COVID-19 has brought a great deal of challenges to the real estate industry. Keeping up with exactly what forms should be used in transactions is one of those challenges. Keeping up-to-date with changes to the forms and guidelines as they evolve during the pandemic is another.
There are risks today that never existed before in the real estate industry. In this webinar, Mark Carlson, attorney from Carlson Law Group and Dave Miller, Regional Vice President with Fidelity National Home Warranty, cut through the confusion. They take this complex topic and break it down into easily digestible pieces of information which can help your real estate business stay on track during the pandemic.
This comprehensive and informative session covers:
- An overview of the current CAR forms and when you need to use them
- Best practices for real estate professionals during the pandemic
- Changes to Posted Rules of Entry
- Dealing with COVID-related closing delays
- How to document the sellers’ wishes about what is and is not allowed in the showing of their properties
- Other potential risks and issues you may face in the course of real estate transactions during the pandemic
Watch the full webinar, listen to the podcast, or read the transcript below:
Laura Prouse: Thanks for joining us today for COVID forms and best practices in a COVID world. I’m Laura Prouse with CRES Insurance Services. Today we’re welcoming attorney Mark Carlson from the Carlson Law Group. Mark has been defending real estate professionals since 1993, and has worked with CRES for over 20 years as a founding member of our legal panel. Along with Mark, we have Dave Miller, regional vice president with Fidelity National Home Warranty. Dave manages the CRES advantage home warranty plan. (When CRES real estate E&O members provide a Fidelity Home Warranty to their sellers, it includes $25,000 in Seller’s E&O protection).
Dave Miller: Mark, what coronavirus forms has CAR released to help real estate professionals transact business during this pandemic?
Mark Carlson: So far, we’ve got forms that sort of break down into a few different categories.
Listings, Home Showings, and Office Opening Forms
The first category of forms covers listings, how to conduct showings of a house, and office openings with general rules.
- The RLACAA is the Residential Listing Agreement Coronavirus Addendum or Amendment. That’s an important form for a listing agent, because the form makes the sellers commit to what’s going to be allowed or not allowed in showing their property.
“I’m going to allow people in there without masks. No, I’m not going to allow people in there, unless they have a mask. I’m going to allow one showing a day. I will allow multiple showings a day.”
The current regulations are that you have to stagger showings — you can’t have more than one buyer in at a time. But that’s where the sellers can dictate what’s going to be allowed and not allowed within the house during the listing marketing period, so there’s no ambiguity.
- For entry, there’s the BPPP form, which is the Best Practices and Guidelines and Prevention Plan.
- The PRE is the Posted Rules of Entry.
The forms can be used by real estate brokers to adopt an official policy. As most people will agree that Cal/OSHA doesn’t have jurisdiction over real estate agents, brokers need to be careful about not creating or adopting an internal standard of care that can be used against them. So, we can always argue, ” I know that’s what Cal/OSHA recommended or the California Department of Public Health recommended, but that really isn’t the standard. Here’s what the industry was doing.”
However, if a particular real estate brokerage adopted all of those recommendations within a policy and procedure manual, now that policy and procedure manual for sure would be able to be used to establish the office standard of care. So, CAR is recommending that the broker sign the BPPP, and I would agree with that as long as that’s all you do or the brokerage does.
The purpose of the BPPP and PRE forms was that Cal/OSHA, along with the California Department of Public Health, has been releasing industry guidelines for practically every industry segment. Because real estate licensees in California are statutorily defined as independent contractors, Cal/OSHA really hasn’t stepped into the real estate field in the past.
We may question whether Cal/OSHA has jurisdiction over these matters. But since the California Department of Public Health joined in the issuance of the “COVID 19 Industry Guidance: Real Estate Transactions” (that’s the name of the brochure), the Department of Public Health most likely does have jurisdiction over how real estate agents and brokers conduct themselves.
The BPPP and the PRE forms really just mirror what recommendations and guidance are included within the brochure. It governs things like how to conduct an open house, clean between showings, don’t touch handrails, don’t sweep to stir up the air, and just sort of the nuts and bolts on how to conduct the showings.
For the actual showing of properties, you have to have the posted rules of entry (PRE). That’s been changed to be a little more inclusive of recommendations on what you’re supposed to do while you’re at the property.
Moving along to, “Now I’ve got somebody that actually wants to see a property,” there’s been an evolution in the forms that CAR has released.
- First, it was just the PEAD, the property entry advisory and declaration. “I declare I don’t have symptoms. I declare I haven’t been around somebody that has symptoms. I understand that entering into a house imposes some sort of risk. I’m going to wear a mask,” things of that nature.
