“The Absence of Loan Terms in the Financing Clause has No Potential Impact on the Buyer or Seller” and Other Urban Myths in Today’s Real Estate Market

Have you heard the statement in the title before? If so, did you believe that it was true, or did you recognize that it was false?

An urban myth is a story or statement that is not true but, because it is often repeated, it takes on a sense of veracity and thus is believed by many to be true. This article will explore just some of the urban myths (aka Agent Myth-Information) that are circulating in today’s real estate market and the contrasting reality associated with those myths. This list is by no means complete, nor is the reality a substitute for a thorough analysis of the facts, law, and equities associated with any situation. For that to occur, a consultation with a qualified California real estate attorney will be necessary.

Myth #1: The Absence Of Loan Terms In The Financing Clause Has No Potential Impact On The Buyer Or Seller

Reality: Some lawyers would argue that no contract has been formed at all because of the absence of material, essential terms in the financing contingency. Other lawyers would argue that there is a contract and that the buyer must perform and has no basis to cancel regardless of the interest rate and/or other loan terms the lender offers as part of the loan approval. The reality is that many buyers can only qualify for or have the financial ability to afford a loan at a specific interest rate and/or they do not want to take the risk of an adjustable rate. This is why a cap on the interest rate and specificity as to the type of loan should be part of the loan terms. The absence of these terms often leads to a buyer being unable to perform or who needs to renegotiate the terms of the purchase. This is likely to result in a transaction that is not going to close smoothly or by the terms contemplated by the contract.

Myth #2: If There Is No Deposit, The Buyer Has Nothing At Risk

Reality: Please review my article of June 2022 for a fuller discussion of this subject. The reality is that for this myth to be true, an arbitrator or judge will have to reward a buyer for their failure to perform their contractual obligation to make a deposit; the qualified California real estate lawyers whom I have canvassed have not seen that result.

Myth #3: Real Estate Licensees Don’t Need To Read Any Transactional Documents As Long As They Give Them To Their Client

Reality: This is known as the RDR Syndrome (“realtors don’t read”). In most instances, this will constitute, among other things, a breach of fiduciary duty. Here is a link to CACI Jury Instruction No. 4107, which outlines, in part, what a jury is instructed regarding fiduciary obligations – it includes the duty to learn the relevant facts.

Myth #4: If Your Unlicensed Assistant Is Really Smart, He Or She Can Fill Out The Contract And Transactional Documents

Reality: CACI Jury Instruction No. 4107, the Agency Disclosure, and other industry publications explain why this is likely to be a breach of fiduciary duty. Only a real estate licensee can perform licensed activities.

Myth #5: Disclosures In The MLS Are Always Given To The Buyer

Reality: Simply because it is in the MLS does not mean that the buyer actually saw it, read it, understood it, or accepted it as true. Even if the buyer received the MLS, there may be portions of it (e.g., private remarks) that the buyer did not receive.

Myth #6: If The Buyer Doesn’t Like The Information In An Appraisal Report, He/She May Use That Report To Cancel The Contract

Reality: Cancellation rights require, among other things, a contingency, the exercise of good faith in cancelling a contract based on that contingency, and other factors. The appraisal contingency only specifies that the property must appraise at a specific price.

Myth #7: A Licensee Can Advertise/Market A Property And Include Any Personal Property Because The Only Personal Property That Matters Is That Property Specified In The Purchase Contract

Reality: Although the seller is obligated to sell the personal property specified in the purchase contract, an agent may still have civil liability for false advertising, misrepresentation, and/or a violation of the Code of Ethics.

Myth #8: Statements Made By A Buyer’s Lender And/Or Real Estate Agent That Cause The Buyer To Make An Offer Can Justify The Buyer Cancelling The Contract That Has Been Signed With The Seller

Reality: The parties to a purchase contract are only the buyer and seller. The fact that the buyer’s lender or agent made statements that prompted the buyer to make their offer does not automatically justify a cancellation of that contract with the seller. Such statements may give rise to a claim against the lender or the agent. If there is a dual agency, such statements may, but do not automatically, justify the buyer cancelling with the seller, but they will then create a basis for the seller to pursue whoever made the erroneous statements.

