Are seller disclosures required to be delivered prior to entering into a purchase agreement? If so, what is the purpose of contingency periods in the trade union purchase agreement?
As a matter of prudent practice, a seller and their agent will always provide property disclosures prior to negotiating the price and terms for the sale of a property. When disclosures are not made upfront, a contingency is triggered leaving the door open to further negotiations.
Timely delivery of disclosures
All property-related disclosures are to be delivered to the buyer as soon as practicable before entering into a binding contract, per statute and case law. [Calif. Civil Code §§2079 et seq.; CC §1102.3; Holmes v. Summer (2010) 188 CA4th 1510; Calif. Attorney General Opinion 01-406 (August 24, 2001)]
Consider this from a practical standpoint: when shopping for something, do you prefer to be given all the facts to make an informed decision, or do you prefer to make a blind offer, hoping the product is exactly what you want? Chances are, you prefer the first option.
This principle applies equally to real estate transactions. A buyer who makes an offer without the benefit of full property disclosures is essentially submitting their offer blind. They lack the material facts — conditions that affect the property’s value and desirability — to make an informed decision about what price to offer, or whether to make an offer at all.
Thus, the process of placing the property under contract is corrupted due to asymmetric knowledge of property facts between the buyer and seller.
The seller’s timely delivery of the Transfer Disclosure Statement (TDS) before entering into a purchase agreement reveals the precise condition of the property, allowing the buyer to make an informed decision about their offer. [See RPI Form 304]
When the seller’s broker waits to provide disclosures until after the buyer enters into a binding contract — deceitful conduct — only then do contingency provisions in the trade union’s form for delayed disclosures kick in.
Triggering the contingency period
Many real estate licensees erroneously believe the in-escrow timeline set by trade union purchase agreements for delivering seller disclosures is the industry standard. However, it is neither the standard nor in compliance with the public policy set by California legislation and enforced by the California Bureau of Real Estate (CalBRE).
Provision 14a of the trade union’s purchase agreement arbitrarily sets a time period of seven days after contracting for the seller’s delivery of reports and disclosures about the condition of the property. Similarly, provision 14b provides 17 days after contracting for the buyer to investigate (e.g., through inspections) to confirm the property is suitable for their needs and whether defects discovered justify further price negotiations.
These specific contingency periods are not set by California law, but were created by the trade union to satisfy a statutorily mandated additional remedy available to the buyer who receives delayed disclosures.
When the buyer is not handed disclosures of property conditions prior to contracting, the statutory contingency is automatically triggered to protect the buyer and help prevent consumer fraud. The contingency gives the buyer the additional right to cancel the purchase agreement — one of many remedies the buyer has against the seller and the seller’s agent arising from delayed, in-escrow disclosures. [CC §1102.3]
Thus, while the trade union’s purchase agreement provides the statutory safety net for the buyer, it fails to provide for compliance with public policy when making the disclosures before the buyer goes under contract.
Consider contingency periods to be a last-ditch effort to protect the buyer when the seller and their broker fail to provide timely property disclosures prior to an offer. Though California law permits the contingency period as a remedy, the legislative intent of real estate law is to ensure known material facts are disclosed as soon as practicable prior to submission of the buyer’s offer.
Thus, disclosures may be submitted in accordance with contingency periods included in the purchase agreement, but sellers are advised to avoid risks and comply with California law by disclosing facts beforehand.