When real estate sales people represent buyers and sellers on residential real estate transactions in California, they must do a visual inspection of the property. In other words, they are required to walk through the property, inside and out, and look carefully at what they sell and advise the parties to the contract of any red flags noticed.
If an attentive Realtor walks through and notes something that would make a buyer unhappy to discover after close of escrow, that agent needs to note it on the required form.
Where do the agents write up their visual inspection disclosure comments?
Sometimes the real estate licensees will simply make a few comments on page 3 of the Transfer Disclosure Statement (TDS). More and more, though, they are completing the separate 3 page AVID (Agent Visual Inspection Disclosure) form instead. It is larger and allows for more thorough list of items noted. Both approaches are permitted by law to fulfill that obligation, though.
Why is this required?
Why do we need to do this? As with much of our standard of practice, this has its roots in a lawsuit, the watershed case of Easton vs Strassburger (1984). The California Department of Real Estate put out information on this case which clarifies an agent or broker’s disclosure obligation (click on the link above to read about the case):
The Easton case stands for the proposition that a real estate broker acting as an agent in the sale of a residential real property has a duty to the prospective buyer, not only to disclose facts about the property known to the broker that may materially affect the value or desirability of the property to the buyer, but also a “duty to conduct a reasonably competent and diligent inspection of property . . . in order to discover defects … ” to be disclosed to the buyer.
Sometimes home sellers really don’t like the comments that the real estate licensees write, especially when it comes from their own listing agent – and there may be pressure to gloss over things which must be disclosed. On more than a few occasions, I’ve had sellers push me to change my disclosure to eliminate something negative that they denied was an issue or to change the wording – as if it were a marketing piece. Listing and buyers agents are legally required to make disclosures of known issues, though. Most sellers do understand this and appreciate that they are avoiding future lawsuits by fully disclosing what they are aware of and not impeding their Realtors from doing the same. On one occasion I had to cancel the listing agreement due to this issue: I had a legal obligation to disclose something, but the sellers refused to sign my AVID unless I removed it.
What’s the difference between a home inspection by an inspector and a visual inspection by a Realtor or licensee?
Real estate agents are looking for a broad range of red flags, or anything that might impact value & desirability, which is discernible from a simple walk through of the property (inside and out). Inspectors are checking to see if the systems of the house are working as intended, or if there are problems structurally, and of course they do more than just walk through the townhouse, condo or house. (Please note: home inspectors have a scope of knowledge about these systems which far exceed an agent’s, so buyers and sellers should not rely on their agents as a substitution for any professional inspection.) Agents consider a wider range of issues, though. There will be some overlap, certainly, but they are not identical. The home buyer will benefit from the input from both. It is also always a good idea to have a second set of eyes looking at the property.
Here are some items that a buyer’s agent or seller’s agent might note which would not be discussed in a home inspection:
(1) Conditions near but not on the property (home inspectors don’t look off site)
- neighborhood noises (barking dogs, proximity of school, airplane flight path, loud neighbors – whether music, voices, vehicles, or other sources)
- presence of nearby high voltage power lines
- excessive number of cars parked on the street
- traffic concerns
- nearby yards which are eyesores
- wildlife problems (tree blight, wild animals destroying landscaping)
(2) Conditions in the house
- mismatched hardware (if the faucets all work, that’s fine for an inspector)
- dysfunctional floor plan or layout of the house
- lack of natural light to rooms (rooms that are darker than typical may not be noticed by buyers until after they’ve moved in)
- odors (cooking, pet, incense, smoke) – most property inspectors will not note these
- missing curtains or window coverings
(3) Conditions in the yard (except for the driveway, walkway and grading, most home inspections do not include the yards)
- lack of privacy issues
- eyesores visible in neighboring back yards
- potential setback violations in adjoining yards (sheds built against the fence)
- lack of sprinklers or other potential headaches in the garden or yard (such as a beehive in a tree)
Inspectors won’t note items which are off site, in bad taste, or might potentially impact the enjoyment of the property or resale value of the home unless it is a structural issue or potentially a structural issue. For example, having duplexes, condos, or apartments across the street from the house will not matter to a home inspector. A buyer might not understand that they will lower property values on the house. A real estate professional should know this, though, and the buyer’s agent, particularly, should mention it in the TDS or AVID and explain the implication to the buyer since there is a fiduciary relationship there (the listing agent does not owe that fiduciary relationship to the buyer unless it is a dual agency situation).
