Talking Points: How to Talk to Consumers About the Transaction, Contracts and the Coronavirus

 

Updated on April 1, 2020

UPDATE: On Saturday, March 28, the U.S. Department of Homeland Security Cybersecurity and Infrastructure Security Agency (CISA) updated its list of essential services during the coronavirus (COVID-19) crisis and expressly included residential real estate. Since Governor Newsom’s March 4, 2020 order incorporates this list, the order now includes residential and commercial real estate, including settlement services, as essential services in California. However, if a city or county has an order with a more restrictive standard regarding what qualifies as an essential service, or more restrictions on activities, those guidelines will still govern the activities of a licensee. 

Notwithstanding this new development, all real estate licensees must take into account the health and safety of their clients and fellow licensees, and follow the existing protocols for protecting against the spread of COVID-19. If such health safeguards and protocols are not followed, the rule for the state could easily change to stop or restrict all real estate activity.

To that end, in conformity with current health guidelines, real estate licensees should follow all CDC and local health mandates.

1. No open houses should be held.
2. Showings should be done virtually, if at all possible.

For more information, see C.A.R.'s Guidelines for Best Practices.

Key Talking Points

 

Expanded Talking Points

 

The Residential Listing Agreement and marketing properties

  • A seller’s legitimate concerns about strangers entering their property would most likely be a good faith objection to the Residential Listing Agreement (RLA)

    • You see, the RLA establishes the basic duties of the broker and seller in marketing a property with Paragraph 7A authorizing the broker to market the property by any method, and paragraph 7B states that the seller agree to make the property available for showings, but that obligation is limited by the seller’s duty to act in good faith to accomplish the sale of the property. 

    • Therefore, if a property owner wants limited access to their property, the RLA, the broker’s marketing plan and the right to conduct open houses should be amended and signed by the seller, in writing.

 

Unique coronavirus issues & the real estate industry

  • The more things change, the more they stay the same: Do NOT Discriminate!

    • Fear and anxiety could lead to social stigma and potential discrimination but as REALTORS®, we know, and we’re proud of our obligations under the Fair Housing Act and California’s own fair housing laws and we will not discriminate against any particular segment of the population. 

    • While the coronavirus outbreak began in Wuhan, China, that does not provide a basis for treating Chinese persons or persons of Asian descent — or any person travelling from any other country differently.

    • The Travel Levels and Warnings issued by the CDC can be found at cdc.gov/coronavirus/2019-ncov/travelers/index.html.

    • As we discussed earlier, our brokerages have the discretion to permit their agents to ask screening related questions about travel. Remember, it’s the CDC that advises travelers returning from abroad to monitor their health and limit interactions with others for 14 days after returning from anywhere in the world. 

 

Transactions, contracts and the coronavirus: Domestic

  • The coronavirus has hit the financial markets hard and investors, including many REALTORS®, have investments that lost much of their value — but that does not, in and of itself, provide grounds for a buyer or seller to cancel a contract…

    • Unless said contract is contingent upon that value being maintained. Note, however, that the C.A.R. Residential Purchase Agreement does not contain such a preprinted contingency. 

    • In fact, the contract specifically states — in the last sentence in paragraph 3J(2) — that the buyer’s contractual obligation regarding deposit, balance of down payment and closing costs are not contingencies. 

    • Others are saying that a “force majeure” — or the “Acts of God” clause — allows them the right to cancel a real estate contract in California. But California Civil Code — Section 1511, paragraph 2 — provides that performance of an obligation is excused when it is prevented or delayed by an irresistible, superhuman cause unless the parties have expressly agreed to the contrary. The C.A.R. contract does not have such a clause.

    • What is unclear is whether the extraordinary circumstance surrounding COVID-19 is considered by law a circumstance warranting if not complete failure of performance then at least a delay in performance. 

    •  What is clear, given the uncertainty, is that the buyer and seller are encouraged to discuss alternatives to timely performance and reach a voluntary amendment during this period of state and national emergency, if necessary.  

