Realtors have a lot of paperwork they could add to a standard contract. How do you know when, if and how? In most cases, though, transactions will proceed smoothly if riders, addenda and disclosures are introduced earlier rather than later.
If you don’t know already, there are several types of disclosures, riders or addenda that could be used in the course of a transaction. Will you have the same ones in each transaction?
Probably not, as each transaction is unique.
But knowing when a particular disclosure, rider or addendum should be provided in a transaction often depends on the language, aka the law or statute, requiring one party to give information to the other.
Let’s take a look at a few examples of what I mean by breaking down the legal and transactional components.
1. The law: Congress passed the Residential Lead-Based Paint Hazard Reduction Act of 1992 (the Act) to address the need to control exposure to lead-based paint hazards. This federal law required the Environmental Protection Agency (EPA) and the Department of Housing and Urban Development (HUD) to create regulations for disclosure of any known lead-based paint or lead-based paint hazards (LBP) in certain housing—namely, residential housing built before 1978.
Here's what you need to know about this new form, available for use in the event the parties would like to extend certain dates or time periods as a result of COVID-19.
Learn More2. The legal requirements: The Act requires sellers to provide buyers with a lead hazard information pamphlet and disclose the presence of any known lead-based paint and/or lead-based paint hazards in the housing, as well as provide the buyer with any lead hazard evaluation report the seller may have.
In addition, sellers must provide buyers a 10-day opportunity to conduct a risk assessment for the presence of lead-based paint hazards, which can be waived by buyers in writing. Finally, the sales contract must include a Lead Warning Statement and acknowledgment, which should be signed by the parties.
This Lead Warning Statement has several elements:
a) The actual Lead Warning Statement starts with “Every purchaser of any interest in residential real property on which a residential dwelling was built prior to 1978…” This is found in both the rider and addendum to the two types of residential contracts Florida Realtors® has available for members.
b) The second element is the sellers’ statement making the disclosure of any known LBP hazards as well as any available records regarding same.
c) The third element is the buyers’ affirmation of receipt of the sellers’ information above, as well as a copy of the LBP hazard pamphlet.
d) The fourth element is the buyers’ acknowledgment that buyers can conduct an inspection or the buyers’ waiver of the ability to do so.
e) The fifth element is an acknowledgment by the agent that the agent has informed sellers of their obligation to comply with the Act.
f) The sixth and final element is a signature of sellers, buyers and agents certifying that the above information is true and accurate to the best of their knowledge.
3. What does all of this mean in the context of a sales transaction and the use of the LBP rider/addendum? For the agents involved, it’s important to remember that if the home was built before Jan. 1, 1978, you should make sure that the transaction includes the use of the appropriate rider/addendum with the contract.
For the listing agent, it’s a great practice to have the sellers complete their portion of the rider/addendum at the time the listing is taken. Why? In doing so, you can include this as an attachment in the MLS to be submitted with all offers, potentially saving the “back and forth” of getting this form completed.
What do I mean by that? For example, if the buyers submit an offer without this disclosure attached, the sellers will then need to fill out their portion, send it back to the buyers for them to complete their portion, and get a copy back to the sellers. In attaching the sellers’ completed portion ahead of time, a lot of steps can be saved.
For the buyers’ agent, assuming the sellers haven’t completed the disclosure ahead of time, the buyers can submit a blank copy with their offer. However, it’s not recommended that the buyers initial or sign anything on a disclosure that does not have the sellers’ portion already completed. How can buyers acknowledge receipt of sellers’ disclosure when the disclosure hasn’t been given yet?
1. The law: Florida Statute §718.503(2) requires a unit owner who is not a developer to comply with this section of the law prior to the sale of his or her unit.
2. The legal requirements: Buyers are entitled, at the sellers’ expense, to a current copy of the declaration of condominium, articles of incorporation of the association, bylaws and rules of the association, financial information required by 718.111 and the document entitled “Frequently Asked Questions and Answers” per 718.504. In addition, buyers are entitled to receive from sellers a copy of a governance form, which must contain certain information per the statute. Additionally, each resale contract must contain specified statutory language in all caps as laid out in the statute.
Failure to comply with these requirements allows the buyers to void the contract prior to closing. Upon receipt of the above required documents, buyers have three days (not including weekends and legal holidays) in which to cancel the contract.
3. What does all of this mean in the context of a sales transaction and the use of the condominium rider/addendum? It’s important to note that, in addition to the above requirements, the corresponding rider/addendum available for use with Florida Realtors’ sales contracts allows for further information about the association, such as association approval of buyers, right of first refusal, fees and assessments and parking spaces, to name a few.
Similar to the LBP information, it’s a good practice for listing agents to obtain this information from the sellers at the time they obtain the listing or before any sales contract is executed. Why? Again, the provision of the information ahead of time can avoid some of the “back and forth” that can occur when putting a contract together.
While there isn’t a defined time period in which the buyers are to receive the information under the law, once it’s given to them, the three-day cancellation period begins. If buyers don’t cancel within that three-day period, the right to do so ends when the third day ends.
Expediting the time by which the buyers receive the required information from the sellers can save both parties time and money.
1. The law: Florida Statute §163.08 provides that local governments may enter into partnerships allowing for property owners to obtain financing for qualifying improvements, such as energy conservation, efficiency improvement and renewable energy improvement. The local government is able to levy non-ad valorem assessments to the property owner to fund such improvements. This financing is most commonly known as PACE (Property Assessed Clean Energy) financing.
2. The legal requirements: At or before the time buyers execute a contract for sale of any property for which a non-ad valorem assessment has been levied and has an unpaid balance due, sellers shall give the buyers a written disclosure that must contain certain statutory language.
3. What does all of this mean in the context of a sales transaction? Florida Realtors currently has a PACE addendum for members to use when handling a transaction where the property is subject to PACE financing. When taking a listing, the agent should have a conversation with the sellers on a variety of topics regarding the property, including whether or not the property has this type of assessment and if there is an unpaid balance.
Again, obtaining this information at the onset of the listing allows for the listing agent to be able to place the PACE addendum in the MLS in order to avoid some of the “back and forth” during the contract negotiation.
Agents representing buyers can encourage them to check the county property appraiser’s website to learn about this and other assessments that the property is subject to.
These are just a few examples of the potential riders, addenda and disclosures you may encounter during the course of your transactions. As you can see, many of these need to be provided before or at the time the contract is entered into by the parties.
I’ve said it before, but these types of disclosures exemplify yet another instance where taking the time at the beginning to get information together can save some headaches in the end! Good luck! #
Meredith Caruso is Associate General Counsel for Florida Realtors.
