Buying or selling a Silicon Valley home? Be prepared for an onslought of paperwork.  There will be many questions you’ll be required to answer carefully (if selling) or to read and understand thoroughly (if buying) plus many other documents such as  inspections, reports, and boilerplate (templated or generic) disclosures.  Sometimes the language used will be technical or complicated, so you may need to do a little research as you see the questions.  Here’s a list of some of what you’ll be reading or responsible for completing or ordering, not necessarily in this order:

• the purchase agreement, any addenda & contract disclosures (appx 12 -20 pages in most cases)
• a preliminary title report and possibly CC & Rs (Covenants, Conditions and Restrictions)
• if the home is a condo, townhouse or PUD, docs pertaining to the home owner’s association (can run hundreds of pages)
• the standard disclosures common in our area which require the seller to answer questions about the home, yard and area (appx 15-25 pages)
• a natural hazard report (stating whether the home’s in an earthquake zone, flood plain etc.), environmental hazard report (whether there are leaking underground storage tanks and such), tax report (any extra bonds or assessments that will show up on your property tax bill) and other area disclosures ordered by the seller and provided by a company such as JCP, Property ID and other firms (appx 80 pages)
• inspections: usually pest and home are ordered, often also chimney, roof, possibly others such as pool or other specific components of the home (varies but often at least 40 or 50 pages, frequently more)
• for buyers: disclosures on their loan
• for sellers: the listing agreement and disclosures related to it
• at the time of signing the final papers: escrow instructions and lots of forms for transferring title – you will also see the reports seen previously too
• additionally, some real estate brokerages have a lot of their own disclosure forms too
• if the sale is a relocation, there will be a lot of relo papers to complete as well
• if it is a short sale or bank owned home, you will have extra paperwork for that also

By the time it’s all said and done, you will have reviewed several hundred pages of paperwork that are several inches high if stacked. All of this can make consumers a little bit crazy, particularly when there forms which are very nearly duplicates. (It may be a little less if it’s a trustee sale or probate, but only a little less.)

Why is there so much of it?

For the most part, the disclosures, reports and inspections are consumer protection driven.  It is extraordinarily important for home buyers to have a full and complete understanding of what they’re taking on when purchasing a home. 

Disclosures are key: Sellers must provide information on anything which would “materially impact value or desireability“, so have disclosure forms to assist with that goal. These questions are intended to help the sellers to cover areas that might not occur to them without prompting. For example,  some sellers wouldn’t think a death on the property matters, but some buyers would, so there’s a question on one of the forms about that.  (The law in CA is that a death on the property within the last 3 years must be volunteered by the seller without asking by the buyer. They don’t have to offer that information if the death happened more than 3 years ago, but if a buyer asks about it, the seller is obliged to answer truthfully.)

Many of the questions, or nuances within the questions, are the result of a lawsuit at some point.  So to omit some “wiggle room”, the question was added or modified (usually to make it broader).  When you see questions that make you wonder, it’s pretty safe to assume that somewhere along the line, someone sued someone else over that very issue. (For example, “land fill” is now called just “fill” on a question asking about its presence since there was a lawsuit involving a Willow Glen home owner’s use of medical waste products as fill in a back yard. Gross, but true.)

Sellers sometimes do not want to answer the disclosure questions carefully  or truthfully because either they don’t want to spend the time or for fear that it will put off a buyer.  They sometimes think that a problem in the past was remedied so it’s no longer necessary to mention the issue. That’s just not true – the obligation includes explaining past issues that were fixed or repaired.  The #1 cause of real estate lawsuit is non-disclosure by seller to buyer.  The best way to keep the money you make on your home sale is to be very truthful and complete in your disclosure (not under-disclosing a problem).  Plan to spend at least 2 or 3 hours responding thoughtfully to the disclosure questions and trying to recall if there’s anything else not covered in the questions which ought to be disclosed.

