“As is” vs. “as disclosed”

On the sale of a one-to-four unit residential property, the seller completes and delivers to a prospective buyer a statutory form called the Condition of Property Transfer Disclosure Statement, commonly known as a Transfer Disclosure Statement (TDS). [Calif. Civil Code §§1102(a), 1102.3; see RPI Form 304]

The seller’s use of the TDS — prepared with honesty and in good faith — is mandated when making disclosures about improvements, whether or not they retain an agent to review its content before handing it to a prospective buyer. [CC §1102.7]

When preparing the TDS, the seller discloses any property defects they know or suspect to exist, including any conditions which might negatively affect the value and desirability of the property, even when the item is not listed on the TDS. [CC §1102.8]

Often, an attempted waiver of the TDS by the buyer or the seller, such as the use of an “as is” clause in the purchase agreement, makes an agent’s standard due diligence and disclosures seem unnecessary. However, the buyer cannot waive the seller’s delivery of the statutorily-mandated TDS. Any attempted waiver is unenforceable as against public policy. The words “as is” are never to be used in the context of real estate transactions.

“As is” implies a failure to disclose something adverse about the property known to the seller or their agent — a prohibited and unethical behavior.

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Property is Sold “As-Disclosed,” Never “As-Is”

“As disclosed,” on the other hand, is the condition of the property as known by the buyer when the seller accepts their purchase agreement offer. [CC §1102.1(a)]

Thus, all buyers purchase property:

  • “as disclosed” by the seller, the seller’s broker and the broker’s agents; and
  • “as actually observed” by the buyer prior to entering into the purchase agreement.

In the end, regardless of language used in the purchase agreement, listing agents by law need to conduct their due diligence and disclose all known material facts to buyers.

Not so fast

Despite this mandate, seller’s agents nearly always provide the minimum disclosures and do so only after the buyer submits an offer and negotiates a purchase price. These agents continue to perpetuate the misconception that “as is” means the property is sold in its present undisclosed condition. For many agents, “as is” has become synonymous with “no disclosure required.”

This is simply not the case.

“As is” provisions are not only disruptive of proper conduct, but unnecessary to disclose the condition of the property. As mandated, a seller provides notice of defects in the TDS at the time of the listing and hands this document to all prospective buyers. The seller simply discloses the defects, whether or not they agree to make repairs.

When defects are disclosed as required prior to entering into a purchase agreement, negotiations may call for the seller to correct some or all of the disclosed defects. When corrections and repairs are not negotiated, the buyer takes ownership of the property subject to all those defects “as disclosed” by the seller or their agent in the TDS no later than the seller’s acceptance of the buyer’s offer. [CC §1102.1(a)]

Rules are rules

While it is the seller who prepares the TDS, the seller’s agent delivers it directly to the prospective buyer and collects the buyer’s purchase agreement offer.

When the sales transaction is negotiated principal-to-principal, however — directly between the seller and buyer without the participation of a transaction agent — the seller remains obligated to deliver the TDS directly to the buyer. [CC §1102.12]

The failure of the seller or any of the agents involved to deliver the seller’s TDS to the buyer does not invalidate a sales transaction once it has closed. However, the seller and the seller’s broker are both liable for the actual monetary losses incurred by the buyer due to an undisclosed defect known to them or unknown to them due to their negligence at the time the seller accepted the offer. [CC §1102.13]

Thus, the buyer is better off when they receive and review the TDS before the seller accepts their purchase agreement offer.

