External material facts and conditions which affect a property’s value

A broker and their agent, with authority to exclusively represent a seller of a one-to-four unit residential property, takes reasonable steps to promptly gather all material facts about the property which are readily available to the seller, the seller’s broker or the broker’s agent. Further, the broker’s and agent’s duty owed the seller to disclose to prospective buyers material facts known to them is not limited merely to disclosures of the property’s physical condition.

In addition to a property’s physical condition, neighborhood and area conditions which adversely affect the property’s value and desirability are also considered material facts.

Area factors and conditions known to the seller or the seller’s broker or agent which negatively affect a property’s value and desirability are disclosed to prospective buyers as soon as practicable (ASAP) — i.e., before a purchase agreement is entered into by the seller.

Tenants of multi-family properties are protected by landlord-tenant laws against foreseeable criminal acts within the property. However, prospective homebuyers looking to purchase a single family residence (SFR) have no public policy legislation to rely on for the compelled disclosure of criminal activity known or suspected by the seller or the seller’s agent. [Ann M. v. Pacific Plaza Shopping Center (1993) 6 CA4th 666]

When the seller’s agent fails in their duty to the seller to provide relevant property information to prospective buyers by disclosing criminal activity within the neighborhood, it becomes the responsibility of the buyer’s agent to request a criminal history of the area from the seller’s agent and review it with the buyer.

Ongoing protection for the buyer

A condition negatively affecting the value of a property, known or suspected to exist by the seller or the seller’s broker and agent, is to be timely disclosed to prospective buyers. For one-to-four unit residential properties, disclosures are made on the mandated Condition of Property Disclosure, commonly known as a Transfer Disclosure Statement (TDS). [Calif. Civil Code §§1102(a), 1102.3; see RPI Form 304]

However, most sellers and their agents, when preparing disclosures, willingly neglect to provide information about recent criminal activity within the neighborhood – whether known or suspected. Their justification:

• criminal activity is not directly listed as a boilerplate item on the TDS form;
• criminal activity is not a provision in the outdated purchase agreements seller’s agents frequently use; and
• the buyer never asked about the existence of criminal activity in the neighborhood.

While the TDS is not specific to neighborhood security or criminal activity, it does call for the seller to provide information regarding neighborhood nuisances. Neighborhood and area conditions which adversely affect the property’s value and desirability are material facts compelling disclosure to prospective buyers seeking further information about a property they might want to acquire.

Disclosure of facts yielding a negative effect on the value of property is required regardless of whether the negative effect is expressed as an item on a pre-printed TDS form or questioned by the buyer. Anything less is deceit, and thus a fraud on the buyer by the seller’s broker and agent.

When property disclosures are prepared by the seller or seller’s agent, there are two operative phrases from case law they must keep in mind:

• readily available information; and
• relevance to a buyer’s decisions.

Seller’s Neighborhood Security Disclosure Addendum

The Seller’s Neighborhood Security Disclosure Addendum published by RPI (Realty Publications, Inc.) is used by a seller’s agent when preparing a marketing package with information addressing security on or about a property they have listed for sale or lease, to disclose to prospective buyers facts known or readily available about security conditions on or in the area of the property. [See RPI Form 321]

For the buyer, the Seller’s Neighborhood Security Disclosure is an addendum to the purchase agreement, attached as part of a contingency provision requesting security information from the seller on their property and surrounding area. [See RPI Form 150]

Although the disclosure of security conditions which exist on and around a property is not statutorily mandated, timely disclosure provides material information to the buyer under case law when information is “readily available” and “relevant to a buyer’s decision.” Thus, the seller’s disclosure is not just good practice — it’s a legally critical supplement to the statutory TDS.

Each section in Form 321 has a separate principle relating to the security of the occupants of the property. The sections include:

• a statement from the seller disclosing any investigative reports on the adequacy of the property’s security arrangements;
• security precautions already undertaken, including steps taken by the seller or prior owner to prevent security breaches;
• conduct on the property by a tenant, their pets or visitors which have endangered another person or the property of another; and
• any other specific criminal activity occurring during the past two years. [See RPI Form 321]

When a buyer’s agent reviews the Seller’s Neighborhood Security Disclosure with their buyer, the buyer’s agent will discuss any disclosures or findings they have made with the buyer. Any costs of providing additional security for their use of the property are then pointed out. Such items include the installation of:

• extra lighting;
• a security system;
• security gates; and
• fences and walls.

Unique factors and conditions

The Unique Factors and Conditions Affecting Property form published by RPI is used by a seller’s agent to disclose to prospective buyers the existence of unique factors or conditions which may adversely affect the property or its immediate vicinity. [See RPI Form 308]

The Unique Factors and Conditions Affecting Property form lists several factors which may influence a buyer’s decision to purchase or the price they are willing to pay for a particular property. These factors and conditions include:

• Notice of Airport in Vicinity – the property may be subject to some of the annoyances or inconveniences associated with proximity to airport operations;
• Notice of Right to Farm – the property is located within one mile of a farm or ranch land designated on the current county-level GIS “Important Farmland Map,” issued by the California Department of Conservation, Division of Land Resource Protection;
• Notice of San Francisco Bay Conservation and Development Commission Jurisdiction – the use and development of property within the commission’s jurisdiction may be subject to special regulations, restrictions and permit requirements;
• Notice of Mining Operations – the property is located within one mile of a mine operation for which the mine owner or operator has reporter mine location data to the Department of Conservation pursuant to Public Resources Code 2207;
• Notice of Industrial Use Zone – the property is located in or next to an Industrial Use Zone which allows manufacturing or commercial uses, or is affected by a nuisance resulting from its proximity to an Industrial Use Zone;
• Notice of State or Federal Ordnance – the property is located within one mile of a former state or federal ordinance location, such as those used for military training purposes;
• Notice of Contamination of a Controlled Substance – the property or immediate vicinity has been identified by a government health official as being contaminated by methamphetamine or another controlled substance or was the site of a former meth lab;
• Notice of Death – a death has occurred on the property within the prior three years;
• Notice of Insurance Claim Affecting the Property – an insurance claim affecting the property has been field within the previous five years; and
• Notice of Other Conditions affecting the property or immediate vicinity.

After review and consideration of seller disclosures, the buyer is able to make an informed decision whether to proceed with the purchase, negotiate an adjustment in the price to cover the value of the disclosed risks, or cancel and find a property with fewer associated risks and costs.

This article has been updated and was originally published June 2013.