Sellers Advisory

Table of Contents

GENERAL INFORMATION FOR BUYERS AND SELLERS OF RESIDENTIAL REAL PROPERTY IN SAN FRANCISCO (DISCLOSURES AND DISCLAIMERS ADVISORY

This Advisory contains important information regarding the purchase of real property located in San Francisco. The information in this Advisory will change over time, new issues will develop, and laws and regulations will change at the federal, State, or City and County level. Where available, links to government websites are provided to allow Buyers    and Sellers to update themselves as to any such changes.

Some of the issues that are covered in this Advisory are point­of­sale requirements, or retrofit requirements that may    also be triggered by remodeling efforts or efficiency requirements. In addition, there are many laws, regulations and ordinances which may impact Buyer’s plans for remodel, expansion or change of use after the purchase, which are too detailed to be covered in this Advisory. Buyers should be aware of the fact that the apparent or current use of a property  is not a guarantee that such use complies with applicable laws, including zoning ordinances. Buyers must investigate the applicability of these requirements to the past, present and future sale, purchase, ownership, use and/or development of the Property.

Buyers must bear in mind that a Property may contain defects and deficiencies of which neither Sellers nor Brokers are aware. Buyers should also recognize that not all issues or conditions can be objectively determined ­ even by professional investigations. Further, some issues can have varying impacts on different people since some people may be more sensitive than others to certain factors such as sounds and odors.

Although licensed to list, sell and lease real estate, Brokers may not have expertise on any or all of the topics discussed in this Advisory. Given Buyer’s legal duty to exercise reasonable care to protect themselves regarding facts that are known to or within the diligent attention or observation of a buyer, Buyer is urged to investigate, without limitation, (a) all public records which may affect the Property; (b) neighborhood conditions which may affect the Property; (c) the items detailed in this Advisory; (d) the condition of the foundation, roof, plumbing, heating, air conditioning, electrical, mechanical, energy/water efficiency, security, appliances/personal property, pool/spa, and all other systems and components of the Property; and (e) all laws, regulations, and ordinances that may affect Buyer’s intended use or development of the Property. The items and issues identified in this advisory may impact the value or desirability of the Property. Broker will not be investigating these issues for Buyer,   unless agreed to in writing.

The San Francisco Association of REALTORS® does not warrant or guarantee the accuracy of the information contained in this Advisory or the adequacy of the information as it relates to a specific real property transaction. Any representations about the issues in this Advisory made by third parties have not been verified by Brokers and need to be independently confirmed by Buyer.

A. GENERAL ADVISORIES

Local law requires that owners of one or more dwelling units obtain and deliver to Buyers a Report of Residential Building Record (“3R”) prior to selling the Property. The Records Management Division of DBI will issue a 3R upon request using the following online order form: www.SFARforms.com/3R. The fee for the report is shown on the form. The time to produce the report can be several weeks.

Seller is advised to instruct their Broker/Agent to order a 3R report on their behalf as soon as the Listing Agreement is signed. Review and approval of the 3R by the Buyer is a condition of the Purchase Agreement.

The body of the report purports to list all building permits for the Property, dating back to the original construction. However, if the original construction was prior to the April 1906 earthquake, that permit will not be shown, as the Building Department lost its records in the fire which followed. The 3R report does not include permits for electrical or plumbing work. Those DBI departments maintain their own permit history.

The codes on the line items are explained on the second page of the report. Note, however, that all permits prior to 1950 will show as ‘N’ (New), rather than ‘C’ (Completed), as the City did not issue Job Cards or record the Final Completion of permitted work prior to that time. The report also shows the Original and Current Permitted Use of the building, as an “n­Family Dwelling.” The Current Permitted Use shown on a 3R has more credence with the Planning Department than the Assessor’s records for the Property. If the Permitted Use is missing or “Unknown,” Buyer should contact the Planning Department and inquire whether or not this can be corrected or otherwise addressed prior to removing Buyer’s inspection contingencies.

The accuracy of 3R reports is less than 100%, as records have been lost, misfiled, or not copied accurately over the years. If the existence or absence of a particular permit is important, then Buyer should retain a qualified permit researcher to investigate further. The 3R report is not a guarantee that the work performed under any of the listed permits was done in compliance with applicable laws. Therefore, Buyer should conduct his or her own investigation regarding such work.

