FAQs: Transactional/Legal

Updated March 23, 2020

As the coronavirus situation and associated real estate-related activities continue to rapidly shift, C.A.R. is working diligently with the governor’s office to have real estate classified as an essential service. We are committed to keeping you updated on these vital activities. Continue to visit car.org/coronavirus for the most up-to-date information.

Note: On March 19, Governor Newsom and the State Public Health Officer issued Executive Order N-33-20 requiring all Californians to stay home except as needed to maintain continuity of operations in 16 infrastructure sectors. This supersedes all existing local city and county orders that are less restrictive. The real estate industry is not exempt from this prohibition except as needed to maintain “continuity of operation … of … construction, including housing construction.” Therefore, REALTORS® should conduct as much of their business as possible using virtual means. REALTORS® should cease doing all in-person marketing or sales activities, including showings, listing appointments, open houses and property inspections. Clients and other consumers are also subject to these orders and should not be visiting properties or conducting other business in person.

What unique issues does coronavirus present to the real estate industry?

When an infectious disease, such as coronavirus, is associated with a specific population or nationality, fear and anxiety may lead to social stigma and potential discrimination. REALTORS® must be mindful of their obligations under the Fair Housing Act and California’s own fair housing laws and be sure not to 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 differently.

 

What should I tell clients who are reluctant to hold an open house because they don’t want people coming through their homes?

A real estate licensee should: 

  • Inform a seller that their wishes will be honored.

  • Have an open and honest conversation about the possible impact that limiting access to the listed property could have on the amount of time it will take to sell, the eventual purchase price, and the marketing plan. Discuss feasible alternatives such as three-dimensional interactive property scans, video tours and other methods to virtually tour a property. 

  • Ask the seller to put the instructions in writing, or the licensee should document the discussion and instruction and provide a copy to the seller. 

 

If the broker has a marketing plan and the broker’s right to conduct open houses is an integral part of that marketing plan, that plan should be amended, in writing, following a property owner’s instruction to limit access to the property.  

 

What exactly does the Residential Listing Agreement (RLA) authorize and permit in terms of marketing the property?

Paragraph 7 of the Residential Listing Agreement establishes the basic duties of the broker and seller. Paragraph 7A authorizes the broker to market the property by any method selected by broker, unless seller gives broker written instructions to the contrary. In paragraph 7B, the seller agrees 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. Given the current environment surrounding COVID-19, a seller’s legitimate concerns about strangers entering the property would most likely be a good faith objection to that marketing practice.  

 

If an open house is being held, what types of precautions should be taken? 

If you do hold an open house, consider requiring the following: Ask visitors to disinfect their hands upon entering the home, limit the amount of people in the home, provide alcohol-based hand sanitizers at the entryway and soap and disposable towels in bathrooms. If you decide to do any cleaning at your client's home, be sure to check with your client in advance about any products you plan to use. After the open house, recommend that your client clean and disinfect their home, especially commonly touched areas like doorknobs and faucet handles. 

Can an agent inform their older clients of the Governor’s recommendation to self-quarantine for those aged 65 or older?

Yes. Governor Newsom has suggested Californians take extensive precautions to avoid the spread of the coronavirus including the self-isolation of those aged 65 or over, as well as those with pre-existing conditions. The real estate licensee may bring this issue up with seller clients.  As real estate licensees have a relationship with the community at large, informing sellers who are 65 or over of the self-quarantine guideline provides a service not only to the client but the public.

Can a broker refuse to hold open house or show a property?

Yes. As indicated above, the RLA authorizes the broker to market the property by any method selected by the broker. Given the current environment surrounding COVID-19, it would certainly be reasonable to refuse an open house or show a property. But the broker is agreeing under the terms of the RLA to exercise reasonable effort and due diligence to achieve the purpose of the listing — which is to sell the property. The broker should discuss alternative ways to market the property other than holding the open house. 

Ultimately, a listing agreement employs a broker to sell the property. In both of these scenarios, a disgruntled seller may fire the broker, and then it would be at the discretion of a judge whether the seller had good cause to do so.  

 

May I ask clients at an open house or others I interact with in my real estate business if they have any respiratory illness?  

Yes. It is allowable to ask if the person has a cold, influenza or other contagious respiratory illness. Agents are not required to put themselves at risk. However, such questions must be directed at all clients equally. Otherwise, agents could face claims of discrimination on the basis of ethnicity, national origin, primary language or race. 

 

May I ask clients at an open house or others I interact with in my real estate business if they have recently traveled abroad?

Yes. However, real estate licensees should understand that they are not experts on where such outbreaks are occurring, nor should they be burdened with the task of constantly updating such knowledge. But in light of the coronavirus emergency, it may be reasonable to ask such questions. See the next question on how a screening question policy could be implemented.