When the TDS is delivered to the buyer after the seller enters into a purchase agreement, the buyer may:

  • cancel the purchase agreement on discovery of undisclosed defects known to the seller or the seller’s agent and unknown and unobserved by the buyer or the buyer’s agent prior to acceptance [CC §1102.3];
  • make a demand on the seller to correct the defects or reduce the price accordingly before escrow closes [See RPI Form 150 §11.2]; or
  • close escrow and make a demand on the seller for the costs to cure the defects. [Jue Smiser (1994) 23 CA4th 312]

Mandatory inspection by the seller’s agent

Brokers and their agents who list one-to-four unit residential property have a duty to all prospective buyers, separate from the seller’s, to timely disclose any physical aspects of a property:

  • observable by the broker or their agent on a reasonable inspection of the property; and
  • affecting the property’s market value. [CC §§2079 et seq, 1102(a), 1102.3]


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Gathering facts on adverse features

The buyer of a one-to-four unit residential property has two years from the close of escrow to recover losses caused by the broker’s or agent’s negligent failure to disclose such defects. Undisclosed and unknown defects permitting recovery by a buyer for the cost to cure the defect or loss of value are those observable by a reasonably competent broker during a visual on-site inspection. A seller’s agent is expected to conduct a similarly competent inspection. [CC §2079.4]

However, when the seller’s broker or agent inspects the property, does not observe the defect and does not actually know it existed, the buyer is unable to recover their losses from the seller’s broker. [CC §1102.4(a)]

Flawed provisions

Despite legislation requiring disclosures be provided to the buyer as soon as practicable (ASAP), the purchase agreement published by the California Association of Realtors® (CAR) fails to reference or provide for the underlying law requiring timely disclosure. Furthermore, related provisions included in CAR’s purchase agreement call only for the delayed and untimely delivery of these required reports and disclosures within an arbitrary seven-day period. Only then does the buyer discover any intentional misrepresentation or deceit involved at the time of contracting.

Legislation clearly prescribes the timing for proper delivery of property disclosures. With few exceptions, “timely” means before the seller’s acceptance. When disclosure is delayed, contingency provisions only satisfy the bare minimum statutory remedy, giving the buyer the right to cancel, in addition to all remedies for fraudulent behavior that already exist.

Editor’s note —Brokers and agents are the gatekeepers of the real estate industry. By definition and legislation, they must possess professional integrity. Complying with disclosure requirements is part of an honest dealing with members of the public to which all licensees commit. Real estate law does not allow a “buyer beware” treatment. Yet, CAR’s form provides exclusively for delivery of the mandatory disclosures to the buyer after the purchase offer has been accepted, while in escrow, rather than on the commencement of negotiations to set the price, terms and conditions as mandated.

Always deliver property disclosures to buyers prior to their setting a property’s value in the process of making an offer. Disclosures invariably impact the value of the property. When the buyer is unable to review and consider the contents of these mandated disclosures before submitting an offer, the buyer is forced to blindly set the price offered — which the seller needs to counter to be assured the buyer has received and reviewed their TDS.

Targets and exemptions

Exemptions exist in which the seller is not required to provide a TDS. However, this does not exempt the seller from disclosing known material facts. Transactions which exempt the seller from preparing and delivering the statutory TDS form to a buyer include transfers:

  • by court order, such as probate, eminent domain or bankruptcy;
  • by judicial foreclosure or trustee’s sale;
  • on the resale of real estate owned (REO) property acquired by a lender on a deed-in-lieu of foreclosure, or by foreclosure;
  • from co-owner to co-owner;
  • from parent to child;
  • from spouse to spouse, including property settlements resulting from a dissolution of marriage;
  • by tax sale;
  • by reversion of unclaimed property to the state; and
  • from or to any government agency. [CC §1102.2]

Whether or not the seller is exempt from using the TDS, the seller’s broker and their agents are never exempt from:

  • conducting a visual inspection of a one-to-four unit residential property, sold or acquired on behalf of any seller or buyer [CC §2079]; and
  • disclosing their observations and knowledge about the property on a TDS form or other separate document. [CC §1102.1]

When an agent delivers property disclosures to the buyer in a timely manner, the buyer has the opportunity to evaluate the property’s market value based on full disclosure.

For every transaction you are involved in, remind yourself that when any aspect or fact about the property may have any influence on the buyer’s decision to purchase the property, or the price they are willing to pay for the property, it needs to be disclosed ASAP, once negotiations toward entering into a purchase agreement commence.

When you have to ask whether something should be disclosed, disclose it — and in a timely manner.

This article was originally published April 2016, and has been updated.