B. REPORT OF RESIDENTIAL BUILDING RECORD (“3R”)

Local law requires that owners of one or more dwelling units obtain and deliver to Buyers a Report of Residential Building Record (“3R”) prior to selling the Property. The Records Management Division of DBI will issue a 3R upon request using the following online order form: www.SFARforms.com/3R. The fee for the report is shown on the form. The time to produce the report can be several weeks.

Seller is advised to instruct their Broker/Agent to order a 3R report on their behalf as soon as the Listing Agreement is signed. Review and approval of the 3R by the Buyer is a condition of the Purchase Agreement.

The body of the report purports to list all building permits for the Property, dating back to the original construction. However, if the original construction was prior to the April 1906 earthquake, that permit will not be shown, as the Building Department lost its records in the fire which followed. The 3R report does not include permits for electrical or plumbing work. Those DBI departments maintain their own permit history.

The codes on the line items are explained on the second page of the report. Note, however, that all permits prior to 1950 will show as ‘N’ (New), rather than ‘C’ (Completed), as the City did not issue Job Cards or record the Final Completion of permitted work prior to that time. The report also shows the Original and Current Permitted Use of the building, as an “n­Family Dwelling.” The Current Permitted Use shown on a 3R has more credence with the Planning Department than the Assessor’s records for the Property. If the Permitted Use is missing or “Unknown,” Buyer should contact the Planning Department and inquire whether or not this can be corrected or otherwise addressed prior to removing Buyer’s inspection contingencies.

The accuracy of 3R reports is less than 100%, as records have been lost, misfiled, or not copied accurately over the years. If the existence or absence of a particular permit is important, then Buyer should retain a qualified permit researcher to investigate further. The 3R report is not a guarantee that the work performed under any of the listed permits was done in compliance with applicable laws. Therefore, Buyer should conduct his or her own investigation regarding such work. 

C. PERMIT ISSUES

Some improvements to property such as repairs, remodels and additions may have been done without a required permit. One such example would be where an additional living unit (an “in­law”) is being rented by the Seller but the required permits were not obtained for it. An improvement that is made without the required permit can, among other things, have a negative impact on value, lending or appraisals; require a retrofit; impact habitability; preclude insurance coverage; and result in fees, penalties, and government and/or civil enforcement actions.

There are also significant restrictions affecting an owner’s right to construct or improve garages in San Francisco. Therefore, if Buyer intends to build a garage or alter an existing one, Buyer is strongly advised to consult a qualified architect, engineer and/or contractor before removing any inspection contingencies. 

D. NONCONFORMING ROOMS, ALTERATIONS OR ADDITIONS

Buyers are advised that any rooms, alterations or additions to the Property that were made or constructed without necessary permits or certificates of completion (“nonconforming improvements”) may be subject to fines, permit costs, construction costs and other expenses to bring into conformity. In some cases, nonconforming improvements may be subject to tenants’ rights, and/or removal by local building inspection and code enforcement agencies. Nonconforming rental units may be required to be vacated and possibly removed. It might not be possible to legalize such nonconforming improvements because of zoning or permit issues and/or other legal or regulatory limitations. San Francisco Department of Building Inspection and code enforcement agencies may conduct random inspections of properties for permit, code and other violations while the Property is being marketed. Such nonconforming improvements may also be discovered when anyone applies for a new permit to do work on the Property. Whenever nonconforming uses are discovered, the current owner could face expensive repairs, permit fees and other costs and/or even removal of the nonconforming improvement.

While Sellers are obligated to disclose any known nonconforming improvements, the Seller may not be aware of some or all illegal improvements or uses, especially those that were made prior to the Seller’s ownership of the Property.

Current City policy and practice favors requiring homeowners to legalize “illegal” units where feasible, possibly at significant expense to the owner, and with consequences to the owner’s rights to use and occupy the property in accordance with local rent and eviction control laws and policies. The City may investigate prior occupancy; and where evidence of prior occupancy of an “illegal” unit is discovered the City may require restoration and the legalization of the unit.

In addition, real estate Brokers and agents are not required by law to inspect public records and cannot determine the legal status of improvements based solely on their required visual inspection of the property. For these reasons, Buyers are strongly urged to investigate possible nonconforming improvements by contacting the local building inspection and code enforcement agencies as well as obtaining the advice of contractors, architects, engineers or other professionals regarding the status and condition of the Property prior to removing inspection contingencies. 