There are limitations on what the agents in the transaction are expected to do. The agent’s walk through of the property does not require him or her to go into the attic or crawl space or onto the roof (thank goodness, I’d be looking for a new career!). It’s a walk through, not a crawl through! It is apparent for those who walk through the house and yard. Nor is the agent expected to do offsite research, such as providing the permit file or information on the local public schools or information on the home owner’s association, if there is one for the property in question.
Misconceptions and incorrect use of the AVID and agent’s visual inspection disclosure obligations
I see a lot of misunderstanding in Silicon Valley about the whole point of this disclosure process so want to mention it here. Whether using the TDS or the AVID, the agent’s obligations are the same: to walk through the property and to note any concerns to the buyers. The most common errors I see are these:
- The agent comments “Buyers are advised to order all inspections to their own satisfaction” – this is already in the purchase agreement and elsewhere. It takes up space but is not a disclosure.
- The agent notes marketing type features of the home, such as “the kitchen enjoys new granite, new lights, and new flooring” rather than “no items to note” since there’s nothing wrong.
- The agents writes “no items to note” for all or nearly all areas of the home and yard. Even brand new construction will have something to note. It could be “limited street parking available”, “noise from nearby train”, “ongoing construction will cause noise, dust, and traffic”. But it should not be blank.
Sometimes, the agent does his or her visual inspection disclosure before the home inspection, so hearing about a defect of some kind can be a bit of a surprise to the home owner.
Agent fears with this responsibility
Some agents may be pressured by the seller clients to not put anything negative down. Luckily this isn’t too frequent in my own experience, but I have also had sellers push me to not disclose things like floors out of level, cupped floors, busy streets, etc. My response is to explain that it does no good to sell for top dollar and then be sued later for non-disclosure. The best thing you as a seller can do, and your agent with you, is to disclose, disclose, disclose.
More commonly, agents may be afraid that they will miss something and be liable, as the burden is fairly high (what was known or should have been known). They make comments which are not really appropriate for the form in an effort to cover themselves. So let’s talk about that.
It is certainly possible to miss things. Sometimes a foggy window (a hint that the seal has failed on a double pane window) may not be noticeable unless the sun hits it just right, especially if the fogged area is small. An area with a noise or odor problem may not present itself every day of the week, so perhaps on a Monday morning it’s quiet but on a Saturday night it’s terrible. The idea is to do a diligent visual inspection on a particular day and write down what was seen that day. There are many places in the purchase agreement and the plethora of disclosure forms which advise buyers to be responsible too, to hire inspectors and to do their own research. It is not helpful for the agent to say it again, and yet many look at the TDS space and that’s all they write, together with “no items noted”!
“Buyers are advised to order all inspections to their own satisfaction” and comments such as these eat up space on the form which should be used for calling out the red flags. It does not help the buyer in the least. It also makes the real estate professional look like he or she is only interested in protecting himself – not assisting her or his client. It is a mistake to think that comments such as this one somehow substitute for doing the visual inspection and relaying information found to the clients. They don’t.
Most of the time when I see this sort of nonsense written, it’s on the TDS form. It’s a better standard of practice to use the AVID in most cases for the visual inspection disclosure, and I doubt that many real estate sales people would dare to write that kind of silliness in a page which lists rooms one by one and provides a space for comments. (Brokers are supposed to review the files. What I do not understand is why so many brokers and managers allow their agents to write comments such of this instead of doing the inspection. It’s a terrible risk management mistake and shows a poor standard of care by both the agent and the brokerage. And yet it is not at all uncommon, unfortunately.)
Another misunderstanding is that since the real estate licensees and brokers do not have to go into the crawl space or attic, or do the extensive sort of inspection a home inspector does, the inspection & disclosure is useless and is only to protect the agent. That’s entirely false – the agents who are attempting to protect themselves are the ones who, instead of doing the walk through and written commentary, write in an admonishment to the buyer to get inspections and read disclosures carefully. Realtors and other licensees who take their fiduciary duties seriously will actively look for red flags and make sure that their clients know about them and understand the risks associated with them as much as possible. As explained above, not everything noted by the agent will show up in a home inspection. The additional information shared by the real estate professional on the TDS or AVID should be helpful to the home buyer. If not, it may not be done correctly.