This form is used by a seller’s or buyer’s agent when preparing a listing/marketing package or performing a due diligence investigation on a property, to authorize a service provider to perform maintenance, repairs, or other services on the property.
Preparation of a marketing package
As a matter of becoming a licensee, a seller’s agent has learned they owe a special duty to their seller to diligently market their property on the listed terms, legally called a fiduciary duty or duty of a trustee. The sole objective: solicit and locate prospective buyers to acquire the listed property as fully disclosed by the seller and their agent.
When a prospective buyer is located, seller’s agents in turn owe the buyer and their agent a general duty to voluntarily and promptly provide critical information on the listed property that might adversely affect its value. This critical information is collectively referred to as material facts.
The purpose of this upfront factual disclosure is to put the buyer on notice of conditions, on or about the property, known to the seller or the seller’s agent. Without this property information, a prudent buyer is unable to set a price and make an offer.
The property information disclosed by the seller’s agent only needs to be enough to place the buyer on notice of facts. It is the duty of the buyer and the buyer’s age to determine whether the facts may have an adverse consequence on the property’s value or interfere with the buyer’s intended use.
For the most efficient delivery of property information for presentation to prospective buyers, the seller’s agent at the listing stage gathers data on the property and organizes it into a marketing package. When an agent deals with any seller, buyer or their agents, documentation by the agent of property information, discussions and negotiations using a form as a checklist is the best practice for avoiding future disputes about what information was transmitted.
Seller expenses to market a property for sale
A seller’s agent uses a Marketing Package Cost Sheet – Due Diligence Checklist published by RPI (Realty Publications, Inc.) to disclose the itemized costs the seller can expect to incur for the agent to properly market their property for sale. [See RPI Form 107]
The marketing package prepared by the seller’s agent estimates the cost of third-party investigative reports prepared by unbiased professionals or government agencies addressing essential aspects of the property’s condition that are of concern to prudent buyers. [See RPI Form 133]
These reports put a face on the property so it can be better evaluated by prospective buyers and a sale more efficiently negotiated. Negotiations with a prospective buyer requiring full disclosure commence when the prospective buyer or their agent seek out additional information on the listed property beyond the skeletal data contained in a promotional flier.
Further, when entering into the listing agreement, the seller’s agent presents the marketing package cost sheet to the seller as a “seller’s budget” for expenses they can anticipate. [See RPI Form 107]
The recommended third-party reports to be included in the marketing package are:
- a Natural Hazard Disclosure Statement (NHD),provided by an NHD expert [See RPI Form 1071(a); see RPI Form 314];
- a structural pest control report (SPC)and any clearance [See RPI Form 1071(c)];
- a home inspection report (HIR)to accompany mandated property disclosures [See RPI Form 1071(e)];
- a title profile reportprovided by a title insurance company;
- a well-water report, when applicable [See RPI Form 1071(j)];
- an occupancy (transfer) certificate, when applicable; and
- a septic tank/sewer report, when applicable. [See RPI Form 1071(k)]
Along with the third-party reports, the marketing package needs to include various property disclosures prepared by the seller and the seller’s agent, such as:
- a Transfer Disclosure Statement (TDS), the disclosure of the physical condition of the property [See RPI Form 304];
- a Natural Hazard Disclosure Statement (NHD), when not obtained from an NHD expert [See RPI Form 314];
- a Lead-Based Paint Disclosure (LBP), required on all pre-1978 residential construction [See RPI Form 1071(g); see RPI Form 313];
- Federal Residency Declarations confirming the seller’s legal status for tax purposes when closing escrow regarding buyer withholdings requirements [See RPIForm 301];
- a Residential Earthquake Hazards Report, disclosing structural weaknesses for properties built prior to 1960 [See RPI Form 315];
- the multiple listing service (MLS) printoutand property profile [See RPI Form 1071(q)];
- a Seller’s Neighborhood Security Disclosure, relating to security conditions in and around the property [See RPI Form 321];
- common interest development (CID) documents, when applicable [See RPI Form 1071(f)];
- a local ordinance compliance report, disclosing the property’s compliance with city and county ordinances [See RPI Form 1071(b); see RPI Form 307];
- an Annual Property Operating Data Sheet (APOD), disclosing the ownership costs of operating the property and any rental income [See RPI Form 352, 562 and 318]; and
- a rental income spreadsheet, regarding the rent roll for income property, when applicable. [See RPI Form 352-1]
Remember, all property information—third-party reports and disclosures prepared by the seller or the seller’s agent — is included in the marketing package handed to prospective buyers the moment they request more information on the seller’s property than provided by a promotional flyer.
