What is an exclusion in a real estate contract? What is an inclusion?

What is an exclusion in a real estate contract? What is an inclusion? Both of these refer to fixtures at the property which is for sale. If you want to sell your home, it’s very important to understand the “law of fixtures” as it relates to what you leave and what you take with you – unless the inclusion or exclusion is specified in the contract.

In brief, built in or affixed items become real property and transfer with the sale (or as Realtors say, “conveys”). If something is built in, like a light fixture, but the seller and buyer agree in the contract that the seller can remove it, then it becomes an exclusion, as it is excluded or omitted from the sale.

If something not built in is allowed to remain behind, such as a garden hose, pool table, or curtains, then it’s an inclusion, as it’s included even though it is not real property.

Curtain rods are built in, so they are fixtures and therefore real property. But the curtains that hang on them are not built in, so they are personal property.

 

2 minute video explanation

What is a fixture?

Generally speaking, a fixture is any item affixed or attached to the house, townhouse, condo or property which is installed with the intention that it be there permanently. The only exception is if something is bolted for earthquake safety.

Examples of fixtures (items which stay or are included):

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NEW California Disclosure – Home Fire Hardening Disclosure and Advisory

Fire Hardening and Defensible Space Advisory Disclosure and AddendumJust about every year California amends what sellers are required to disclose, and one change that I think we’ll be seeing a lot of is about home fire hardening. Many agents, including myself, will begin to use the fire hardening disclosure / document (which has already changed once in six months). The current one, as of June 2021, is the C.A.R. Form FHDS, 5/21 Fire Hardening and Defensible Space Advisory, Disclosure, and Addendum.

So what is in this document, who will have to use it, and how can it help buyers and current home owners?

The CAR Fire Hardening and Defensible Space form is a two page document completed by the seller of a residential non-commercial property to notify the buyer of fire hazard zoning, code compliance, and possible vulnerabilities and/or defensible features. Both the buyer(s) and seller(s) sign to acknowledge receipt and consent to comply with the appropriate terms in paragraph 4B.

Who Will Use This Form? Paragraphs 1 and 2: Prerequisites

This disclosure is required for homes (1-4 unit residential properties) in high or very high fire hazard severity zones when the seller must complete a Transfer Disclosure Statement (TDS form). Sellers for California real estate transactions falling within those criteria are obligated to provide specific information contained in this form to the buyer. If these properties were improved or were built before January 1, 2010 there are additional stipulations. However, use is not restricted to properties in these zones.

Owners of residences where the zone is unknown, or those outside of the designated fire hazard zones which are “in, upon, or adjoining a mountainous area, forest-covered land, brush-covered land, grass-covered land, or land that is covered with flammable material,” (Gov’t Code 51182 and 1C in CAR FHDS 5/21 – basically, homes in or near ample kindling) should also make these disclosures if they might be considered materially important. Even when it’s not legally necessary, any homeowner might voluntarily disclose using sections of this form. To show that a home is not in a designated high or very high fire hazard severity zone, sellers simply check the box indicating so in paragraph 2B.

Is the address in a high or very high fire hazard severity zone?

Not all homeowners know if their property is in one of these zones, but it’s the seller’s responsibility to find out! In paragraph 1B the form suggests that a natural hazard zone disclosure company could determine this information (and if you’re selling you may have already ordered a report that would contain those details), but it certainly isn’t the only resource.

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What is implied agency in real estate?

Implied agency word cloudWhat is implied agency? Unless you are a real estate licensee, it’s likely that you never heard that term before.  If you are in the realty business, you need to understand this concept.  What is it?

Implied agency and agency relationships

Before explaining implied agency, it’s best to start with what an agency relationship is or means. If you hire a real estate licensee or Realtor to assist  you in buying or selling a home, normally you and he or she create an agency relationship.

In California, a licensed real estate professional can be a buyer’s agent, a seller’s agent, or, if disclosed, a dual agent – representing both parties, both buyer and seller. The agent, by the way, references both the individual real estate licensee as well as the broker. If the same broker of record represents both the home buyer and seller, it’s a dual agency situation, even if there are different Realtors involved.