E. CODE COMPLIANCE AND ENFORCEMENT

Under the Rent Ordinance, a Seller of real property who continues to occupy the property after the close of escrow may acquire tenants’ rights, which may make it difficult for the Buyer to recover possession of the newly purchased property if a dispute arises before the Seller vacates. If Buyer is considering whether to allow Seller to occupy the Property after the close of escrow, Buyer is urged to consult with a qualified California real estate attorney who specializes in landlord/tenant issues in San Francisco to assess the risks and benefits of such an arrangement.

F. SELLER OCCUPANCY AFTER CLOSE OF ESCROW

Under the Rent Ordinance, a Seller of real property who continues to occupy the property after the close of escrow may acquire tenants’ rights, which may make it difficult for the Buyer to recover possession of the newly purchased property if a dispute arises before the Seller vacates. If Buyer is considering whether to allow Seller to occupy the Property after the close of escrow, Buyer is urged to consult with a qualified California real estate attorney who specializes in landlord/tenant issues in San Francisco to assess the risks and benefits of such an arrangement.

G. TENANCIES-­IN-­COMMON (TICs)

A Tenancy­in­Common (TIC) is a form of ownership in which all of the owners of the Property (the “co­tenants” or “tenants­in­common”) own undivided interests in the entire property, in percentages set forth in their respective deeds. By agreement, the owners may assign to one another specific occupancy and other rights. Usually, all of the owners are fully liable for the mortgage, unless each owner has secured an individual loan for their TIC interest, and the mortgage generally cannot be modified without the consent of the lender and all of the owners. These are extremely complex relationships requiring, among other matters, a carefully written TIC agreement setting forth the rights and responsibilities of all of the owners, including rights of exclusive occupancy of specific units, parking or storage spaces, financial obligations, restrictions on use, use of common areas, restrictions on subsequent sales and dispute resolution mechanisms. Brokers are not qualified to review and analyze TIC agreements. Prior to purchasing a TIC property, Buyer is strongly urged to seek the advice of a qualified California real estate attorney to review any existing TIC agreement, and to otherwise advise Buyer regarding the nature of this unique form of real estate ownership in general, and specifically this particular TIC arrangement. See SFCA form TICFD­SF. 

H. SQUARE FOOTAGE DISCLOSURE

Measurements of a property vary from source to source and often conflict. There is no official source and no agreed upon method of calculation. For instance, appraisers often include the thickness of exterior walls; surveyors of condominium units typically measure the space between interior walls and around obstructions, such as fireplace flues; and floor­plan designers employ a wide variety of methods. Tax records are often out of date and may fail to reflect various structural modifications. Measurements may or may not include some ‘finished’ or ‘unfinished’ space and may not make a determination of the ‘legality’ of the space. Different sources of building or interior square feet can include the following: the San Francisco Assessor’s tax records, condominium maps or plans, floor plans by graphic artists, architectural drawings and appraisal diagrams.

Buyers may perform their own measurement prior to entering into a contract or during their due diligence contingency period. Any figures which quote a “price per square foot” for properties are broad estimates only, and the accuracy of any such figures should be independently verified by Buyer. 

I. WATER HEATERS

Under State law, all water heaters must be braced, anchored or strapped to resist falling or horizontal displacement due to earthquake motion, and a Seller of Property must certify to a Buyer that the bracing requirement has been satisfied. In addition, water heaters which are newly installed or moved must be raised so their ignition point is 18 inches off the ground. Many other plumbing code requirements may also apply, e.g., gas venting, pipe wrapping, temperature and pressure relief valves, drain valves and bollard protection in garages.

J. SMOKE AND CARBON MONOXIDE DETECTORS

California Health and Safety Code §13113.8 and San Francisco Ordinance 386‒84 require smoke detectors in residential property. If a TDS is required, the Seller certifies that the Property has (or will have prior to Close of Escrow) operable smoke detectors which are approved and installed in compliance with the State Fire Marshal’s regulations and applicable local standards. In addition, DBI requires smoke detectors in all bedrooms of residential property before it will issue a Certificate of Completion for any permitted contracting work costing $1,000 or more. 

State law requires carbon monoxide detectors in living areas for all residential properties that have fossil fuel burning appliances, even if those are several floors below, such as furnaces in the basement of a condominium building.

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