HomeGuard Incorporated, home, roof and termite inspection company would like to share a recent guest blog by David Hamerslough that Realtors and property buyers and sellers might find interesting.
Over the last 30 days, selling vacant property in Santa Clara County has been far easier than selling occupied property. With occupied property, the shelter-in-place order (“SiP”) prevented any in-person viewings. Agents were confronted with the issue of how to complete their inspection of the reasonably accessible areas of the property, and buyers were confronted with the problem of how to even view properties for sale, let alone conduct a final walk-through of the property they were buying.
Santa Clara County’s new SiP order, which is effective at 11:59 p.m. on May 3, 2020, has addressed some of the challenges that were involved in selling an occupied property. The new order has redefined the categories of “essential activities” and “essential businesses.” Essential activities include those necessary “to move residences.” The prior order authorized a move but “only if it was not possible to defer an already planned move, if the move was necessitated by safety, sanitation, or habitability reasons or if the move was necessary to preserve access to shelter.”
The definition of those real estate activities that qualify as essential business now states that “in-person visits are not allowed when an occupant is present in a residence.” This change allows for private showings and walk-throughs as long as the occupant has completely left the residence. This will require that the occupant physically remove themselves from the property during these activities because the definition of the “residence” includes all aspects of the property, including the backyard and decks. All social distancing and other protocols relating to COVID-19 remain in effect and must be followed.
Based on the new SiP, the following are some issues and considerations for listing and selling residential real estate over the next 30 days or until the current SiP order is rescinded or amended:
- No open houses.
- All activities should be conducted electronically/virtually if at all possible.
- Whether the seller will allow access to the property still needs to be addressed.
- Use the most current C.A.R. Listing Coronavirus Agreement/Amendment (RLA-CAA dated April 16, 2020) in conjunction with a new or existing listing agreement, as it addresses this issue. The RLA-CAA also addresses the use of the Coronavirus Property Entry Advisory and Declaration form (PEAD) (this form is discussed below).
- If the seller will not sign the RLA-CAA, document their refusal in an email or on the form itself. The issues regarding access, the use of the PEAD, and compliance with SiP orders will still need to be addressed and documented in some other written form.
- If the seller will not allow access to the property, email the seller pointing out the language in the RLA-CAA and advising that this choice may limit the value or desirability of the property, as it is more challenging to find a buyer who is willing to purchase without the opportunity to inspect the property. You should also consider whether you want to continue marketing the property with those constraints. Paragraph 6 of the RLA-CAA provides for a temporary withdrawal of the property from the market.
- The RLA-CAA gives the seller the option of allowing or denying access to anyone involved in the sale of the property in three separate paragraphs labeled “Property Showings,” “Marketing Activities,” and “Necessary Activities” (activities that are in furtherance of selling the property). The seller also has the option of limiting which marketing activities will be undertaken. “Necessary Activities” include all real estate activities that must be undertaken to facilitate the sale of the property, including but not limited to inspections, investigation of the property, conducting a final verification of the property’s condition, appraisal or buyer insurance inspections, preparation of an agent’s visual inspection and disclosure, etc. Access for these “Necessary Activities” is authorized for both the interior and exterior of the property. While the seller can limit the marketing activities that he or she is willing to authorize, the seller does not have the option of limiting which of the “Necessary Activities” to facilitate the sale will be undertaken.
- Most sellers over the last 30 days have not restricted access, but if your seller limits access to only property showings and/or marketing activities, you should determine why the seller is making that choice. Is there a health-related or other rational reason? If not, a seller’s motivation for allowing access to property showings and/or marketing activities but limiting access for the necessary activities to facilitate the sale will be viewed suspiciously if the buyer makes a post-close-of-escrow claim related to the condition of the property. If a seller insists on placing any limitations on access (but especially if they are not consistent in allowing access), refer them to a qualified California real estate attorney to discuss the consequences of that choice. The seller will also need to consult with that attorney regarding how to modify the purchase contract in order to reconcile the limitations that the seller is imposing with the preprinted language of the contract that gives the buyer the right to access the property. Any recommendations that you make to your clients to secure legal advice should be confirmed in an email.
- If the seller wants to prevent all access and intends to sell the property solely by use of virtual media, will the seller allow the property to be photographed/videotaped? If so, will those photos/videos be taken by professionals or by the seller? Will they be used just for general marketing or used as the basis for the seller’s disclosures? Will there be any narration or commentary and, if so, will that be provided by the seller or by the agent? There are a number of issues for the listing agent to evaluate depending upon the seller’s answers to these questions. Warnings and/or disclaimers should also be provided to both buyer and seller regarding the issues and risks related to listing and selling property virtually, including the use of photos/videos in conjunction with the seller’s disclosures, an agent’s visual inspection of the property, and the buyer’s investigation and/or inspection of the property. The buyer’s agent will also need to carefully evaluate these limitations and provide separate warnings and/or disclaimers to their client.
- If the seller denies or limits access to the property and the buyer is still willing to buy the property, the buyer should be referred to a qualified California real estate attorney to discuss the consequences of this choice. Appropriate documentation needs to be prepared confirming the buyer’s understanding of the risks associated with the seller’s choice to limit access. Any recommendations you make should be confirmed in an email.