Here, we use a disclosure form (see link at bottom of article for the full text of it) which spells out the agency relationship and duties – it is statutory, meaning that the state dictates the words to be used on the form, whether it’s published by the California Association of Realtors, the Peninsula Real Estate Date Services or any other entity. An agency relationship means several things, but above all, it means that the real estate professional has fiduciary obligations to the seller or buyer being represented, including those of  of “utmost care, integrity, honesty, and loyalty” to that client.

Most of the time, when an agency relationship has been created, there’s a meeting of the minds between consumer and real estate professional that they will be working together.   The relationship is not accidental, but intended and explicit.

Sometimes, though, in the course of casual conversation, it may be possible to accidentally create an agency relationship.  If this happens, it is referred to as “implied agency“. How can this be?  This may occur when the real estate professional casually provides the type of guidance and advice that would be reserved for clients, but that consumer relies upon that advice. (more…)

What happens during a seller rent back?

When a home seller remains in the home after the close of escrow, it’s as a tenant or renter – even for a brief period of a few days.  With the shifting role from home owner to new renter, the rules of engagement may not be clear, and expectations may not line up with the addendum for the rent back.   So let’s do a set of what happens during the tenancy period after the sale is done.

Seller rent back True or False questions – which of these statements is true or false for the period when the seller is a tenant?

  1. When escrow closes, the buyers get keys to the home
  2. The seller must be undisturbed by the buyer until moving out
  3. The buyer can do repairs, including fumigation, during the rent back
  4. Prospective tenants may view the property during the rent back
  5. Contractors may enter the property during the rent back
  6. The new owners must give 72 hours notice before entry
  7. To enter the home, new owners must use an official CAR or PRDS “Notice of Entry” form
  8. The new owners may only enter the property if their Realtor is present or if the listing agent is present
  9. If the seller overstays the agreed upon rent back time, there’s a penalty fee that will be charged
  10. If there’s a rent back, buyers may do a walk through both before close of escrow and also at the end of the rent back period.

 

What does the paperwork saySome of these are challenging not just for buyers and sellers, but for real estate agents too. The reason for the confusion has to do with the number of forms involved.  There are 3 different rent back addenda which may be employed in Silicon Valley: 2 options from the California Association of Realtors (CAR) and 1 from the Peninsula Regional Data Service (PRDS).

  • PRDS form RSOAS – Seller Occupancy After Sale Addendum (1 page form)
  • CAR form SIP – Seller in Possession Addendum (1 page form, intended for less than 30 days)
  • CAR form RLAS – Residential Lease After Sale (5 page form, for more than 30 days rental to seller)

Some Realtors only use either CAR or PRDS forms, but I have found that depending on whom you represent, it may be worthwhile to tell the client about the differences between them as they are not exactly the same for all of these questions.

Now let’s go back to our questions and see what the contract & addenda have to say about each one. (more…)

What is the difference between the CAR and PRDS purchase agreements? Does it matter which contract is used?

In most of California, the purchase agreement form used when writing an offer to buy residential real estate is the California Association of Realtors (CAR) form, the Residential Purchase Agreement (CAR-RPA).  Along the San Francisco Peninsula and in Silicon Valley, though, often we use another form, the Peninsula Regional Data Service purchase agreement (PRDS contract).  Few consumers know that there is a choice of forms to use when buying Silicon Valley real estate.  And too many real estate sales people do not understand the difference between them.

Does it matter which one you use?  It certainly does!

While anything in the boilerplate can be modified (deleted or added to), the basic text is not identical from one to the next, and neither are the ramifications to buyer and seller.  Here are a few examples:

Property condition: one is an “as is” contract and the other requires that the property be delivered with a warranty of condition (no leaks, no cracked glass, no structural defects in chimneys, all systems operational, etc.)

Repairs in escrow: one says that repairs must be by a licensed contractor, the other that repairs must be done in workmanlike manner (can be done by anyone)

Defaulting: one contract has more ”teeth” with buyer or seller defaults than the other

There are pros and cons to each of these two forms. A skilled agent is “bilingual” in both, understands the strengths and weaknesses of each one, and can modify as needed the form to benefit the client. What is tricky, even for Realtors who work with both sets of realty forms, is that they keep changing.  So there can be confusion on what is and isn’t covered, or the way in which various aspects of the contract are addressed.  Let’s look at some examples of why it matters which real estate contract you use in the San Jose area.

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