 

  • Discussing alternatives and finding solutions are also best for proceeding with consumers and their current agreements.

    • COVID-19 is introducing several unknowns into the hearts and minds of consumers who are managing the stress and anxiety typically associated with the real estate transaction. It’s these COVID-19-related situations or asks that are causing postponements to agreements and contracts. 

    • The good news is that REALTORS® are accustomed to helping homebuyers and sellers manage that stress and get to their desired outcomes safely and securely. 

    • For example, in today’s ‘new norm,’ a seller client may want to postpone listing their home for sale. Here are some considerations:

      • If the property is already listed for sale, the broker and the seller can mutually agree to postpone marketing of the property and extend the effective date to a time when the broker would then do what it does best — sell the listed property.

      • If a property is not yet listed, a broker and seller, with written instructions from the seller, can mutually agree to take a listing with a postponed effective date. If the seller wants to begin marketing and listing the property before the initial or extended date has been reached, then a written instruction from the seller to the listing broker will suffice. 

  • Another situation that could postpone the closing is a client who doesn’t want to meet in person to sign documents. The good news is that in California, in-person meetings are not contractually required and documents can be signed electronically. However, some lenders may require that documents be signed and notarized in person and escrow may require a deed also be notarized in-person. Here’s where relationships REALTORS® have with third-party providers, like a notary, can be leveraged. 

  • If they are able to find a notary willing to visit the client at home, ‘new norm’ precautions and good hygiene practices are recommended.

  • Government office closures could also postpone a closing. For example, if a county recorder’s office is closed on the date outlined in the C.A.R. purchase agreement, close of escrow cannot contractually occur. Contract law requires contracts to be interpreted to give effect to the intention of the parties (Civil Code section 1635) and delaying closing while recorders’ offices are closed would appear to be consistent with that intent.  

 

Transactions, contracts and the coronavirus: International

  • California has earned its reputation as a great place for people to live and work, which makes it an attractive location for global investors to park their investment dollars... 

    • And, as such, these deals come with additional duties, responsibilities and challenges. For our purposes, it’s important to note here that these global practices existed prior to — and will exist after — the resolution of the current situation with the COVID-19 virus. 

    • For example, clients who are stranded overseas may need to close escrow and sign closing documents. Now, while some contract requirements can be satisfied through electronic signatures, others, like some lenders we spoke about earlier, may need to be notarized.

    • In these cases, the client will need to go an embassy or consulate in the country where they are stranded and sign those documents in front of a notary.

    • Overseas buyer clients, like their counterparts in the states, must satisfy their obligation to prove they have the funds required to satisfy the contract — as stipulated in the California Residential Purchase Agreement. 

    • An all-cash buyer is required to provide verification of the funds to the seller while a buyer who is obtaining financing is required to provide written verification of the down payment and closing costs. 

    • Ordinarily, money available in a U.S. bank account would be considered adequate to satisfy the buyer’s obligation, but if the buyer’s proof of funds comes from a foreign bank, the seller may consider the ready availability of funds from the foreign account and whether any disruption in the global transfer of funds could delay the transaction. 

    • Now many international buyers purchase rental properties here and hire their REALTORS® to serve as managers of their property or properties. In these cases, California and federal law impose withholding requirements on property managers acting on behalf of a foreign person who owns income-producing real estate. 

    • hese laws are complex and affect the foreign person’s decision on what to purchase and how to hold title. Since I am not an attorney, let me advise that get further information online.

    • wo documents in particular are offered by C.A.R. They are: “Foreign Investor Property Owner Withholding” and “Nonresident Property Owner Withholding” and they can be found online at (https://www.car.org/riskmanagement/qa/landlord-tenant-folder/foreign-investor-property-owner-withholding) and (https://www.car.org/riskmanagement/qa/taxfolder/nonresident-owner-withholding).  

    • Remember, the concerns we just discussed existed prior to — and will exist after — the resolution of the current situation with the COVID-19. 

 
 
 

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