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CLAIMPREVENT® BLOG

Real Estate Licensees Beware of Zillow Purchase Agreements

In many transactions, Zillow acts as seller and insists on using its own purchase agreement. Below are issues you should consider when advising your buyers whether/how to use the Zillow agreement. Note that this discusses differences between the Zillow agreement and the California CAR agreements as examples; check for these points in your own state or industry association agreements.

Ability to Counsel and Advise

As licensees and especially as fiduciaries, brokers are assuming the duty to counsel and advise the buyers in their transactions (Field vCentury 21 Klowden-Forness Realty (1998) 63 Cal.App.4th 18). However, if the buyers use a purchase agreement like the Zillow agreement, the broker may not be as familiar with it, as the broker is familiar with their own trade association forms. Therefore, when using the Zillow agreement, it may be difficult to properly counsel the clients.

No Built-in Protections

There are several places in the Zillow agreement where the buyer releases the seller and the listing broker from liability. There are no such protections to the selling broker. Moreover, your own trade association forms may have additional protections the Zillow agreement doesn’t include. For example, in California, the CAR purchase agreement has many disclaimers, warnings and other built-in protections (especially in the new purchase agreement), prompting buyers to retain a qualified California real estate attorney, advising buyers that certain waivers are against the broker’s advice, reminding buyers that brokers are not construction experts and cannot give legal advice, etc. There are no such built-in protections in the Zillow agreement, and any disclaimers and releases only apply to seller and the listing broker.

No Procedures for Cancellation

Your state or trade association may provide additional forms for Cancellation. For example, for those who are comfortable in using the CAR Notice to Perform and Demand to Close Escrow, no such forms exist in connection with the Zillow agreement. In fact, these forms cannot be used, because the contract does not provide for their use.

Only Three Contingencies are Built In

Appraisal, financing and sale of buyer’s own home are the only contingencies in the Zillow agreement. Physical inspection is not a contingency. It is simply something the buyer does during its due diligence period. 

Physical Inspection Acts Like a Passive Contingency

Unless the buyers advise the seller by the due diligence expiration date that they want to cancel (which is 10 days and not 17 like in the CAR agreement), then all physical issues are waived. It states: “In the event buyer fails to deliver the termination notice to seller . . . buyer shall have no further right to terminate this agreement pursuant to this section.”

This passive waiver can cause confusion, but there is also room for mistakes in missing the deadlines, causing the buyer to miss the opportunity to cancel the agreement. 

Moreover, the buyer may ask the seller to make repairs and that adds five more days for the seller to respond. However, if the seller is non-responsive, all the buyer can do is cancel. This also means that the negotiations for repair may occur after the buyer actually cancels the agreement.

Buyer Has Limited Options in Suing the Seller

If the sellers fail to satisfy their obligations, the buyer may terminate the agreement and receive a return of the deposit; however, the buyer cannot sue the seller for specific performance or for any monetary damages. There are also no attorney’s fees allowed under the agreement. This means that if the seller breaches the agreement, all the buyer can do is cancel the agreement. In the CAR purchase agreement, a seller cannot cancel the agreement (unless seller has a contingency or buyer breaches first).

Further, if buyer elects to proceed with closing after discovering a misrepresentation, under the Zillow agreement the buyer “waives and releases any and all claims, liabilities, losses, costs or expenses (including attorneys’ fees) against seller.” California case law however, allows a buyer who discovers discrepancies, to close escrow and sue later. (Jue v. Smiser (1994) 23 Cal. App. 4th 312). The Zillow agreement takes that option away from the buyer. 

Buyer’s Obligations Expanded

Under California law, the buyer can rely on what the listing broker and seller put in the MLS and provide through disclosures (Civil Code section 1088). Under the Zillow agreement, the buyer “shall be solely responsible to verify and confirm . . . the accuracy of any statements provided in the listing information for the property, including . . . renovations, the characteristics of the neighborhood, access to certain utilities, and the proximity to any schools or the applicability of any school districts.” The Zillow agreement also includes a release and hold harmless agreement as to the seller and listing broker.

More Releases

Buyer also releases the seller and listing broker in the Zillow agreement from any losses whatsoever relating to environmental and physical conditions affecting the property. This includes indemnification of seller from any future governmental claims relating to violation of any code or regulation on environmental matters.

Assignment

In the Zillow agreement, an assignment by buyer has to be consented to by seller (the new CAR agreement allows buyer to assign the contract within the contingency period), but seller can assign the agreement without buyer’s consent.

Disclosures

Under the Zillow agreement, “buyer waives any right to receive a completed seller’s property disclosure statement as required by applicable law or custom in the jurisdiction where the property is located.” This should be unacceptable to the buyer, because disclosures cannot be waived under California law. (Civil Code section 1102(c) “Any waiver of the requirements of this article is void as against public policy.”) It is recommended that brokers fill out the broker portion of the disclosures and advise their clients in writing that seller is refusing to provide additional disclosures in violation of California law.

In addition, the current Zillow agreement is behind in catching up with all the new California statutes. It does not provide for a Wildfire Disaster Advisory, Fair Housing and Discrimination Advisory and California Consumer Privacy Act Advisory. It is recommended that brokers give those forms to their clients regardless of the Zillow agreement, so that brokers will be complaint. 

Privacy

The Zillow agreement solicits an agreement by buyer to “participate in up to three (3) customer surveys . . . during the one (1) year following closing” and it “authorizes
seller (including its parent entities, affiliates, and their service providers) to use automated emails to buyer. . .”

Mediation

There is no agreement to mediate (with no penalty if a party files a lawsuit without mediating first). 

Increased Deposit

There is no provision or form for an increased deposit, which could invalidate the liquidated damages clause. 

Liquidated Damages

There is no option for the buyer to disagree with a liquidated damages clause. It is mandatory. However, it is typically recommended that in a sellers’ market,  the buyer not sign the liquidated damages clause because the seller will not be damaged if the buyer breaches. 

Seller-In Possession

There is no form for a short-term lease or seller to remain in possession. This can cause issues after close of escrow. 

In summary, the above points are the main risks in the Zillow agreement. There are of course many other provisions that are lacking, which your state or trade association may have added  to its purchase agreement and related forms. Beware when your buyers decide to use the Zillow form and give them written notification of its risks, without providing any legal advice. 

Be sure you have real estate errors and omissions insurance to protect your business.

Contributing Author

Rinat B. Klier-Erlich

Manning & Kass Ellrod, Ramirez Trester

Ms. Erlich is a professional liability defense attorney specializing in defending real estate professionals including, real estate brokers, escrow officers, appraisers, and design professionals. Graduate of Tel-Aviv University (BA 1992, magna cum laude), Whittier Law School (JD 1997, magna cum laude) and California State University (MA, Philosophy of Law 1998). In the last 18 years she has defended many professionals through trial and appeal. Ms. Erlich is a member of the Real Estate Executive Committee of the California State Bar and a member of the Legal Affairs Forum, California Association of Realtors. She is a Specialized Litigation Group chair and she is on the steering committees of several Defense Research Institute groups, Professional Liability Underwriters Society Southern California Chapter, and the Southern California Chapter of Claim and Litigation Management Alliance. Ms. Erlich is a recipient of Rising Star and Super Lawyers awards, and is an author and frequent speaker on professional liability topics. Ms. Erlich is a former Israeli Defense Force officer and a mother of 4 children.

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