Why this matters: An agent, retained by a seller of property, has a duty to have the seller-client enter their truthful responses to property conditions itemized on a Transfer Disclosure Statement (TDS). When entered by the seller, the agent performs a competent inspection of the property and enters conditions observed which adversely affect its value not entered by the seller. The completed report is handed to prospective buyers who rely on its contents to make decisions about acquisition and the price to pay for the property.
A TDS needs to be complete
In February 2025, the California Department of Real Estate (DRE) revoked a broker’s license who, as the agent representing the seller of a property available for sale, provided a buyer, also represented by the broker — a dual agency — with an incomplete Transfer Disclosure Statement (TDS). [See RPI Form 304]
The seller and the broker did not check “yes” or “no” on whether either were aware of any:
- flooding, drainage or grading problems;
- major damage to the property or any of the structures from fire, earthquake, floods or landslides;
- zoning violations, nonconforming uses, violations or “setback” requirements; and
- neighborhood noise problems or other nuisances.
On a previous sale of the property, the prior seller checked “yes” to the question on whether there were flooding, drainage or grading problems. Thus, the seller was aware of the adverse condition of the property.
A sign labeled “sink hole” was displayed in front of the property, which the broker was aware of. The buyer did not see the sign and was not made aware of the sinkhole issue affecting the street directly in front of the property.
Escrow closed without the buyer being made aware of a flooding and sinkhole issue affecting the property.
Here, the broker breached their duty as the seller agent to deliver a complete TDS to the buyer. Further, they breached their fiduciary duty owed their buyer-client to act in the highest good faith and not obtain any advantage over them. This was aggravated by the dual agency which always is a conflict situation.
The DRE revoked the broker’s license, since the broker:
- made a substantial misrepresentation of the property’s condition [Calif. Business and Professions Code §10176(a)];
- willfully disregarded real estate law regarding conduct as a dual agent [Bus & P C §10177(d)];
- engaged in fraud or dishonest dealing by not disclosing known material facts of the property [Bus & P C §§10176(i),10177(j)];
- willfully failed to provide a completed TDS [Bus & P C §10176.5]; and
- displayed negligence or incompetence as a licensee. [Bus & P C §10177(g)]
TDS requirements
A seller of a one-to-four unit residential property and their broker are mandated to complete and deliver to a prospective buyer a statutory form — the TDS — more generically called a Condition of Property Disclosure Statement. [See RPI Form 304]
The seller delivers the completed TDS to the buyer as soon as practicable (ASAP) after determining the consumer is a prospective buyer and always before the transfer of title. [Calif. Civil Code §1102.3]
The seller prepares the TDS with honesty and in good faith. [CC §1102.7]
Any conditions known to the seller which might negatively affect the value and desirability of the property for a prospective buyer are to be disclosed, even though they may not be an item listed on the TDS. [CC §1102.8]
Further, the seller broker, on their personal inspection of the property, reviews the TDS the seller has completed and adds any adverse conditions the broker observed which might affect a prudent buyer’s evaluation of the property.
The seller-prepared and broker-reviewed TDS is handed to all individuals seeking property information as a prospective buyer. Also, the buyer cannot waive delivery of the statutorily-mandated TDS. Any attempted waiver, such as the use of an “as-is” clause in the purchase agreement, is void as against public policy. [CC §1102.1(a)]
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Dual agency poses conflicts and risks
Dual agency imposes risks on brokers, but it remains ubiquitous. Brokers represent sellers of property available for sale, and occasionally they represent a buyer who becomes interested in property owned by a seller-client. Thus, as dual agents they double end the transaction and receive both sets of fees.
Fiduciary duties of fair dealing are required of the broker towards both clients, buyer and seller.
The seller broker owes a fiduciary duty to the seller to get the TDS filled out accurately and in good faith. The seller broker has a duty to inspect the property and review the seller’s fully prepared copy of the TDS and enter what they observe as conditions affecting value. Then, the seller broker ensures the complete TDS is handed to the prospective buyer ASAP on their further inquiry into the property.
The buyer broker owes a fiduciary duty to their buyer to disclose conditions they are aware of which affect the value or desirability of the property for their buyer’s use. No withholding may exist of pertinent information necessary for the buyer to evaluate the property. Further, the buyer still has to adjust for the bias inherent in a dual agency representation.
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