The Importance of the Transfer Disclosure Statement

Red-Flag Items Must Be Disclosed

Credit: Courtesy

Q: Marsha, I’m currently selling my home, and my agent has presented me with numerous disclosures he wants me to complete. He said that one of the disclosures, the transfer disclosure statement (TDS), needs to be filled out really carefully. This seems like a simple three-page disclosure. Why is the TDS so important?

A: Your agent is right. This is a crucial disclosure for all sales of one- to four-unit residential properties. It appears simple, but it is the Granddaddy and Big Boss of all disclosures. The TDS is a statutory disclosure, which means it is required by the State of California and cannot be waived by the seller or buyer. If the buyer has released all contingencies ​— ​loan, physical inspection, and appraisal ​— ​and the seller presents the buyer with additional information for the TDS, the buyer now has five days in which to cancel the sale and receive all deposit monies back. It’s important.

What is the TDS and how did the necessity for this disclosure arise? For most of the 20th century, all residential purchases were caveat emptor, or buyer beware. The seller had a moral and ethical obligation to disclose material facts or defects to the buyer about the property. But the laws were weak. This situation totally changed in the 1984 California court case of Easton  v. Strassburger

In 1976, Easton purchased an expensive one-acre hillside home from Strassburger. This was a 3,000-square-foot home with a pool and a detached guest house. Right after the close of the sale, there was substantial earth movement. The driveway was destroyed, and the main house’s foundation was severely damaged. Structural experts stated that the property was built on improperly engineered and non-compacted earth-fill. Appraisers concluded the property had lost 90 percent of its value, and that it would cost 25 percent over the value of the property to repair the considerable damage. Easton sued Strassburger and both the listing and buying brokerages. 

In court, it was revealed that Strassburger had known about the earth-movement problems. In 1973 and 1976, he had experienced landslides on his property. He took corrective measures to try and cure the problems. He never told the agents about the earth-moving issues. All the agents had visited the property many times. What dragged the agents into the lawsuit were “red flags.” This is a vital concept when it comes to real estate agents and disclosures. At trial, one agent stated he knew the home was built on fill, and another agent had seen corrective netting on the hill. An additional agent had noted that the floor was uneven in the guest house. These were all red flags. None of these agents disclosed their observations to Easton. 

Strassburger lost the lawsuit and was assessed the property’s full value and court costs. The brokerages, both selling and buying, were assessed 5 percent of the damages. The listing brokerage appealed the decision. They stated agents were only responsible for revealing known issues with the property and not problems that would be revealed with reasonable diligence. The brokerage lost. Agents have a higher degree of knowledge about property and see the red flags a buyer could miss. Out of this case came the transfer disclosure statement.

Real estate agents are not expected to be contractors, roofers, pest control, or mold experts, but they are expected to disclose red-flag items. The truism now is if you think an item may need to be disclosed, then yes, it does. 

Marsha Gray, DRE #012102130, NMLS#1982164, has been a real estate broker in Santa Barbara for more than 20 years. She works at Allyn & Associates, real estate services and lending. To read more Q&A articles, visit marshagraysbhomes.com. She will research and answer all questions submitted. Contact Marsha at (805) 252-7093 or marshagraysb@gmail.com.


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