- Obtain a PEAD from the seller and anyone else who enters the property. It doesn’t matter if the property is vacant or occupied; a PEAD needs to be signed and dated any time the property is accessed by an individual. The newest PEAD form (dated April 30, 2020) notes that a new PEAD form is necessary for each day that the property is accessed by any particular individual because it contains a representation regarding the signer’s health, and that condition may change on a day-to-day basis.
- All PEAD forms should be part of each broker’s file. Signed and dated PEAD forms should be exchanged between the seller’s agent and buyer’s agent, and copies should be provided to the seller and buyer so that all parties have a complete record of who has entered the property and on what dates.
- If any party refuses to sign a PEAD, you should document that refusal in writing and notify all parties in writing.
- If a property is vacant, buyers and other individuals entering that property should be notified in writing (preferably on the PEAD form) that there is no assurance that the seller or anyone else has properly disinfected the property or that social distancing protocols have been followed by the seller or anyone else who has entered the property.
- Purchase contracts need to be written to include realistic time frames for performance, given potential delays due to COVID-19. Writing an offer that includes contingencies that can be realistically performed within the agreed-upon time frame is a better practice than writing an offer with unrealistic time frames but including a Coronavirus Addendum/Amendment as part of the offer that attempts to pre-agree to extensions.
- Obtaining financing and removing any loan contingency associated with that financing has been an issue in the last 30 days. If market conditions allow for it, consider writing an offer that provides for a financing contingency to be removed upon the lender funding the loan rather than on a specified date. If the offer must be written with a specific date for the removal of a financing contingency, the buyer should communicate directly with the lender (preferably in writing) to confirm what issues currently exist or may arise that could prevent or delay funding from occurring at the agreed-upon date for close of escrow. Another option is to inquire whether the loan contingency could be removed subject to an agreement between the parties that the buyer would not be in breach of contract if the funding and close of escrow did not occur through no fault of the buyer.
- If a buyer is concerned about their employment status, stock portfolio, net worth, or the receipt of gift money and if market conditions allow for it, consider including contingencies in the purchase contract to address these concerns.
- Both agents are still required to conduct their visual inspection of the reasonably accessible areas of the property. This requirement cannot be waived. As long as the seller does not limit access, performing the agent’s inspection should not be the issue that it has been over the past 30 days. If a seller does limit access, that restriction still does not justify the non-performance of an agent’s visual inspection. An agent should use all resources available to them (an inspection of the exterior, looking through windows, photos/videos, reports, etc.) to complete their inspection and advise all parties in writing of the restrictions and limitations on their ability to otherwise complete the inspection.
- The most recent C.A.R. Coronavirus Addendum/Amendment (CVA) and Notice of Unforeseen Coronavirus Circumstances (NUCC) are dated April 16, 2020. Please make sure you use the most current version of these and all other forms created to address these issues. C.A.R. amended the PEAD on April 30th. Regardless of the number of revisions to these C.A.R. forms, do not assume than any standard real estate industry form will appropriately address all facts and circumstances for all sellers or buyers.
- The CVA requires mutual agreement by the parties. Don’t assume that a seller will agree to the request(s) made in the form for either extensions or cancellation, and don’t assume that the facts and circumstances confronting your client excuse or justify non-performance on their part. The buyer should consult with a qualified California real estate attorney before issuing this form and the seller should do so as well before they sign it. Agents should document their recommendations to their clients in writing. While the latest version of the CVA expands the choices that the parties can make with regard to contingency removal, the close of escrow, or cancellation, care still needs to be taken to make sure that any request is an appropriate one given the facts and circumstances.
- The NUCC is a notice that can be sent on its own but is required in the event that the buyer signs the C.A.R. CVA. The NUCC is intended to explain in more detail why the buyer is requesting an extension of time or the mutual cancellation of the contract due to unforeseen coronavirus circumstances. The NUCC does not need to be signed by the seller. Only those boxes that identify issues that are truthful and relevant to the buyer with respect to the facts and circumstances of the transaction should be checked. The form also enables the buyer to explain and/or attach verification of the unforeseen coronavirus circumstances and their impact on the buyer’s ability to perform. There is a critical, bold-print warning on the newest NUCC stating that brokers and agents cannot and will not determine the legal sufficiency or the good-faith use of the stated reasons for the request for an extension or cancellation and who is entitled the funds in escrow. Agents should not give any opinion to sellers or buyers as to whether or not anyone is acting in good faith – that is a legal conclusion that will need to be determined by a qualified California real estate attorney. Thus, the best practice is to advise the buyer, in an email, that the NUCC should be reviewed by a qualified California real estate attorney before it is signed and/or delivered to the other party.
County SiP orders may be different depending upon the property location and/or the interpretations that may be made by local health officers and county counsel. These orders have changed frequently in the last 30 days and may still be extended, amended, superseded, or rescinded. It is important to stay current on the status of these orders. While we all hope that the orders are modified so that more activities of all kinds will once again be permitted, there is a chance that the orders may become more restrictive if the appropriate authorities believe that easing restrictions has allowed the virus to proliferate. It also bears repeating that all of the issues and considerations discussed in this article are impacted by market conditions and the seller’s and buyer’s motivations.