Background: This is Week 3 of our series of Legal Tips involving the “5-Day Rule” in C.A.R.’s Residential Purchase Agreement (RPA). This week, we will be taking a closer look at the 5-Day Rule for new discoveries as set forth in paragraphs 11A(4) and 11G(1) of the RPA.

Multiple Choice Question: A buyer is in a pending sales transaction using the RPA. The seller is exempt from the TDS requirement. After the buyer removes all contingencies, a new adverse condition materially affecting the property is discovered. Which of the following way(s) by which the adverse condition is discovered will the buyer have a right to cancel within 5 days and keep the deposit? Pick ALL of the correct answers below:

A. The seller makes the new discovery, and discloses it to the buyer in writing.
B. The seller makes the new discovery, and discloses it to the buyer verbally.
C. The buyer’s inspector makes the new discovery, and discloses it to the buyer in a report that the buyer ordered and paid for.
D. The buyer makes the new discovery, which the seller did not know about.
E. The buyer makes the new discovery, which the seller knew about but concealed.
F. None of the above. 

Answer: According to the RPA, a seller must generally provide the buyer with an amended disclosure if the seller becomes aware of an adverse condition materially affecting the property (see paragraph 11A(4)). However, no such amended disclosure is required for an adverse condition that: (1) The buyer is otherwise aware; (2) The buyer discovers; (3) Is disclosed in reports or documents provided to the buyer; or (4) Is disclosed in reports or documents ordered and paid for by the buyer.

In our situation, Answer A is a situation that falls squarely under paragraph 11A(4). None of the 4 exceptions described above are applicable.

Additionally, the RPA provides that, if an amended disclosure under paragraph 11A(4) is delivered to the buyer, the buyer can cancel within 3 days if delivered in person, or 5 days if delivered by mail or email (see paragraph 11G(1)). Hence, Answer A is one of the correct answers.

Answer B is also a correct answer. Occasionally, the seller’s side will try to argue that the buyer cannot cancel under the 5-Day Rule because the seller’s disclosure was only verbal, and not in writing. Yet, the responsibility to disclose in writing belongs to the seller, not buyer. The law is unlikely to allow a seller to take advantage of the seller’s own failure to do what the contract requires.

Answers C and D are wrong. They fall within the exceptions to the amended disclosure requirement under paragraph 11A(4). Answer C is exception #4 as discussed above, whereas Answer D is exception #2.

Answer E is very likely to be a correct answer. A seller is obligated to disclose all known material facts affecting the property (see paragraph 11N). As with Answer B, the law is unlikely to allow a seller to take advantage of the seller’s own failure to perform as contractually required.

Answer F is wrong. The correct answers are A, B, and E.

Copyright© 2023 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of August 14, 2023. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals. Written by Stella Ling, Esq.