Myth #9: Cancellation By A Buyer Shortly After Contract Ratification Means That The Seller Has Not Sustained Any Damages

Reality: A cancellation by a buyer without any factual, legal, or equitable basis for doing so is the same whether it occurs on Day 1 of the escrow or the day that escrow is to close. If there is no basis to cancel, it is likely to be a repudiation, anticipatory breach, and/or a breach of contract. This is true regardless of the day on which it occurs.

Myth #10: A Trustee Of The Trust That Is Selling A Property Has No Disclosure Obligations

Reality: Even if a trustee is exempt from filling out a Transfer Disclosure Statement and a supplemental disclosure form, that trustee still has several statutory disclosure obligations as well as a common-law obligation to disclose any material fact of which they are aware that might impact the value or desirability of the property. Not every trustee is automatically exempt from filling out a TDS and a supplemental disclosure. It depends on several factors, including the type of trust, whether the trustee is a natural person, whether the trustee has occupied the property within one year of the sale, etc.

Myth #11: A Buyer Is Entitled To A Price Reduction Because The Market Value Of The Property Has Declined Since Contract Ratification

Reality: Think about it – is a seller entitled to an increase in the purchase price because the property appreciates in value after contract ratification and before close of escrow? The answer is no; changes in market value do not create an automatic adjustment in the contract price.

Myth #12: The Legality Of The Bedrooms And Baths In A Home Are Based Upon What Is In The Assessor’s Records

Reality: Legality of bedrooms and baths is a function of their compliance with, among others, the regulations of the Planning and Building Department of the city or county in which the property is located. The assessor’s records are generated for taxing purposes, not to establish the legality of the improvements. See my article from June of 2021.

Myth #13: An Agency Relationship Doesn’t Exist If I Didn’t Sign An Agency Disclosure Form And/Or I Didn’t Get Paid

Reality: Existence of an agency relationship is a question of fact and turns on, among other things, the agent’s statements and conduct. It does not require that an agency disclosure be signed, nor does it require that a commission be received.

Myth #14: The Production Of A Current Home Inspection, Pest Inspection, And/Or Roof Inspection Satisfies The Seller’s Obligation To Provide Historical Documents

Reality: The definition or scope of the documents that sellers must provide to buyers (collectively referred to as “historical documents”) under both the PRDS SSC and the C.A.R. SPQ is much broader than simply providing the current inspection reports generated as part of the listing of the property. Please review the SSC and ¶ 5 of the SPQ for the full definition of an historical document, along with my articles of December 2021 and May 2022. Any historical document in the seller’s possession should be provided to the buyer.

Myth #15: The responsibility for the payment of government-required point-of-sale inspections, reports, and corrective/remedial actions is automatically handled in escrow based on the custom and practice in the jurisdiction where the property is located

Reality: No such custom or practice exists. Even if it did, there is no contractual language binding the buyer and seller to any such custom or practice. The purchase contract needs to specify who is paying those fees and costs.

Myth #16: What The Neighbors Said Is Just “Hearsay”

Reality: Don’t assume that what the neighbors tell you is not a material fact that might impact the value or desirability of the property and therefore doesn’t need to be disclosed to a buyer. Distinguishing between a material fact and what is rumor and/or innuendo is legally challenging and cannot be determined by agents. As both the PRDS and C.A.R. advisories on disclosure suggest, “when in doubt, disclose.” This is true even if the issues or events are historical in nature and everyone believes that they have been resolved in some way.

Myth #17: Non-Contingent Offers Are The Norm In The Current Market

Reality: Non-contingent offers are a function of market conditions, competition, buyer and seller motivations, and a number of other factors. If these factors do not exist and/or are not capable of being demonstrated in a changing market, a buyer will likely question why their offer was non-contingent in the event of a dispute with the seller over contractual performance.

Myth #18: Believing In Or Taking Action Based On Any Of These Urban Myths Will Not Result In A Claim

Reality: Each of the urban myths set forth in this article has resulted in multiple claims that I and other qualified California real estate attorneys have been involved in. These claims involve buyers, sellers, and real estate licensees; they involve time and money and result in stress, attorneys’ fees and costs, and the risk of legal and/or ethical responsibility.

Do not fall prey to any of these urban myths and do not pass on any myth-information to clients.