California Real Estate Agents’ and Sellers’ Duty of Disclosure to Prospective Buyers

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Real estate investment in California, as a matter of course, involves buying and selling real property. An investor may decide to sell a piece of real property as part of an investment plan, such as after purchasing a distressed residential property and rehabilitating it. A sale may also be a result of conditions that require an investor to get out of a bad investment.

Regardless of the reason for putting a property on the market, California law requires numerous disclosures about the property. Many of these disclosures required by law are ultimately the responsibility of the seller, whether or not they are assisted by a real estate broker. Real estate investors in California should be aware of these disclosures and their legal obligations.

Duties of a Seller Under California Law

Sellers of real property are obligated by California law to make various disclosures about the property. Retaining a real estate broker assigns the duty of disclosure to them. Otherwise, the seller is responsible for making the required disclosures and potentially liable for failing to do so. The California Civil Code identifies the required disclosures, beginning with § 1102.

The disclosure requirements apply to most real estate transactions involving a sale, with some exceptions that include foreclosure sales, transfers of real property during probate, and transfers between co-owners or spouses. When a disclosure is required, it must be done in writing “as soon as practicable before transfer of title.” The specific disclosures are listed in the Real Estate Transfer Disclosure Statement, which is available as a standardized form.

Laws and Regulations Governing Real Estate Brokers and Agents

Licensed real estate brokers have fiduciary duties to their clients, as well as duties of disclosure to prospective buyers. These duties are part of their licensure from the state, through the California Bureau of Real Estate. Real estate brokers may also be subject to rules of conduct established by professional associations like the National Association of REALTORS (NAR) and the California Association of REALTORS (CAR), although membership in such organizations is often voluntary.

Duties of a Real Estate Broker Under California Law

California requires licensed real estate brokers to make certain disclosures to prospective buyers, independent of sellers’ duty of disclosure. Section 2079 of the Civil Code, for example, requires a real estate broker to “conduct a reasonably competent and diligent visual inspection of the property” and “to disclose…all facts materially affecting the value or desirability of the property that an investigation would reveal.” The statute makes this both a duty the broker owes directly to the prospective buyer and an ethical duty the broker owes to the public.

REALTOR Regulations

The term “realtor” is a registered trademark of the NAR, which prefers that it be written as “REALTOR.” A real estate broker may not use the title of REALTOR unless they are a member in good standing of the NAR or a state-level organization like the California Association of REALTORS. Article 2 of the NAR’s Code of Ethics and Standards of Practice states that members must “avoid…concealment of pertinent facts relating to the property or the transaction,” but it also states that they are not “obligated to discover latent defects in the property.” A REALTOR may be a member of NAR or CAR through their local association, like the Greater San Diego Association of REALTORS (GSDAR), for example.

More Blog Posts:

The Golden Rule of Real Estate Investing: Replacement Property Requirements for 1031 Exchanges, Titles and Deeds, September 3, 2017

Foreclosure Sales and California Real Estate Investors, Titles and Deeds, July 31, 2017

Is it Fraud for Owners and Real-Estate Agents to Fail to Disclose a Planned Taking in California? Titles and Deeds, March 31, 2017

Photo credit: Merio [CC0 1.0], via Pixabay.