "hidden" defects. These disclosures are as follows: Disclosure of Military Ordinance Location: Certain areas that were used for military training and which may contain live ammunition, have been identified by federal and state agencies. A seller of residential property located within one mile of such a hazard must give the buyer written notice of this location, under the Civil Code Section 1102.15. Home Inspection Notice: This inspection notice, which must be signed by the buyer, encourages the buyer to order an independent home inspection BEFORE buying the property. Smoke Detector Statement of Compliance: The seller must provide the buyer with a written statement that the property complies with the California legal requirements for properly operating smoke detectors. Water Heater Bracing: The seller must provide written certification to the prospective buyer that a water heater has been braced or otherwise anchored to resist movement in the event of an earthquake. Megan's Law: The buyer must be given notice that a database is available for the prospective buyer to screen a specific area for registered sex offenders. Common Interest Development Information: IF the buyer is buying a common interest development (condo, co-op, planned unit development, or other CID), the buyer must be given information about the CC&Rs and the amount of homeowner dues, as well as the financial situation of the owner's association and any pending lawsuits. Notice Regarding the Advisability of Title Insurance: If no title insurance is to be issued, the buyer must receive and sign or otherwise acknowledge a statutory notice regarding the advisability of acquiring this insurance with the close of escrow.

Carbon Monoxide Detector

On May 7, 2010 Senate Bill 183 was signed into law requiring the placement of carbon monoxide detectors in all California dwelling units. SB 183 also requires that the presence or absence of those devices be disclosed when residential real estate is transferred. The requirement that the seller states whether or not the property contains one or more carbon monoxide detectors is part of the TDS (Real Estate Transfer Disclosure Statement) effective January 1, 2011. If the seller answers "no" on the disclosure, that does not invalidate the sale or transfer of the property. Senate Bill 183 applies to existing housing. New construction standards are set by state agencies. The new law applies to every dwelling unit that has "a fossil fuel burning heater or appliance, fireplace or an attached garage". "Fossil fuel" is defined as "coal, kerosene, oil, wood, fuel gases, and other petroleum or hydrocarbon products which emit carbon monoxide as a byproduct of combustion". After July 1, 2011 all existing single family dwelling units must have carbon monoxide detectors installed consistent with either new construction standards or approved installation instructions. The devices may be plug-in, hardwired with a battery backup, or battery powered. They may also be combined with a smoke detector provided that it produces "an alarm or voice warning in a manner that clearly differentiates between a carbon monoxide alarm warning and a smoke detector warning". The State Fire Marshall is required to certify and approve both the detectors and their instructions. All dwelling units including apartments must have proper detectors no later than January 1, 2013.

Radon

Radon is an odorless, tasteless, colorless RADIOACTIVE gas produced by the natural decay of radioactive substances. Radon readings can vary from house to house. You should NEVER assume or let your customer assume that just because the house down the street tested okay for radon, theirs will too. You should be aware that a minute amount of radon can usually be found in outside air. The danger exists inside properties, if the radon reading measures 4 pCi/L Radon. When the radon is trapped in such high concentrations in buildings, it often causes health problems, especially cancer. Radon detection tests are not required by law, but many consumers will request such a test. The real estate licensee should NEVER discourage this testing. The California Department of Health Service's (DHS) Radon Program goals are to educate and increase the public awareness of the risks of radon in indoor air. California law requires professional providers of radon services to be certified. It is strongly recommended to hire a disinterested third party to assure the validity of the testing. The State of California maintains a list of certified providers of radon services and one of the groupings for certification is regarding testers. Certified Radon Testers conduct radon measurements in residential structures, commercial structures, and occupational settings. Other environmental issues include the following: Carbon monoxide is a by-product of fuel combustion, and is colorless and odorless. Exposure to carbon monoxide causes severe sickness, and can even result in death. Electromagnetic fields are caused by the movement of electrical currents, and have been the subject of controversy over their potential to cause cancer and other illnesses. Testing to find out the EMF readings on high-voltage wires IS possible. Underground storage tanks are tanks located at least partially underground and designed to hold gasoline or other petroleum products or chemicals. The Leaking Underground Storage Tank program controls the detection, monitoring, mitigation, and removal of buried underground storage tanks. Licensees should remember NOT to take a stand on controversial health issues. Remember, your job is simply to refer your customers to the experts in a given field. For more information about California's environmental issues, statistics, and regulations, visit the California EPA online at http://www.calepa.ca.gov/.

