Other than one-to-four residential units

Actual use of the statutory NHD form for hazard disclosures by sellers and their agents is mandated only on the sale of non-exempt, targeted one-to-four unit residential property. [CC §1103]

Thus, sellers and listing agents on all other properties are not required to use and deliver the statutory NHD form to prospective buyers of those properties. However, all sellers and their listing agents, without concern for the type of property involved, still have a duty to disclose hazardous conditions known to them to exist. The best method to deliver those disclosures is through the use of the NHD form as it is a checklist of hazards to be considered for disclosure. [CC §1103.1(b); Public Resources Code §4136]

Sellers and listing agents of any type of real estate must disclose whether the property is located in:

  • an area of potential flooding;
  • a very high fire hazard severity zone;
  • a state fire responsibility area;
  • an earthquake fault zone; and
  • a seismic hazard zone. [CC §1103.2]

Excluded sellers, not agents

While sellers of all types of properties must disclose what is known to them about the natural hazards endemic to a property’s location, sellers in some transactions do not need to use the mandated NHD form to make their disclosures, such as:

  • court-ordered transfers or sales;
  • deed-in-lieu of foreclosures;
  • trustee’s sales;
  • lender resales after foreclosure or a deed-in-lieu;
  • estates on death;
  • transfers between co-owners;
  • transfers to relatives/spouses; or
  • transfers to or by governmental entities. [CC §1103.1(a)]

However, any listing agent involved in an excluded transaction must himself make hazard disclosures, even though he does not need to use the statutory form. [CC §1103.1(b)]

Also, all sellers of any type of property, included or excluded, must, as always, disclose what they know about any hazards. Again, the disclosure is best accomplished by use of the NHD on all sales.  [CC §1103.2(f)(2); Pub Res C §4136]

Seller’s motivation to sell

When a listing agent requests that the seller participate in the agent’s marketing plan by advising him to incur the costs of property reports at the time of the listing, the seller’s reaction provides the agent an insight into the extent of the seller’s motivation to sell the property. The agent’s goal, besides employment under a listing, is to encourage and receive maximum cooperation from the owner in the sales effort.

A seller can “dress up” the property and enhance its “curb appeal” by cosmetic painting, landscaping and clean up. However, it is the fundamentals about the property, such as its location within a natural hazard area, which generate firm offers to purchase. It is to this end the seller is asked not only to list the property, but to be enthusiastic about releasing information on that property’s fundamentals to prospective buyers at the earliest opportunity.

However, the motivation to sell may have more to do with the seller’s lack of available cash to make loan payments than his desire to incur the cost of the reports needed to properly market the property. In the case of a financially distressed seller who is unwilling or unable to pay for expert third-party reports, the listing comes with a significant increase in the listing agent’s risk of losing a sale due to a buyer’s disapproval of contingencies involving in-escrow disclosures. This is one of the costs of undertaking employment with an insolvent seller.

Also, a seller may not want to disclose the condition of the property as a matter of strategy until after he accepts a purchase agreement offer from a buyer. He will then make only those concessions necessary to keep the transaction together, or resell the property to a competing back-up buyer who has been fully informed about the property’s condition. Such conduct by a seller is deceitful and exposes him and his listing agent to litigation for lost value on the price paid.

Here, the seller knows something fundamental about the property which negatively affects its value and he does not want to tell the buyer before contracting to sell the property under a purchase agreement. He would rather wait to make disclosures after the buyer has committed himself to purchase the property, a type of intentional seller fraud.

Sellers who are motivated to sell, not just to “test their price” in the market, will respond in a positive manner to the agent’s advice to order out an NHD (and other inspections and reports) before the agent begins to market the property and locate prospective buyers. If the seller’s response is negative, the seller lacks good intentions to enter into a sales transaction at current market prices.

The seller’s negative response to making property disclosures at the earliest opportunity is a good indicator of the level of future cooperation in marketing, contracting to sell and closing an escrow which the agent can expect to encounter from his seller. Unwillingness to disclose is not a good start for a working relationship that requires communication by the listing agent to prospective buyers and their selling agents about all the property facts that might affect the buyer’s interest.  Every aspect of the property needs to be open for review, without hesitation, when a prospective buyer becomes engaged in further discussions about the property.