Be aware, however, that such questions can lead to discrimination on the basis of ethnicity, national origin, primary language or race.  

 

The U.S Centers for Disease Control and Prevention (CDC) has issued Level 3 Travel Warnings for all of China, South Korea, Iran and most countries in Europe, and a Level 2 Travel Alert for all other countries. How does this fact impact a REALTOR®’s ability to inquire into a client or customer’s travel activity?

The CDC’s Travel Health Notices have two components. First, a Level 3 Health Warning advises against all non-essential travel. Secondly, for travelers returning from a Level 3 country, the CDC advises that a person stay home and avoid contact with others, and to not go to work or school for a period of 14 days. Here is the CDC link for travelers. A Level 2 Alert advises returning travelers to “limit contact with others and monitor your health for 14 days.” (Even a Level 1 Watch advises a returning traveler to “Pay attention to your health … for 14 days after you leave.”) 

 

Given the federal agency’s documented advisories, a real estate licensee would not be exposed to a fair housing violation if the licensee relies on the most up-to-date information from the CDC before asking clients if they have traveled within the last 14 days to an affected country. The brokerage has discretion to permit its agents to ask this type of question.

 

Presently, the CDC’s Level 2 Alert is a global warning. Travelers returning from any country abroad are advised to monitor their health and limit interactions with others for 14 days after returning to the United States. 

 

I typically drive my clients to showings. May I refuse to drive potential clients to see homes?

Yes. However, be sure that any change to your business practices is applied equally to all clients. You may refuse to drive clients who show signs of illness or reveal recent travel to areas of increased risk of the coronavirus (see the above three questions), or you may decide to stop driving clients in your car altogether and simply arrange to meet clients at a property. If you do continue to drive clients in your car, it is a good idea to frequently clean and disinfect surfaces like door handles and seatbelt latches, and to ask clients to use hand sanitizer when getting in and out of the car. 

 

What are my client’s disclosure obligations if someone in the home tested positive for coronavirus?

It is unlawful to discriminate against persons with disabilities, and disclosure of a person’s status of being afflicted with a disability is not permitted without that person’s consent. However, it is unclear if testing positive for COVID-19is a disability. Disabilities are not typically associated with a contagious disease that generally affects the afflicted person for a temporary amount of time and is easily spread by contact with surfaces or through airborne molecules that can live for hours at a time. If the seller is willing to reveal that they have tested positive, then discuss the timing of the situation. For example, if the property is listed for sale but not yet sold, maybe it is advisable to postpone activity on the listing until the person testing positive has been medically cleared and potentially extend the listing period for the length of time of the postponement. After the medical clearance, a thorough cleaning of the property should help put visitors and prospective buyers more at ease. If the property is currently in escrow, and scheduled to close, the seller may not be able to vacate because of the person living in the home who has tested positive. In that case, disclosure may help explain why the property owner is requesting an extension or the right to remain in possession following close of escrow.  

 

What do I tell a client whose stock portfolio lost substantial value and who wants to back out of a transaction because he no longer has the funds? What are the buyer’s obligations? What are the seller’s obligations?

The loss of value in a stock portfolio does not, in and of itself, provide grounds for a buyer or seller to cancel a contract unless the contract is contingent upon the value being maintained. The C.A.R. Residential Purchase Agreement does not contain such a preprinted contingency. If a buyer was relying on the stock portfolio to provide the needed down payment or closing costs, the opposite is true. The last sentence in paragraph 3J(2) specifically states that the buyer’s contractual obligation regarding deposit, balance of down payment and closing costs are not contingencies.  

Some people have heard of something called a “force majeure” clause. These clauses can limit a contractual obligation, or otherwise, based on “Acts of God.” However, 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. “Force majeure” or “vis major” is not necessarily limited to the equivalent of an act of God, but the test is whether under the particular circumstances there is such an insuperable interference occurring without the party's intervention as could not have been prevented by prudence, diligence and care (Pacific Vegetable Oil Corporation v. C. S. T., Ltd. (1946) 29 Cal.2d 228, 174 P.2d 441). While ordinarily, a drop in value in the stock market, be it dramatic or mild, would not excuse failure to perform, the extraordinary circumstances surrounding the coronavirus outbreak may be considered a circumstance warranting if not complete failure of performance then at least delay in performance. 

 

Given the uncertainty, buyer and seller are encouraged to discuss alternatives to timely performance and reach a voluntary amendment during this period of state and national emergency.  

 

What should I tell a client who wants to postpone listing their home for sale?

