A New Reality – Temporary or Permanent – Virtual Showings and Disclosure Issues

With the way shelter in place orders have been drafted, many properties can only be shown virtually. There are express restrictions to showing some properties that are occupied. This naturally creates a potential liability issue for sellers and agents. Today we look at the potential issues created by virtual showings.

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A New Reality – Temporary or Permanent – Virtual Showings and Disclosure Issues
By: D. Keith Dunnagan, Esq.

As the COVID-19 pandemic changes the way business is done, it is most certainly having an impact on how the residential real estate transaction is completed. A critical point of the transaction is the ability of the buyer to walk the property, inspect and make determinations of quality and fitness of a home for the buyer’s family. With current shelter in place orders affecting the business cycle, real estate, like all other businesses are adapting to this new reality.

Economic disruptions have a tendency to change the way certain industries work. One of the critical changes is the rise and more prevalent use of virtual showings as a mechanism to give potential buyers more access and opportunity to view homes of interest. While the use of virtual showings is a near necessity to maintain continuous operations in today’s climate, there are risks that must be addressed in order to fulfill the disclosure duties to the buyer. Further, virtual showings will likely remain a significant and critical part of the marketing of a property. As people become more savvy and reliant on technology, the ability to provide on demand tours of a property will be a must.

The law requires that the seller and/or agents must disclose all known material defects that affect price and desirability of property. Further, under California Civil Code Sec. 2079 brokers and salespersons have a statutory duty to “conduct a reasonably competent and diligent visual inspection of the property…and to disclose to that prospective buyer all facts materially affecting the value or desirability of the property that an investigation would reveal…”. Under normal circumstances, certain things may be left out of disclosures if the defects are open, notorious and obvious. Say for instance, a driveway that is buckling because tree roots have compromised the concrete or the musty smell of a crawl space that is damp. While there is an obligation to disclose the defects, the potential liability arising from a failure to disclose can be tempered when the defect is within the common perception of the buyer, that is the defect if obvious and easily viewable.

The disclosure obligations at some level is based upon the buyer’s subjective determination of what is or is not material. In assessing the elements one of the critical components is if the buyer had known of the defect would they have continued with the purchase of the property. This allows the buyer to control at some level what they believe is material and ought to be disclosed during the transaction of a home they are buying. This makes sense because for many, the single largest purchase they will ever make is their home.

The question presented with virtual showings is how are defects to be presented to prospective buyers as required by the law. Smells and touch (the soft wall from water damage) that a buyer can normally perceive while walking the property will not be available during a virtual showing. Further, the discoloration on the wall, or around the windowsill, of change in texture style from a repair job, while perceptible to the human eye, may not be perceptible through the video camera lens that may be filtered. The natural tendency with a virtual showing is to focus on a properties positive attributes while minimizing the negative attributes, because let’s face it, the reason the property is on the market is because the seller wants to sell the property and people gravitate towards the positive features. Without the ability for the buyer to perceive and view the property how can they determine what the positives and negatives are. Consequently, the disclosure component, the TDS, the SPQ, the AVID and the home inspection become far more critical. Further the education related to the Buyer Inspection Advisory and inspections that should be completed including, well and septic, roof, foundation and others that may have been overlooked in the past because a buyer could visualize the property themselves becomes more important when the buyer cannot perceive with their own two eyes.

Going forward, one thing is for sure, with the use of virtual showings, the importance of disclosures will increase. Any hint of impropriety will raise concerns over the veracity of the disclosures and the first thing enterprising plaintiff’s lawyers will do is subpoena the video of the virtual showing and the MLS records to see what was actually shown to the buyer. Video always makes for compelling evidence because the jury sees exactly what the buyer saw when purchasing the property and allows that jury member to put themselves in the shoes of the buyer knowing what was viewed and what the result actually was.

Until the law has a time to sort out the use of virtual showings and the disclosure requirements related to the use of the virtual tours, be on the cautious side. Take extra time and be extra mindful of what the buyer is seeking and make sure to disclose, disclose, disclose any known defect.

As we always say, if you find yourself asking whether or not you should disclose something, you should absolutely disclose.

The information contained in this article is for informational purposes only and not to be construed as legal advice. If you have questions, you should seek competent legal representation to assist you.

The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in probate, business and real estate matters and have represented and advised brokers on their professional obligations as well as consumers on their rights. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at kbdunnagan@bpelaw.com. Our flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.