Buyers sometimes do not want to be bothered to carefully read and understand the paperwork they were given.  Later, they may insist that they weren’t told about this or that, but a review of the disclosures or inspections may reveal that they were told but either didn’t read it or simply didn’t remember it.  It is very hard to take in and retain everything when buying a house, particularly because there are so many papers to go through.  But the best way to avoid an unpleasant suprise later is to take your time with the purchase paperwork now.  Read it as you get it: do not ignore it and think it’ll be OK to skim it at the last minute. In some cases you may read something that will warrant further inspection, asking the seller more questions or may even make you want to run it by an attorney.  If this happens you’ll need time so it’s imperative to take the info you’re given seriously and address it soon. 

Buyers, this is probably the biggest purchase you will ever make.  It is extremely important to take your time understanding as much as possible with the paperwork.  Sellers, you want to be done when you sell the home and not have a problem arise later due to non-disclosure or under-disclosure.  Be thorough and complete and you will be protecting yourself.

Many, many years ago, when I was a new agent, a friend of mine (who wasn’t a Realtor) suggested to me that being a listing agent takes knowledge and skill but “anyone could drive buyers around in their car”.  I was stunned that she could think that buyers’ agents do nothing more than drive from house to house and unlock doors for people. 

Lockbox and Keysafe Set

Last weekend I held a listing in Saratoga open and a young couple asked me if I could work with them in writing the offer on that home.  This happens a lot – buyers are out searching on their own, independent of any professional real estate guidance, and when they find a home they like they just “use” the agent who’s got the listing.

Apparently, the old view and the current one aren’t so different from each other.  It amounts to this: who needs a buyer’s agent?

The assumptions seem to be these:

• agents are all the same (anyone will do)
• buyer’s agents do not really “do” anything or “know” anything
• if I just working with the listing agent, he or she will make sure my offer is accepted
• maybe I’ll get it cheaper if the listing agent also works for me

 This is very misguided and generally shows a lack of understanding (and possibly discernment).  Would you buy a car without researching it on Edmunds.com or ConsumerReports.org?  I hope not. Would you just see any doctor for surgery?  Or any attorney for your legal issues?  Probably not – you’d probably do a little research, maybe ask around for referrals.  Even my kids like to check RateMyProfessor.com before deciding on a college class to take.  Many home buyers, though, are not so discerning – they will just work with whomever happens to be the listing agent on a home.  This is a mistake.

Why does it matter so much?  Because your agent’s skills can make or break  your decision-making by catching or missing important elements which are crucial to your getting the best home or best deal.  If you don’t have good info, you will have a hard time making a good decision.  A bad agent may miss “red flags” and this could cost you! 

What kind of “red flags” would a good buyer’s agent notice? All kinds!  Real estate professionals are trained to issue spot – that is, to point out any defects they might detect (see, smell, hear, or feel) and further, to explain to you what the ramifications might be and give you professional guidance.  Agents are not property inspectors, but they know enough to be able to convey to you a likely scenario if there is a red flag with the home or yard. 

Red flags can be found

• in a property (things like moldy spots, out of level floors, additions which appear to not be permitted)
• in a neighborhood (the home being close to buildings, freeways or other things which might pull down property values)
• in the purchase agreement, counter offer or addenda - clauses worked into or omitted from a contract might be easy for you to miss, but a good buyer’s agent will catch these things and explain the ramifications to you
• in the timelines – your agent can shepherd along the myriad of things which must be done on time and will notice if the other side is not performing whatever they need to do on time also

Additionally, a good, competant buyer’s agent can negotiate for you and with you.  Negotiation begins long before you ever walk into a property that you want to buy.  It begins with the way you set up your financing more than anything else.  All loans, all banks are not the same.  Same with your letter from your lender – they are not all the same!  Your buyer’s agent will help you to make sure that even before you find your dream home in Silicon Valley, you’ll  be poised for success.  Further, of course, your buyer’s agent can assist you in writing a good, clean offer that will entice the seller to want to work with you.  A badly written offer (full of errors or clauses which muddy up the offer) will often cause your contract to be passed up if there are multiple offers. 

Comprehending the disclosures and inspections is another area where your agent’s skill is paramount to you.  If he or she glosses over things like the preliminary title report, TDS, Natural Hazard Report or many other disclosures or reports or never adequately conveys the risks associated with various disclosure items, you could find yourself paying for it in the long run.