If a property is not yet listed, a broker may take a listing with a postponed effective date with written instructions from the seller. C.A.R. form SELM can be used for this purpose. In that form, paragraph 8C can be checked and a future date can be inserted in the blank fields. If the COVID-19 scare is not over by that date, then the broker and seller can agree to extend that date to another specific future 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 to the listing broker will suffice. If the local MLS has already adopted the NAR Clear Cooperation Policy, then the seller must be informed that the property will be submitted to the MLS within one business day of any public marketing of the property.  

If property is not yet listed, another option is to enter into a listing agreement with a future effective date. However, if the seller sells the property prior to that date, then the broker is not entitled to any compensation since the contact has not become effective. And, in such a circumstance the listing agreement may not even become binding on the delayed effective date since the seller no longer owns the object of the listing.  

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. While paragraph 3A(3) of the residential listing agreement (C.A.R. form RLA) provides that the broker is entitled to compensation if the seller unilaterally withdraws the property for sale or makes it unmarketable, proceeding on such a clause in the current environment is risky. The best approach would be to seek a mutual agreement.   

 

A client is closing escrow but doesn’t want to meet in person to sign documents. What can she do?

Unlike on the East Coast, in-person meetings are not contractually required in California. However, lenders may require that documents be signed and notarized in person and escrow may require a deed be notarized in person. If those matters still need to be addressed, it is possible to have a notary visit the person at home in order to minimize contact with outsiders. Good hygiene practices are recommended for any visitor.   

 

My county recorder’s office is closed due to the coronavirus. Will my transaction close?

Your transaction will not close as scheduled. In this circumstance, it is unlikely that either buyer or seller will be considered in breach. If for no other reason, the date upon which escrow is supposed to close is defined by the purchase agreement (C.A.R. form RPA) excludes Saturdays, Sundays and legal holidays, and shall instead be the next non-excluded day. The clear implication is that Close of Escrow cannot contractually occur on a date the recorders’ office is closed. 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, at least for a reasonable period of time.  

 

I have a client who is stranded overseas who needs to close escrow and sign closing documents. How do I handle this?

Contract requirements can be satisfied through electronic signatures. If a deed or loan document needs to be notarized, then the client may need to go to an embassy or consulate in order to sign those documents. If those offices are closed, buyer and seller, through their agents, should make efforts to reach a mutual extension or cancellation.  

 

How might tax withholdings for foreign transactions be affected by the coronavirus outbreak?

Under FIRPTA, buyer of property (both residential and non-residential) in the United States is required to withhold from the seller’s proceeds either 10 or 15 percent of purchase price and forward to the IRS if the seller is a foreign person, unless an exemption from withholding applies. One way to avoid withholding is for the seller to provide an affidavit stating both the seller’s social security (or taxpayer ID) number and a statement that the seller is not a foreign person. C.A.R. form AS, Seller’s Affidavit of Non-Foreign Status (FIRPTA), can be used for this purpose. The form, like other contractual documents, may be signed electronically and therefore should not be impacted by whether the seller is under mandatory quarantine, self-quarantine or social distancing. The statement can be provided directly to the buyer or to a title company acting as a “qualified substitute” who would then provide their own affidavit to the buyer.  

If the seller does not or cannot provide the affidavit AND the property is sold for $300,000 or less AND the buyer intends to owner-occupy, then the buyer can complete their own affidavit to that effect and avoid withholding. C.A.R. form AB, Buyer’s Affidavit, may be used for this purpose.  

 

How does a buyer overseas prove they have the deposit, down payment, closing funds, etc.?

An all-cash buyer is required to provide verification of the funds to the seller. See California Residential Purchase Agreement (C.A.R. form RPA) paragraph 3C. A buyer who is obtaining financing is required to provide written verification of down payment and closing costs. See California Residential Purchase Agreement (C.A.R. form RPA) paragraph 3CH. Seller has the right to disapprove of the buyer’s verification. See California Residential Purchase Agreement (C.A.R. form RPA) paragraph 14D(2). Ordinarily, money available in a U.S. bank account would be considered adequate to satisfy the buyer’s obligation. Very often the letter from the buyer’s lender demonstrating prequalification or preapproval of the stated loan includes a verification of the down payment or closing costs. Unless the seller has reason to be suspicious of the lender, that letter is typically adequate verification. 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 will delay the transaction. These concerns existed prior to and will exist after the resolution of, the current situation with the novel coronavirus.

 

My foreign buyer client is purchasing rental property that I will be managing. What are the withholding requirements?

California and federal law impose withholding requirements on property managers acting on behalf of a foreign person who owns income-producing real estate. These laws are complex and affect the foreign person’s decision on what to purchase and how to hold title. These concerns existed prior to and will exist after the resolution of, the current situation with COVID-19.See C.A.R. Legal Q&As titled: “Foreign Investor Property Owner Withholding” and “Nonresident Property Owner Withholding” for further information.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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