What you should know about the Buyer Inspection Election (BIE)

The Buyer Inspection Election is used in conjunction with all of the many other inspection disclosures for a buyer to make a record of which inspections they’ve chosen to perform on the property they are purchasing.

// This post is a part of our series: Your Guide to a San Francisco Disclosure Package. //

The Buyer Inspection Election (BIE) is a *general property* disclosure. It contains language that does not vary from transaction to transaction and is not property specific.

Pictured below is the Buyer Inspection Election (BIE). The beginning of the document recounts advice and information that is mirrored in numerous other documents that talk about inspections. The long and short of it is that when making a major investment, doing due diligence is incredibly important, and here are some possible inspections you could have…

Buyer Inspection Election form in California.
Buyer Inspection Election form in California.

If you’ve been keeping track, you’ll note that there are *a lot* of disclosures and disclosure documents that relate to property inspections. For those of you who are familiar with my theory about the origin of disclosure documents, you can quickly surmise what the real estate lawsuits are about.

While the form language suggests that a buyer complete it at the beginning of their inspection period, I’ve never seen it used that way. Why? Because most buyers are smart buyers and want to maximize their knowledge of the property with the minimum expenditure of money. So, most buyers (in SF, at least) start with a general contractor’s inspection. If a general contractor/general home inspection turns up further items for investigation – then buyers generally decide if they want to continue investing in inspections or if they just want to cancel the purchase contract.

The Buyer Inspection Election is a great document for a buyer to confirm the inspections they’ve chosen to have for the property they are buying. In my experience, I’ve only seen this form filled out if the deal is going to close, because if a deal falls apart during inspections there’s really no need to document which inspection contained information that wasn’t acceptable to the buyer.

And while I admire the thinking behind the form, the actual execution of that idea could use some improvement, IMHO.

For example, the form lists square footage, lot size, boundaries, and survey as four different inspections. The general purpose of a survey is to determine lot size and boundaries – so which boxes do you check?

What about an inspection for an issue related to a foundation that involves information about soil stability? Do we check for a soils inspection, or a foundation inspection, or both?

 

What are the differences between a plumbing inspection and a “water systems and components” inspection?

Given that the purpose of this document is to bring clarity to inspection choices, I think it has a lot of room for improvement.

What You Should Know About the Buyer Inspection Advisory

The Buyer Inspection Advisory comes in two flavors: A Buyer Inspection Advisory from the seller to the buyer, and a Buyer Inspection Advisory from the broker to the buyer.  The two documents are almost identical, the only difference is who provides and signs the advisory: a broker or a seller.

// This post is a part of our series: Your Guide to a San Francisco Disclosure Package. //

The Buyer Inspection Advisory is a *general property* disclosure. It contains language that does not vary from transaction to transaction and is not property specific.

Pictured below is the Buyer Inspection Advisory (BIA-A), which includes a line for the property address and is an advisory from the seller to the buyer. The document is a two-page document (at least, as of 2014) and outlines the importance of understanding the condition of the property, the buyer’s rights to investigate, and outlines a long list of potential types of inspections a buyer can obtain. It also reminds buyers of the broker’s and seller’s disclosure duties in a transaction.

BuyerInspection_A_web
Buyer Inspection Advisory: From Seller to Buyer

Pictured below is the Buyer Inspection Advisory (BIA-B) that is almost identical to the BIA-A but the BIA-B comes from the broker instead of the seller. Other than that, the document is almost identical to the other advisory, and again, outlines the various types of inspections a buyer can obtain, the importance of understanding the condition of the property, and a reminder of the broker’s disclosure obligations and the seller’s disclosure obligations.

buyerinspectionB_web
BIA-B: The Buyer Inspection Advisory from Broker to Buyer

There is probably a reason for the existence of the two almost identical but slightly different forms, but since I’m not an attorney I can’t tell you what the reasoning is. Regardless, you can expect to see one of these forms, if not both of them, in a San Francisco disclosure package. If you’ve got a great agent, they’ve already reviewed this information with you and none of it should be new information.

What You Should Know About Inspection Scheduling

When purchasing a single family home, one way to understand as much as you can about the property is to have the property physically inspected by a company or individual that specializes in inspecting properties that are being sold. Inspection scheduling in San Francisco is generally done by the buyer’s agent, unless a buyer is relying upon inspections provided by the seller or choosing to purchase the property without a physical inspection.