Net Listings

Remember the following NET LISTING regulations under the California Real Estate Law: On a net listing, the broker MUST notify the seller of the amount of the commission the broker is earning BEFORE the seller agrees to sign the purchase contract with the buyer. If this fact is NOT disclosed, the broker's license could end up being revoked or suspended. A net listing may be taken on EITHER an "open, exclusive agency" form or an "exclusive authorization and right-to-sell" form. Additional listing agreement provisions could include details about the following: a home protection plan, the key box, placement of the "for sale" sign on the property, arbitration, attorney's fees in the event of a dispute, date of possession, and the Equal Housing Opportunity clause. Note, also, that if there is a change of price or terms of a listing, such a change must NEVER be made on the original contract form, but MUST be made on a price change or extension form. Another important point to remember is that single agency brokerage firms have become more common since the Agency Relationship Disclosure law was enacted, and special listing forms exist for this type of listing.

Disclosure of Environmental Hazards

Residential Environmental and Earthquake Hazards Disclosure: The seller and agent provide the buyer with the Seismic Safety Commission's booklet: Homeowner's Guide to Earthquake Safety. Once the buyer receives a copy of this booklet, then neither the seller nor his agent needs to provide any additional information regarding either geological or seismic hazards. HOWEVER, the seller and agent MUST disclose that a property is in an earthquake zone. In addition, this booklet also discusses hazardous wastes, asbestos, formaldehyde, lead paint, mold, and radon gases. Let's take a look at some of these environmental hazards right now, beginning with asbestos. Asbestos: There are several environmental issues about which you should know, and asbestos is at the top of that list. Asbestos is a mineral that was used as insulation in houses, covering on pipes, air ducts, and heating units, before it was discovered that asbestos is a carcinogen. Any building constructed before 1978 (the year asbestos use was banned) has a good chance of containing the substance. In fact, the EPA estimates that about 20% of commercial and public buildings built prior to 1978 have asbestos. While undisturbed or unexposed asbestos is not harmful, asbestos breaks down as it ages, and is often disturbed during remodeling or rebuilding. This poses a great threat to people. Encapsulation (the sealing off of disintegrating asbestos) or asbestos removal MUST be performed by a state-licensed technician and should NEVER be done by an amateur.

Methamphetamine Clean Up

The most recent changes to methamphetamine laws have come about as the result of Assembly Bill 1078. Under Assembly Bill 1078, which resulted in the new Health and Safety Code Section 25400.28, sellers and landlords are required to give the written disclosures of the CLEAN-UP order to buyers and tenants. (The previous law dealt more with the contamination aspect of the methamphetamine, rather than the clean-up orders.) While the laws under the Methamphetamine Contaminated Property Cleanup Act of 2005 were previously only applicable to residential properties of one to four units, the most current legislation notes that this law applies to all types of properties. Under this act, "property" has been redefined as "any parcel of land, structure, or part of a structure where the manufacture of methamphetamine or storage of methamphetamine or a hazardous chemical that is prohibited by Section 11383, occurred, including manufactured housing and mobile homes." Note that the requirements under this act, including the definition of "property" as defined above, do NOT apply to any of the following: A manufactured home located within a manufactured housing park; A manufactured home located within a manufactured housing community; A mobile home located in a mobile home park. However, remember that any mobile home or manufactured housing located outside of one of these parks or communities IS covered under the Methamphetamine Contaminated Property Cleanup Act of 2005.