When the seller has reviewed and signed the cost sheet for marketing, the agent is able to prepare and deliver authorization requests to the various third-party service providers instructing them to prepare and deliver their investigative reports. Thus, the agent documents any phone requests by using an authorization form. [See RPI Forms 124-136]
The reports received become part of the marketing package the seller’s agent puts together and presents to prospective buyers of the listed property. Prudent agents are aware that fully disclosing the condition of the property “upfront” when first dealing with a prospective buyer is legislated public policy for marketing a property. As a risk-mitigation matter, up-front disclosures avoid further negotiations, or worse, money demands after entering into a purchase agreement when facts are belatedly disclosed or discovered.
Staging to set the buyer’s expectations
A buyer’s enforceable expectations about the conditions of the listed property are legally established based on their impressions of the property — developed by observations and documented disclosures — before a purchase agreement is entered into. Conditions revealed to the buyer for the first time after the price has been set in a purchase agreement accepted by the seller are not binding on the buyer. When setting the price negotiated to acquire the property, the material facts were not fully known to the buyer or their agent and thus not taken into consideration. Symmetry about property facts between the seller and the buyer is the public policy goal. [Jue v. Smiser (1994) 23 CA4th 312]
Thus, the seller has to make a choice, on the advice of their agent, about when they want to incur the expense of third-party reports, either:
- now, when the seller lists the property for sale, so any purchase agreement entered into with a prospective buyer will be the unconditional result of the prior delivery by the seller’s agent of the reports and act as a limitation on money claims based on deception about the property’s existing condition; or
- later, after entering into a purchase agreement with a buyer whose expectations about the property’s condition have been set but differ from the untimely delivered reports, likely causing the buyer to: 1) cancel the purchase agreement; 2) demand the defects be eliminated by the seller before closing; or 3) close escrow and later demand a refund of the overpayment in price or reimbursement for costs incurred to make repairs. [Jue, supra]
A competitive sales advantage
An agent makes an appointment and meets with a property owner to discuss the owner’s employment of the agent. The discussion includes a review of a listing agreement and its addenda the agent has prepared. One addendum reviewed is a marketing package cost sheet which functions as an itemized list of essential reports and owner activities necessary to advise prospective buyers about the condition and nature of the property.
With the delivery of the reports on inquiry from a prospective buyer, the buyer entering into a purchase agreement will be acquiring the property based on their full prior knowledge of its condition. Availability of the disclosures provides a competitive sales advantage over other listed properties that are not marketed with reports to establish their condition.
Further, buyers’ agents are attracted to properties offered with all investigative third-party reports available to them in a complete marketing package, also called a backup package. With a backup package, property disclosures provided to buyers containing third-party reports reduce:
- the seller’s exposure to liability under their duty to fully disclose their knowledge of the property’s condition [Calif. Civil Code §1102.4]; and
- the seller’s agent’s exposure to liability under their duty to personally inspect, observe and report their findings to buyers about a property’s condition. [CC §2079]
Importantly, when you deliver all reports to the prospective buyer prior to entering into a purchase agreement, closing escrow on the purchase agreement is not subject to the buyer’s further-approval of the property condition disclosures.
The primary marketing advantage for the seller whose agent provides prospective buyers with third-party reports is that the sale of the property is transparent at the inception of negotiations — prior to entering into a purchase agreement. The price agreed to in the purchase agreement is based on property conditions “as disclosed” by the reports.
The seller avoids the undisclosed (and prohibited) “as is” sale. “As is” sales situations are inherently deceitful and inevitably lead to price renegotiations, repairs, cancellation of the purchase agreement or litigation for failing to disclose facts about material defects known when the buyer’s purchase agreement offer was accepted. [CC §§1102.1, 2079]
The seller’s motivation to sell
A seller’s reaction to their agent’s request for the seller to participate in an aggressive marketing plan by incurring the costs of property reports up front offers the agent insight into just how motivated the seller is to sell the property.
The agent’s goal — besides the financial need to list a property and earn a fee — is to encourage and receive maximum cooperation from the seller in their sales effort.