// This post is a part of our series: Your Guide to a San Francisco Disclosure Package. //

The Inspection Scheduling disclosure is a *general* disclosure. It does not contain information specific to the property in question.

Inspection Information and Scheduling Request - A Sample Disclosure
Inspection Information and Scheduling Request – A Sample Disclosure

The Inspection Scheduling disclosure is a form that we all have a lawsuit (or lawsuits) to thank for. And while that may sound a bit glib, here’s the essence of it all (in my humble opinion).

Real estate transactions are always time sensitive. Even in “soft” markets, sellers always prefer shorter contingencies to longer contingencies. So buyers typically rely on their agent for advice on who to use for an inspection and to get that inspection scheduled within their contingency timeframe. It raises an interesting question though: will a buyer’s agent select a reputable, honest, reliable inspector or will they toss the inspection to a “yes person” that will keep the deal together even if there are major issues with a property?

In my decade plus years of experience, I always recommend the honest, reputable and reliable inspector because while I know I have to make sure my clients perform within the agreed-upon timeframe, I always choose to take a long term view. I want a good inspection, warts and all, because I want my buyers to someday become my sellers and to recommend me to all of their friends, co-workers, and family.

But not every agent takes that view, and some buyers over the years have felt their agent picked the easy, convenient, or “soft” inspector because they were more interested in closing a deal instead of developing a lifetime relationship.

So you can expect to sign a form that will be similar – if not identical – to the above form saying that you can’t hold your agent responsible for choosing an inspector you don’t like if you’ve given them permission to schedule an inspection for you. And as long as a form was created to share that information, they decided to also mention that agents don’t set rates for contractors, and we don’t verify their insurance, if they are bonded, or any of those other details.

What’s your take away? Let your agent know up front what concerns you have about the inspection scheduling and inspection process. Communicating concerns and expectations up-front is by far the best way to avoid problems down the road.

What You Should Know About the Natural Hazards Report

The Natural Hazards/Tax Data (often called the JCP report because of a popular 3rd party provider)  is an important document to review in a disclosure package. While there are a variety of formats for a Natural Hazards report they all serve one purpose: to help the seller explain information about the land around and underneath a property.

// This post is a part of our series: Your Guide to a San Francisco Disclosure Package. //

The Natural Hazards Report is a *property specific* disclosure. While it contains a ridiculous amount of boilerplate/CYA information, it also contains important information that is specific to the property in question.

A Natural Hazards Report Summary Page from 3rd Party Provider JCP
A Natural Hazards Report Summary Page from 3rd Party Provider JCP

A natural hazards report can be completed directly by a seller, but in almost all cases sellers choose to use a report provided by a 3rd party company. PropertyID is one such company (I believe they are a captive company to Coldwell Banker, but I’m not 100% certain), and JCP-LGS is another company. In the San Francisco market you typically see a report from one of these two companies.

The natural hazard report is a statewide report which means that it covers a lot of conditions that aren’t applicable to San Francisco. The summary page (shown above) is the “cliff’s notes version” of the entire document, which is usually between 30 and 40 pages. The potential hazards disclosed in a natural hazards report include:

  • Special Flood Hazard Area
  • Area of Potential Flooding
  • Very High Fire Hazard Severity Zone
  • Wildland Area with Substantial Forest Fire Risk
  • Earthquake Fault Zone
  • Seismic Hazard Zone (Landslide or Liquefaction)
  • County Level Natural Hazard Disclosure Information
  • Former Military Ordinance Disclosures
  • Proximity to Commercial or Industrial Zoning
  • Airport Influence Area Disclosure
  • Airport Noise Area Disclosure
  • Bay Conservation and Development District Disclosure
  • California Energy Commission Disclosure
  • Right to Farm Act Disclosure
  • Notice of Mining Operations Disclosure
Additional Disclosures found in a Natural Hazard Report
Additional Summary Page typically found in a Natural Hazard Report

It should be noted that there are a variety of different maps that the report provider is working with – often state, county, and city level maps. For example, in the above example while it isn’t on a state mapped earthquake fault zone, San Francisco county reports include additional detail that provides information on expected/projected ground shaking severity for an earthquake on either the Hayward or San Andreas faults.

I’ve also been told by various engineers that specialize in soils testing that the maps used in the generation of these reports are approximate. In one case, I had a client receive a natural hazards (JCP) report that said the property was in a landslide zone. We hired a soils engineer to help us better understand the risk, and using his more detailed maps he was able to show that while the property was near landslide zones, the property in question wasn’t actually in a landslide zone.