Also, of course, there’s navigating the escrow.  Sometimes finding the house and getting the offer accepted are the easy parts of home buying in Santa Clara County – the real work may just begin as the ink dries on your contract!  Unforeseen things happen and a good agent finds ways of addressing the problem, concern, issue or surprise.  In a way, it’s like surfing – we know that the waves are going to come and it’s up to us to have the skill to ride them. 

Just because a real estate professional has a listing or or is holding a home open doesn’t mean you should hire him or her.  The newest agents tend to hold homes open.  Some agents get their first listings not because of experience or skill, but because the owner is a relative or old friend.  You can and should hire carefully.  Check the Department of Real Esate’s website to see how long the licensee has had that license.  You might also consider finding one with extensive buyer representation experience or an Accredited Buyer’s Representative (ABR – I’m one).

Buying a house, townhouse or condominium will be the most expensive purchase you are likely to make for a very long time.  Your agent is your partner, teacher, coach, navigator, paper handler, translator, mentor.  Above all, your agent is to be your fiduciary – to take care of you and your money and your position as if it were his or her own.  That is your agent’s highest duty.  Not ever agent selling homes in the San Jose area is equally adept at all of these important elements, so find, select and hire the very best.

A colleague of mine sometimes asks me to help teach a course he offers on Real Estate Practice (one of the requirements for getting a real estate license) at West Valley College in Saratoga.   He’s been giving this weekly class for a few years now,  and several times I’ve come in to instruct on the broad topic of disclosure (or “disclosures”) for the 2-3 hour session.  It’s very interesting and a fun topic to for me cover because it reaches into some uncommon, yet critically important, areas of discussion in real estate.

What is “disclosure”?

Disclosure is affirmatively offering information that a the other party in a real estate transaction (and the other party’s agent) would want or need to know to make an informed decision on the realty purchase or sale. Often, this information is not easily apparent.  Most of the time, disclosure refers to the seller’s obligation to disclose in particular.  That will be our focus in this post: the seller’s disclosures.

The sellers obligation to disclose is not the same everywhere.

Disclosure laws and practices vary from state to state, both in terms of what must be disclosed and, sometimes, what must not be disclosed. Sometimes it’s a “don’t ask, don’t tell” situation. My comments here refer to the practice in California, which may be different from other states. 

Silicon Valley has varied issues which must be disclosed. Some of them are regional (rather than particular to one home in particular). Some of what must be disclosed is a “natural hazard” and some is an “environmental hazard”.  Other issues might not be hazardous, but instead a nuisance.

Next, find some examples of regional things in the Santa Clara Valley that might be disclosed. In the south county areas of Morgan Hill and Gilroy, disclosure issues will include the farming and crop dusting. In some of the newer, downtown San Jose loft communities, there will be disclosure about the proximity of trains and their late-night runs nearby (horns blaring).  In Cupertino, Los Gatos, Monte Sereno, Saratoga, Almaden Valley, and may areas near hills, there may be disclosures about high water tables, water runoff, and damp crawl spaces.  Remote areas all around Santa Clara County may report a requirement to clear brush within so many feet of structures for fire safety.

Throughout Silicon Valley, we have some constants that should be disclosed. Issues here that the seller needs to tell the buyer include the fact that sometimes we have drought years and cannot water our lawns when we want.  Also, we have expansive clay soils and that is important to know regarding proper grading – do it wrong and your foundation may suffer.  Earthquake fault zones and other natural hazard zones also must be disclosed to buyers. (You would want to know if you were buying a home on the San Andreas or Hayward Fault, wouldn’t you?) Forms and ordered reports do address most of these issues, luckily!

Forms are a big help, but they have limits. 

There are forms – lots and lots of forms, particularly when buying or selling a home in Santa Clara County or Silicon Valley – that can help with the obliation to disclose. But what has to be disclosed isn’t necessarily written on the form. The form is just an aid to making that full disclosure.

How does a seller know when something must be disclosed?

 The criteria for disclosing in California is “anything materially affecting value or desireability”. Even that phrase is interpreted differently in different states!  In Oregon, for instance, it refers to the structure itself, period. In California, though, it means anything that would influence a buyer’s decision to buy, and at what price. That’s a big difference!!  So as a basic difference, in Oregon you disclose physical defects of the home and land, for instance. In California, the requirement is far broader and includes non-physical aspects of the home, land, location etc. that would impact a buyer’s decision to buy.