A seller may “dress up” the property and enhance its “curb appeal” by cosmetic painting, landscaping and clean up — essential to receiving top offers.
However, it is the buyer’s knowledge of the property’s fundamentals which generate firm offers and uncontested purchase agreements. Thus, the seller is asked not only to list the property for sale, but also to willingly and openly disclose the property’s fundamentals to prospective buyers at the earliest opportunity — when the marketing begins.
However, the seller’s motivation to sell sometimes has more to do with a lack of available cash for mortgage payments than a desire to incur the cost of the reports needed to market the property. In the case of a financially distressed seller who is unwilling or unable to obtain expert third-party reports, the listing comes with a significant increase in their agent’s risk of losing a sale due to a buyer’s disapproval of contingencies involving delayed, in-escrow disclosures.
Thus, the agent has to sell the property twice: once to find out what the property conditions are that caused the first buyer to drop out, and again when the conditions are disclosed to a second buyer upfront.
How and when to pay marketing costs
The seller may opt to pay the charges directly to the third-party vendors once billed. Here, the agent coordinates the arrangements for payment with the vendors. The seller’s check is, thus, payable to the vendor, not the broker.
However, a check handed to the seller’s agent for delivery to the vendor constitutes trust funds. As trust funds, an entry is made in the trust fund ledger maintained by the agent’s broker. [See Form 107 §4.1]
Alternatively, the seller may deposit the estimated cost of the reports with the broker by making the check payable directly to the broker, called advance costs. The broker then pays the charges from the deposit when billed by the reporting service. [See Form 107 §3.4]
Funds advanced by a client payable directly to a broker belong to the client. The broker needs to place all advance deposits received in the broker’s name in a trust account, whether they are advances to the broker for future costs or fees. [Calif. Business and Professions Code §10146]
The seller’s authorization to order reports
When preparing the marketing package cost sheet and authorization for the agent to incur the cost for property reports, cost estimates are entered for items that ultimately will be required by a buyer to close a sale. [See RPI Form 107]
A seller who refuses to incur the cost of third-party reports on the sale of their property needs to be advised that a prudent buyer is most likely to incur the costs on the advice of the buyer’s agent. In turn, the buyer is inevitably going to use the reports against the seller as a “punch list” for demanding repairs and replacements to be completed before the buyer will close escrow.
Thus, for a seller, it is best to request the reports sooner rather than later. The same advice holds true for implementing the agent’s marketing plan for sale of the property.
The seller’s agent uses the Authorization to Provide Services – General Services published by RPI when preparing a marketing package to authorize another professional or government agency to perform one of the activities referenced in the marketing cost sheet. [See RPI Form 133]
The authorization is completed by the seller’s agent and given to the vendor to retain them to perform the referenced services. Thus, it functions as companion documentation for activities agreed to in the cost sheet.
The authorization contains:
- the location and type of property the vendor is being hired to service [See RPI Form 133 §1];
- the name and contact information of the property owner [See RPI Form 133 §2];
- a description of the services to be provided by the vendor [See RPI Form 133 §3];
- the identity and contact information of the person who will enter under contract with the vendor, when applicable [See RPI Form 133 §4];
- who will provide the vendor access to the property [See RPI Form 133 §5];
- who is responsible for payment of the vendor’s fee, and how the payment is to be structured [See RPI Form 133 §6]; and
- the anticipated amount of the fee for the vendor’s services. [See RPI Form 133 §6.2]
The anticipated fee referenced in the authorization is to be consistent with the corresponding estimated cost referenced on the market cost sheet. [See RPI Form 107]
Editor’s note — In addition to the authorization to provide general services, RPI publishes numerous authorization/request forms that are specific to a vendor or service which are used in lieu of the general form, including:
- Authorization to Release Confidential Information [See RPI Form 124];
- Authorization to Inspect and Prepare a Home Inspection Report [See RPI Form 130];
- Authorization to Prepare Natural Hazard Disclosure [See RPI Form 131];
- Authorization to Structural Pest Control Operator [See RPI Form 132];
- Authorization to Open Home Warranty Order [See RPI Form 134];
- Request for Homeowner Association Documents [See RPI Form 135]; and
- Request for Notice of Mello-Roos Assessment. [See RPI Form 130]
Form updated 06-2017 to include the Form Description at the top, white header/footer convention and RPI branding.
Form navigation page published 09-2017.