Some “bonuses” that typically come along with the natural hazard report include:

  • A property tax report that explains how property taxes are calculated, allowing you to estimate what your property taxes will be.
  • A notice of your supplemental property tax bill, which explains that most counties lag in re-assessing property values but that every county eventually catches up and when they do you will be issued a supplemental tax bill for the difference between the rate you have been charged and the rate you should have been charged.
  • Environmental Screening Report, which typically includes information about underground storage tanks that are near the property in question.

As you can see from the long list of items disclosed in a natural hazard report, it is an important document to review. It often provides information about conditions that are not readily obvious or apparent to the visible eye, so it is important to review the document and be sure that you understand the information it contains.

SFAR Publishes Advisory about Prop G in SF

Prop G in SF, if you aren’t familiar with it, is a November 2014 ballot measure that will, if passed:

increase the total transfer tax for transfers occurring after December 31, 2014 (the specified “effective date” in the proposition is January 1, 2015) regardless of whether the underlying purchase and sale agreement was entered into by the parties beforehand. Its proposed added tax would be as follows:

 For a sale during the 1st year of ownership: 24% of total gross sales price;

 For a sale during the 2nd year of ownership: 22% of total gross sales price;

 For a sale during the 3rd year of ownership: 20% of total gross sales price;

 For a sale during the 4th year of ownership: 18% of total gross sales price; and,

 For a sale during the 5th year of ownership: 14% of total gross sales price.

Properties held for 5 years or more prior to resale would not be subject to this additional tax.

If enacted, there would be few exemptions from this additional transfer tax

As you might imagine, we don’t support Prop G in SF and we will talk about why in the coming days and weeks. Now that we’ve shared our opinion, we’d love to hear yours. But we’d also remind everyone that in our experience, the best conversations are the most respectful ones. Although, as the real housewive’s franchise proves, trashy conversations are the funnest to watch.

 PropG_SFAR

SFAR, the San Francisco Association of Realtors, has published a new advisory form for buyers and sellers of real property (homes in all the various shapes and sizes this city imagines for them) in San Francisco. The form is available to members of the association, so if you are thinking of buying or selling in the city, please be sure to use someone qualified to represent your best interests. You should expect to see it in most disclosure packages in SF in the near future (or now).

What you Need to Know About: Agent’s Visual Inspection Disclosure (AVID)

As one of my favorite brokers once joked, an agent visual inspection disclosure (AVID) is a visual inspection that an agent can do in heels. The point being that both individual sales agents in a transaction (the listing agent represent the seller and the selling agent representing the buyer. If it is dual agency, both individuals must still produce their own visual inspection disclosures, if one individual is representing both parties, you would only expect to see one AVID form) are required to perform a visual inspection of the property, but neither is expected to show up in overalls, ready to crawl through crawlspaces or stick their head in attics or in downspouts.

// This post is a part of our series: Your Guide to a San Francisco Disclosure Package. //

The Agent Visual Inspection Disclosure (AVID) is a *property specific* disclosure. Read it as soon as it is available.

AVID - Agent Visual Inspection Disclosure Form
AVID – Agent Visual Inspection Disclosure Form

Here’s the thing to remember about an agent’s visual inspection: We aren’t licensed contractors, which means we aren’t qualified to diagnose what we see. Our job is to note what we see at the property that is unusual or stands out to us – the idea being that since we see lots of homes as part of our job, the things that stand out might be important things for the buyer or seller to be aware of.

That said, at every risk management seminar I’ve ever been to I’ve pretty much heard the same instructions/advice from a variety of real estate attorneys: describe, don’t diagnose. Which means a good AVID will state things like “cracks visible along wall” instead of something like “hairline cracks caused by settling visible along wall.” An agent isn’t typically qualified to diagnose the underlying cause of a visible issue.

It is also important to remember that an agent doesn’t move furniture, look underneath things, move piles of stuff or otherwise try and take apart the home.

An agent’s visual inspection is not a substitute for an inspection by a contractor or other licensed home professional – it is simply a “once-over” list of things that were readily apparent to the agents involved in a residential real estate transaction. It is also important to remember that if you are purchasing/selling a condo home, the AVID does not include any of the common areas – it covers the condo home itself, not the common areas that accompany ownership of the condo.