May 31st, 2022 at 3:30 pm

Fact Pattern: You are the buyer’s agent. Your clients want to write an offer with no buyer contingencies. The seller is not exempt from the TDS requirement. Your clients want your assurance that they will be able to cancel and keep their deposit, if needed, after they receive your section of the Transfer Disclosure Statement (TDS) and your Agent Visual Inspection Disclosure (AVID).

Multiple Choice Question: Can you give the buyers your assurance? Pick the best answer:

A. Yes, you have a fiduciary obligation to your clients.
B. Yes, you will surely be able to detect a new material fact during your visual inspection of the property.
C. No, the law does not allow you to do that.
D. No, although it would be legal to do, it would nevertheless be a bad idea. 

Answer: Answer A is wrong. Your fiduciary obligation does not require you to give your clients any assurances. In fact, an excellent way to protect yourself against potential liability is to refrain from giving your clients any assurance about anything.

Answer B is also wrong. You might not be able to detect a new material fact during your visual inspection of the property. Also, regardless of what you detect, the completion of your section of the TDS and your AVID might not give the buyers a right to cancel.

Answer C is the correct answer (and Answer D is wrong). For properties with one-to-four residential units, the TDS law generally provides the buyer with a 5-day right to cancel upon electronic receipt of a TDS and attached AVID. As of January 2020, that 5-day right to cancel begins to run upon delivery of Sections I, II, and III of the TDS. Sections I and II of the TDS are the seller’s sections. Section III is the listing agent’s section. The law does not require Section IV, or the section for the buyer’s agent, to be filled in before the 5-day timeframe starts to run.

The purpose of this new 2020 rule may be to prevent buyers’ agents from stalling the completion of their portion of the TDS in an effort to give their clients a way to cancel under the TDS law if needed.

Of course, regardless of the lack of effect of Section IV of the TDS on a buyer’s right to cancel, circumstances could nevertheless arise during escrow (maybe even during a buyer agent’s visual inspection), that may allow a buyer to cancel and get the deposit back (e.g., under paragraph 11A(4) of the RPA). Those situations tend to be complicated, and they should generally be considered on a case-by-case basis as they arise.

Suffice it to say, today’s Practice Tip is it may be easier telling your clients that you cannot do something (e.g., give an assurance about cancelling), because the law does not allow you to do that, rather than because you don’t want to do that.

-Thank you to Paul Hurst (Montecito Associate Manager) for suggesting this week’s legal tip!

Copyright© 2022 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 May 31, 2022. 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.

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