Examples of non-physical aspects of the home that could “materially affect” a buyer’s decision: the history of the home (EG, if a crime had been committed there, if there was a death on the property), issues in the neighborhood (the train goes through a block away at 2am three times a week, there’s a sex offender living next door, the school is about to be closed), and so on.

The issue of hauntings or ghosts is interesting in this regard of disclosure laws varying generally from state to state.   In California and Hawaii, if the seller believes there’s a ghost, it MUST be disclosed. Not so in Oregon. In most states, or at least many, this issue will only be disclosed if a buyer asks about it. And in Colorado, it’s not allowed to be disclosed by the agent. (If you want to read up more on this topic, please see my page on one of my sites on haunted real estate sales: http://www.HauntedRealEstate.com.)

The standard of practice to which we’re held, both as agents and as sellers, is not just what we know or knew, but what we “should know” or “should have known”. Ignorance does not excuse. So if you are selling a home on a hillside, for instance, you (seller AND agent) need to walk the lot. If you don’t, and later it’s discovered that part of the land is slipping down a hill and you did not disclose it, the judge will throw the book at you. You should have known it was there. That’s the idea. Same thing is true for agents. We are supposed to do a “dilligent visual inspection” of the places we sell.

Why would you do that if you have an inspection? Well, for starters, the home inspection covers just that – the home, not the land, at least usually. Secondly there may be things which are apparent to you but may not be observable to an inspector, who is focused on a particular list of things to check out. As agents, our job includes looking for “red flags”, things which could concern our sellers and buyers. And often that goes beyond just the structure.

Sellers, when in doubt about disclosure, think of how it would look in front of a judge.  Often, the setting is such that the seller (who knows or should have known about something) has the money, and the buyer has the problem. The buyer comes into court as the victim or potential victim. Who would you side with, if you were the judge? Non-disclosure by a seller is the leading cause of real estate lawsuits.

Disclosing Death in California

There are a couple of tricky areas about disclosure in California. One is that while the seller must affirmatively offer if a death has occurred on the property in the last 3 years, the seller may not tell the buyer that the death was do to HIV or AIDS.  Beyond three years, by the way, the seller does not have to offer this information. If a buyer asks, though, the seller must answer truthfully if a death occurred at any point in history. So if you buy a home, it’s always good to ask if there was EVER a death on the property, assuming you care.  Mental illness is also a protected class, by the way.

Another often misunderstood issue revolves around the FIRPTA disclosure in which the seller must give the buyer his/her/their social security number (or tax ID number). Why is this done? Years ago we had a problem with foreign investors buying, selling, and profiting from real estate sales here and never paying capital gains tax. Uncle Sam wasn’t very happy about this, so instituted some laws to catch these folks and to obtain the capital gains tax. Unhappily for the buyers, long story short is that if the sellers skip out on their obligation, the buyers can become liable. The burden is actually on the buyer to make sure the seller fills out some paperwork (an affidavit) regarding non-foreign status etc. or to have a percentage of the proceedings withheld to pay that tax. And to be precise about who’s who for the affidavit, the SSN is required.

Not so long ago, an agent gave me a FIRPTA with the numbers whited out. Some folks in my office thought that this was acceptable (but being raised by both a Lawyer and a Realtor, I understood that a form with part of the information obscured is not complete and therefore doesn’t do what it’s intended to do) but I asked for the issue to be run by our legal department, because I didn’t think that was right at all. Anyway, our legal eagles said that I was correct, we need to insist on the form being completed because it’s what the IRS requires. It’s not a company or Realtor policy, it’s the law. (The form may now come via the title company in many instances, so the way this is handled may be different in the future.) For more information, please see the IRS document on the web for this topic:  http://www.irs.gov/businesses/small/international/article/0,,id=105000,00.html

We have what seems like a zillion disclosures to complete as sellers and to review as buyers. (This is even more true if you’re buying or selling a condo, townhouse, or planned unit development.) Each question is intended to help the seller to remember to disclose things (and thus keep the seller out of a lawsuit) and to help the buyer to make an informed decision about buying or not buying the property.

