BY: JOHN V. GIARDINELLI, ATTORNEY AT LAW | OF COUNSEL
The California Association of REALTORS® (C.A.R) has released its list of new and revised forms. This list includes three new forms and 11 revised forms. This Courtside Newsletter will discuss what real estate practitioners should be aware of in using the forms for future transactions. Much of the information relating to these forms was obtained from C.A.R.
- Fire Hardening and Defensible Space Advisory Disclosure and Addendum (FHDS)
This new form modified the already existing Fire Hardening form by requiring it to also address “defensible space” compliance requirements. “Defensible space” describes buffer zones that homeowners create between a structure on the property and any flammable areas (grass, trees, shrubs, wildland) that surround it.
Due to the extreme fire danger present in California, there are many different state and local laws that require property owners to maintain certain amounts of defensible space on their property when the property is surrounded by flammable areas. In addition to the State law, agents should also check any special local ordinances.
On July 15, 2021, sellers will be required to provide documentation that their property fully complies with these various state and local defensible space laws or that buyers agree to obtain such documentation of compliance in the
future. Defensible space laws under California Public Resources Code § 4291 require brush to be removed, trees to be trimmed and other actions taken within a 30-foot (Zone 1) and a 100-foot (Zone 2) radius around a property to minimize the risk of a home catching fire.
This law applies directly to sales of residential properties, condominiums or other common interest development units, and manufactured homes. Sellers should review NHD reports to first determine if the property is in a high or very high fire zone. If the property being sold is in one of these zones, there are two categories and four ways to comply with the law depending on whether local ordinances apply to the property at issue.
- Areas without a local ordinance requiring documentation.
In areas with no applicable local ordinance for documentation, there are two options for complying with the new form. Either (1) the buyer must agree to obtain documentation of compliance within one year after closing escrow or (2) if the seller has obtained documentation of compliance within 6 months prior to entering into contact, the seller must provide that documentation to the buyer and provide information on the local agency from which a copy of that documentation may be obtained.
- Areas that have enacted a local ordinance requiring an owner to obtain documentation.
In areas with applicable local ordinances requiring documentation, there are two options for complying with the requirement of the local ordinance or (2) the seller shall provide the buyer with a copy of the documentation that complies with the requirements of that local ordinance and information on the local agency from which a copy of that documentation may be obtained.
If you are unsure of whether a property is in a high or very high zone or there are conflicting answers, paragraph 2(a) of the form strongly advises sellers to err on the side of disclosing.
- Transfer of Listing Agreement
The new “Transfer of Listing Agreement” form was created to help brokers navigate situations where agents leave one brokerage company for another, yet continue to work on a listing or escrow they were already working on. Failure to document such a transfer to the new broker may now be considered a DRE violation and presents problems for E&O coverage.
The first paragraph of the new form requires an acknowledgement of the transfer from the original broker to the new broker. The second paragraph addresses whether the original broker will be paid for allowing the transfer of the listing. Payment may come from either the seller or the new broker. The third paragraph acknowledges the termination of the agency relationship with the original broker. The fifth paragraph directs the parties to comply with all MLS requirements. The seventh paragraph seems to default to situations where an agent leaves the original broker for the new broker, but it is important to keep in mind that other less common situations are possible.
The new form also makes clear that an agent is not a party to the agreement, as listings belong to brokers. As a result, the three necessary signatures on this form are for the principal, the seller, and the original and new broker. The agent at issue may sign, but the agreement is still valid without the agent’s signature.
- Agricultural Addendum
This form is commonly used when improved property is located on agricultural land. Due to new laws in the state of California and many changing local ordinances regarding the cultivation and growing of marijuana, paragraph 2(m) was added to address hemp and cannabis cultivation. If you are dealing with agricultural land and cannabis cultivation, this is an important addition to make note of.
- Cooperating Broker Compensation Agreement and Escrow Instruction
In this form, some already present paragraphs were shifted around for clarity’s sake, but new language was specifically added to paragraph 8 that now requires management approval from the buyer’s side broker if offered compensation is reduced. If this situation is present in the transaction, the added box at the bottom of page 2 must be signed as well.
- Exempt Seller Disclosure
In the “exempt seller disclosure” form, paragraph 2(b) was modified to reflect that the changing of non-compliant plumbing fixtures applies to multi-family as well as single family properties. It is also minorly important to note that the order of last two paragraphs switched in the new revision which changes the order of the last item to be completed on the form.