- Then, CAR realized there are different situations. “We have sellers who may be going into a property, or they may just want to dictate what other people can do while they’re on their property.” Now there’s the PEADS, which is designed just for a seller to sign before people come into a property.
- There was a question about, “Who could be on a property?” And different jurisdictions have different rules, so CAR created the PEADV for visitors form. That’s meant to be used by home inspectors, appraisers, and people who are there to do a particular job.
- Then, CAR released the PEADLR, which is intended to be used in a lease situation.
None of these are legally mandated forms ̶ you don’t have to use them. According to the Industry Guidance: Real Estate Transactions brochure by OSHA and the Department of Public Health, you have to give the warnings that are included within those documents, but you’re not obligated to actually use the documents. They’re very convenient and are being updated by CAR regularly, so I would recommend that you use them. But if an office has an in-house attorney that has other recommendations (as long as the content of what’s required by OSHA and the Department of Public Health is still covered), that would be sufficient.
Now you’ve had a showing, and you’ve got a buyer who’s interested in making an offer on a property. CAR has created a handful of forms that are meant to deal with contract performance.
- The CVA or the Coronavirus Addendum (and CVALR for leases). This form is optional, but we see that a lot of licensees are using it in every transaction, and that’s not what it was meant to be used for. The Coronavirus Addendum says, “We recognize there may be delays. The appraiser may be delayed, the home inspection may be delayed. My loan may be delayed.”
- If there’s a delay that’s caused specifically by something related to COVID, then we issue another form called the NUCC, the Notice of Unforeseen Coronavirus Circumstance (or the NUCCLR for leases). Then, we will agree on what to do at that particular point in time.
The CVA has language that might be used to say that if a circumstance came up appropriately, that both sides have the right to cancel. Then, there’s another part of the form that really doesn’t specifically say that. It says, “We will agree and figure out what we’re going to do. Maybe we’ll extend the close date if that solves the problem. If we can’t solve the problem after the extension of closing, then we’ll revisit whether or not we want to cancel.”
So the CVA creates a bit of ambiguity in a purchase contract. It should be gone over with a seller and a buyer when an offer is presented — as to whether or not that seller or buyer want it to be used.
- If you’re representing a buyer, you might use it because you want to give your buyer some wiggle room, if there’s a problem down the road.
- If I’m representing the sellers, I might tell them, “Let’s not use that form, because we want to be able to get this deal closed, and we don’t want to create ambiguity.”
To paraphrase what the CVA says: “During the course of the performance of the contract, there might be something that comes up related to COVID that makes it either impossible for me to perform or makes it difficult for me to perform. In that case, here’s what we’re going to do . . . “
- Let’s say for example, I can’t get an appraiser out. Then, we’re going to agree to extend the close date 30 days, so I’ve got more time to get the appraiser.
If there’s something that does comes up, that’s when you use the NUCC (for sales) or the NUCCLR (for leases). That’s a form where the buyer (or tenant) would say, “Here’s what happened. Here’s the circumstance that arose as to why I can’t close or why I need more time to close.” Then, the buyer or hopefully the seller would agree with the circumstance and allow for more time, or both parties would cancel.
But you could read the CVA to say, just because the buyer or the tenant submits an NUCC, the seller can say, “Well, I don’t think that’s sufficient cause, and I’m going to refuse to do anything.”
That’s where the ambiguity can create some conflict in certain circumstances. As an example, let’s say that I’m a buyer, and I just can’t get the kind of loan that I want. Maybe I just don’t like the loan that I have, or that I was qualified for or approved for, and so I’m going to send in the NUCC.
- The seller could say, “No, sorry. If the terms of the loan that you were approved for meet the specifications in the purchase contract, you still have to purchase.”
On the flip side, let’s say that the buyer loses his job or her job, and can’t qualify for a loan at all. Then the buyer would submit the NUCC explaining the loss of the job. That would be a circumstance where the buyer and the seller would then have to either see if an extension can solve the problem or whether it just needs to be canceled.
CAR Guidelines versus OSHA/Department of Public Health
Dave Miller: You mentioned earlier that OSHA and the California Department of Public Health have now released the brochure, COVID-19 Industry Guidance: Real Estate Transactions. What’s required under these guidelines? And are they different from the best practices we’ve all been hearing about?
Mark Carlson: Initially, you had for example, the city of Los Angeles, that said, “You can only show properties under these specific circumstances. You can’t do open houses unless the property is vacant or unoccupied.” So Long Beach said “unoccupied” (which could mean you just got somebody out of the house), whereas the City of Los Angeles said “vacant,” meaning nobody is living there.