Many of the questions and forms are a direct result of a lawsuit at some time. It is positively crucial for sellers to complete them with integrity and thoughtfulness, and for buyers to spend a good deal of time reading and understanding what is being conveyed too. The best way to keep out of trouble is disclose, disclose, disclose.

And buyers, to repeat: read them carefully. If you do not understand something, or if a question sparks more questions, ask. Do not treat these forms like boilerplate. They are extremely important, and buyers too have a duty to fully investigate (and that means taking the time to read these documents carefully as well as doing any other important investigations).

Something important: most real estate lawsuits occur as the result of non-disclosure or under-disclosure of problems by the seller. When in doubt, disclose!   This is an absolutely critical area of any transaction.

To summarize, here are the key points:

1. Disclosure in California must be made of anything “materially affecting value or desireablity”
2. That means if the piece of information would impact a buyer’s decision to buy or how much to pay for a property, the disclosure must be made (whether it’s about the house, the property, the neighborhood – with only a few exceptions for certain protected classes)
3. The standard we are held to is not just what we know, but what we SHOULD know or should have known
4. When in doubt, ask yourself, “how would this look in front of a judge?”
5. Disclosures take time to complete and to review, but doing these things thoughtfully will prevent a myriad of problems from ever occurring.

Please feel free to email me if you have any questions about this subject.  I would be happy to chat with you about it more in person.

Did you know that there are some things which your Realtor or real estate licensee/salesperson is prohibited from discussing with you? This is a surprise to many Silicon Valley home buyers.

Fair Housing Laws prevent real estate professionals from telling consumers certain types of information, particularly demographic information, anywhere in the United States. For instance, your agent cannot discuss with you these things:

• where racial groups have the highest concentration
• where people are found by religious affiliation
• where certain languages are spoken or not spoken
• whether or not there are halfway houses for alcoholics or other addicts nearby
• if neighbors are mentally ill
• whether someone died of AID or HIV (not the death, but cause of death)

These are just a few examples of protected groups covered by the Fair Housing Laws. As you might imagine, this is for consumer protection, and the laws are well-intended.

But it can also work against those with the best of intentions who are not trying to discriminate with malice.

Case in point: A couple of years ago, a gentleman contacted me from another part of California who was interested in relocating to the San Jose area. He told me that his wife is Vietnamese and they wanted to live where their son would grow up hearing and learning the Vietnamese language; he wondered if I could tell him where in San Jose the neighborhoods with large Vietnamese populations lived. He knew that there’s a large Vietnamese population in San Jose and Santa Clara County, and that was one of the reasons they were considering a move here.

Obviously this is a person who was not trying to do something bad at all, but even so, it was illegal for me to tell him the information that he considered vitally important. What I could do, and did do, was send him a links to local Vietnamese groups, magazines, etc. and also a link to a website with language information, which had the information that he sought. (That site, by the way, is the Modern Language Associations site. If you have friends who are professors of languages, there’s a good chance they are members of the MLA!)

In some states, the laws are even more restrictive on what agents can tell consumers. My advice is to ask your Realtor upfront what he or she may not discuss. Also, ask where the desired information may be found if the agent cannot tell you what you want to know. For instance, agents may be hedgy on telling you where sex offenders live for a number of reasons (are they a protected class because of mental illness? that might be a reason). Many will want you to do your own research, especially since that population might move around. So they’ll tell you, check www.CrimeReports.com or another similar site for current info.

Sometimes people want to know if they’re buying in a ˜white collar or ˜blue collar neighborhood. Or perhaps they want to know the education level or income level of a part of San Jose, Los Gatos, Saratoga, or elsewhere in Santa Clara County. This kind of demographic information is shaky ground for real estate professionals in Silicon Valley. If you want a breakdown by region in the population, check the US Census Bureau.  Another good site that I like a lot (since it’s easy to use) is ZipSkinny.  One more is City-Data.com.

And please understand, if you ask your Silicon Valley Realtor about these things, that he or she may be prohibited from telling you. Its one of those cases where its just not always intuitive what should be legal or illegal all the time. So if you ask upfront, you will understand the legal restrictions on what your agent can tell you.

Please also read:

What’s the Difference between a Realtor and a Real Estate Agent or Licensee?

Understanding School Scores in Silicon Valley