- Lease Listing Agreement (Exclusive Authorization to Lease or Rent)
Some minor but important clarifications were added to the “Lease Listing Agreement” form. Paragraph 3(f) now explicitly states that cooperating compensation is based upon the entire commission amount rather than as a percentage of the lease listing broker’s compensation.
Paragraph 14(f) was also added to clarify and limit the broker’s duties once a lease is entered into between a landlord and tenant. Most importantly, the lease listing client is now informed that the broker is not being hired to perform property management services in any capacity. However, other options are still available for agents who perform various limited services after the signing of the contract occurs.
- Property images Agreement
In the “Property Images Agreement” form, Paragraph 7 was added to address the increasingly more popular situation where drones and ariel photography are used as opposed to only static ground-level photos or videos. These are minor changes, but still important to follow closely.
- Referral Fee Agreement
In the “Referral Fee Agreement” form, the trigger for a referring broker to earn a right to a commission is further specified to come into effect only upon the entering a contract and not at the closing of escrow. Be careful to clearly understand the complex RESPA and State rules for referrals. C.A.R. has an excellent Q & A available.
- Residential Listing Agreement – Exclusive, Open, and Seller Reserved (DOJ and NAR still bargaining – these forms may be held back for awhile)
The “Residential Listing Agreement” form is still in flux due to the November 2020 settlement between the National Association of Realtors (NAR) and the Department of Justice (DOJ). The proposed final judgement requires NAR to take several consumer-friendly actions. The transition of power due to the 2020 election has complicated things a bit more. So far, the following changes have been made.
Paragraph 7(c) added language that recognizes the absence of a uniform statewide policy on how to handle “Days on Market.” Because of this, the best practice approach is for broker and seller to communicate effectively and establish a proper method together.
Paragraph 10(c) was added to contractually address the many issues surrounding buyer letters (commonly referred to as “Loot Letters”). Paragraph 10(c)(1) strongly recommends the FHDA form as a resource for any seller interested in fielding buyer letters. This paragraph also mentions ways that buyer letters can be used improperly as in Fair Housing violations, whether intentional or not. Sellers are advised that brokers will not review the letter so the brokers do not have to make any legal judgment on whether the letter contains information that might violate fair housing laws. The responsibility of determining this falls squarely on the seller (NAR and C.A.R. strongly recommend against using these letters).
10(c)(2) is an instruction from the seller to not to present buyer letters. This instruction when given by the seller should be added into the MLS. However, 10(c)(2)(b) does allow sellers to accept buyer letters if they wish. It is very important to note that it is difficult, but still possible, to accept buyer letters that do not violate fair housing laws. Despite their tentative legality, if a seller chooses to accept buyer letters, they are strongly advised to seek legal counsel in preparation for legal challenges.
Language was also added to paragraph 10(e) that identifies additional reports sellers might want to order at time of listing. One these listed reports is the NHD report. Before this revision, NHD reports were only provided to buyers. However, this was changed as sellers may now need to review those reports so the seller can determine if a disclosure is required for fire hardening or defensible space. The most critical possible changes to this form may come in paragraph 15 if the DOJ and NAR release the terms of their settlement agreement in time for the revised form’s release. These changes would have a huge impact on the industry as they are rumored to focus on the disclosure of buyer sider broker commissions and granting access to MLS properties by non-MLS members via lockboxes and key safes. These developments will be incredibly important to follow. The same changes and tentative changes apply equally to forms “Residential Listing Agreement – Open” and “Residential Listing Agreement – Seller Reserved” as well.
- Statewide Buyer and Seller Advisory (A great Risk Management Advisory)
In the “Statewide Buyer and Seller Advisory” form, many minor formatting changes were made to improve the clarity of the form. Changes include a listing of the seven broad categories to which the many paragraphs belong and an alphabetical index of each paragraph and the page where the paragraph is found.
Paragraph A(14) was added to provide further explanations and resources for disclosures in the new “Fire Hardening and Defensible Space Advisory Disclosure and Addendum” form (discussed above). Paragraph C(6) was added to address various wildlife provisions. Lastly, Paragraph C(7) was added to address concerns over coastal property with regards to rising sea levels.
- Seller’s Purchase of Replacement Property
In the “Seller’s Purchase of Replacement Property” form, the only major change recognizes that a seller may satisfy the condition of the replacement property contingency if the seller identifies a new place to move. This “new place” may be a new purchase, a rental, or something else like moving in with a parent or child.
Should you have any questions or concerns regarding these forms, we encourage you seek qualified counsel—either through an attorney or your local REALTOR® Association—for answers.