So this ambiguity was floating through all the different county and city local ordinances. The CAR tried to get its hands around all these different rules by talking about best practices, and it was giving guidance as things were unfolding.
When Cal/OSHA and then the California Department of Public Health released their industry guidelines for real estate transactions, the BPPP form was created by CAR. That basically took those suggestions, requirements, and recommendations and incorporated them into a form.
So there really is no difference between the concept of best practices and what’s required under the COVID-19 Industry Guidance: Real Estate Transactions brochure.
- Ad long as the BPPP form and the PRE, the Posted Rules of Entry, are used (at least as of today), you’re going to be in compliance with the guidelines set by Cal/OSHA and the Department of Public Health.
PPE, cleaning supplies – who pays and who’s responsible
Dave Miller: The Posted Rules of Entry. How does that work with the agents and the use of PPE, and even the PEAD form?
Mark Carlson: PPE (personal protective equipment) is touched upon in both the BPPP and the PRE. Both say, “We have to have hand sanitizer at the property. Some people have to wear masks. There has to be cleaning equipment there to be able to clean between showings.”
The guidelines basically say, “Buyers that come in, visitors that come in, you have to be wearing a mask at this point in time.” So the question is, what if they don’t have a mask? Now, either the listing agent or the selling agent (who’s there with his/her clients) has to figure out how to get that particular visitor a mask to be compliant with the industry guidelines for real estate transactions.
There isn’t a directive as to whether it has to be the listing agent or whether it has to be the selling agent. I think the safest thing for all real estate licensees to do is to have some PPE with you, have masks. Early on, there was a requirement of slippers, boot coverings, shoe coverings, and gloves. That’s since been amended out of the Posted Rules of Entry form.
At this point, there just have to be cleaning materials there to be used. They don’t have to be posted at the front door, but they just have to be somewhere on the property, so there can be cleaning between the showings.
Dave Miller: Who pays for all that? Is it the seller? Is it their responsibility to have those sanitizing stations around the house? Or is it the agent? Is it the responsibility of the agent to incur those costs?
Mark Carlson: Well unfortunately, there’s no guidance on allocation of costs. In the forms, there isn’t a, “Seller is going to pay for this, and agents are going to pay for that.” But I think that’s something agents should think about when using the listing agreement, the RLACAA, because that would be where you could put that in.
Because what if I’m a seller who has an antique piece of furniture next to the doorway, where people would commonly come in and touch it or could touch it? But you don’t want to be using, or the seller doesn’t want you to be using, Windex or disinfectant on the surface of the antique.
So that would be something where you would say, “Okay, if I’m cleaning this particular piece of furniture, seller wants me to use this particular cleaning device, or cleaning solution or whatnot.” So that’d be something that agents are going to have to do now, which they didn’t have to do before. I’m showing a property with a unique type of marble countertops or carpet that’s expensive or unique, or Persian rugs that are unique. So when I have to do this cleaning, and here’s what the BPPP asks me or tells me I have to do, how am I supposed to do it? And you’d want to have that listed within the RLACAA.
Dave Miller: Do you think that most agents are doing those cleanings between showings, or is a seller making arrangements to have somebody do those for them? Or are they doing it themselves?
Mark Carlson: I think the larger companies are really trying to educate their agents to handle it themselves to make sure it gets done. Whether a particular agent does that, or whether agents who haven’t looked carefully at this are trying to push that down to the seller, it’s difficult to say.
Dave Miller: What if an agent says that they’re going to clean after the open house, and come to find out they didn’t, and somebody gets infected. Is there a potential lawsuit there?
Mark Carlson: Yes. With any showing where there are people from different households, that creates a risk that didn’t exist before you went into the house.
But I see a lot of causation problems. How can I say, as someone who’s infected, that I picked up the virus at a particular showing, and I didn’t pick it up at the hardware store or the grocery store or somewhere else that I had been?
Dave Miller: Good point. I guess we’ll continue to see how things change over time.
Mr. Carlson formed Carlson Law Group, Inc. in January 2005. He currently represents scores of real estate professionals in a wide range of matters. Mr. Carlson also represents individuals in the purchase, sale and lease of residential, commercial and industrial properties. Additionally, he has assisted several clients in building permit, zoning and other land use matters. Mr. Carlson’s practice focuses mainly on litigated matters, and he has handled over a dozen jury trials to verdict as well as several court trials. His trial experience includes two trials that each lasted over five weeks. Throughout his career, Mr. Carlson has strived to provide superior legal services while at the same time containing costs for his clients.