Cancellation Right Associated with Delivery of the Visual Inspection

On January 1, 2019, several real estate “clean-up” laws become effective to eliminate confusion in the existing law.

The law is now clear on the buyer’s right to cancel based upon receipt of the listing agent’s visual inspection. Previously, the law did not clearly state that the cancellation right could be based on receipt of the listing agents visual inspection even though the visual inspection is part of the transfer disclosure statement (“TDS”).

Legislative History of the AVID

In Easton v. Strassburger, the court held that a real estate broker has an affirmative duty to “conduct a reasonably competent and diligent inspection of the residential property listed for sale and to disclose to prospective purchasers all facts materially affecting the value or desirability of the property that such an investigation would reveal.” The Easton holding was then codified in Civil Code section 2079, stating that it is the duty of a real estate broker or agent, who has a written contract with the seller to find or obtain a buyer, to a prospective purchaser of residential real property comprising one to four dwelling units to conduct a “reasonably competent and diligent visual inspection of the property” offered for sale and to disclose to that prospective purchaser all facts materially affecting the value or desirability of the property that such an investigation would reveal. The standard of care is the degree of care that a reasonably prudent real estate licensee would exercise and is measured by the degree of knowledge through education, experience and examination that is required to obtain a real estate license. The California Association of Realtors created the Form AVID as part of the TDS for this purpose.

Updated Law 2019

Under current law, a buyer has a right to cancel a purchase agreement at any time prior to delivery of the TDS, or within 3 days after it is personally delivered or within 5 days after it is delivered by mail. This law did not clearly state whether the buyer’s cancellation right could be based on the listing agent’s visual inspection. Commencing January 1, 2019, this law has been updated to indicate that “whenever a TDS is required then the statutory cancellation right adheres to completion and delivery of both the TDS and the listing agent’s visual inspection.” (Cal Civ. Code Sec. 1102.2(c)). However, if the property is TDS exempt, then no statutory cancellation right would attach to the delivery of the visual inspection even though an agent might still be required to complete and deliver one.

Note that the cancellation right is based only upon the completion and delivery of the listing agent’s visual inspection but not on the buyer agent’s visual inspection report. Also, electronic delivery can now be legally relied upon for delivery, therefore the buyer has three days to cancel if the TDS and listing agent’s AVID is delivered in person, or five days if delivered by either by mail or electronically.

Posted on August 1, 2019 at 6:14 pm
Intero | Category: Pivot

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