BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2001-2002 Regular Session
AB 452 A
Assembly Member Correa B
As Amended June 19, 2001
Hearing Date: July 17, 2001 4
Business and Professions Code 5
CJW:sr 2
SUBJECT
Real Estate: Subdivisions
DESCRIPTION
This bill would require the Subdivision Public Report
issued by the Real Estate Commissioner to disclose that
prospective home buyers have the right to negotiate with
the seller to permit inspections of new residential
construction by the buyer or the buyer's designee.
BACKGROUND
The Subdivided Lands Act of 1943 requires persons who wish
to offer subdivided lands for sale or lease to file with
the Department of Real Estate (DRE) an application for a
public report, consisting of a notice of intent and a
completed DRE questionnaire regarding the title to and
financing of the subdivision, the terms of its intended
sale or lease, the provision of utility and other services
to the subdivided lots, and other information important to
prospective purchasers of the lots. [ See Business and
Professions Code Sec. 11000 et seq .]
After reviewing this information, the Commissioner of Real
Estate either will deny the application on one of several
specified grounds, or will issue a public report
authorizing the sale or lease of the subdivided lots. A
copy of the public report is required to be provided to any
prospective purchaser of a lot before the execution of any
(more)
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Page 2
sale or lease contract.
The purpose of the Act is to protect members of the public
from "fraud and sharp practices in a type of real estate
transaction peculiarly open to such abuses." [ People v.
Byers (1979) 90 Cal. App. 3d 140.] The Act has been
amended over the years to increase the information required
to be provided to the DRE, and to add to the conditions
under which an application may be denied by the
Commissioner. The Commissioner also retains the discretion
to disclose additional information in the report for the
benefit of prospective purchasers.
This bill would require, in cases in which a subdivision is
intended for residential purposes, that the Commissioner's
public report disclose that a prospective purchaser of new
residential construction on a subdivided lot has the right
to negotiate with the seller for an independent inspection
of the residence prior to purchase.
CHANGES TO EXISTING LAW
Existing law provides that any person wishing to offer
subdivided lands for sale or lease must file an
application for a public report with the DRE, including a
completed questionnaire regarding the condition of title to
and encumbrances on the land; the financing and
indebtedness of the subdivision; the uses for which lots
will be offered; the terms and conditions of the proposed
sale or lease of lots (including copies of any contracts
intended to be used); the provisions made for water,
electricity, gas, and other services; the subdivision's
soil and geographic condition; its location and proximity
to airports; and other information. [Business and
Professions Code Sec. 11010.]
Existing law further provides that the Real Estate
Commissioner shall make an examination of the subdivision
and, unless there are grounds for denial, shall issue a
public report authorizing the sale or lease of the lots
within the subdivision. The report shall contain the
information obtained through the questionnaire as the
Commissioner deems appropriate, and may be published at the
Commissioner's discretion. [Sec. 11018.]
AB 452 (Correa)
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Existing law further provides that a copy of the public
report (1) shall be given to the prospective purchaser of a
lot in the subdivision prior to the execution of any
contract for sale or lease of the property; (2) shall be
provided to any member of the public upon request; and (3)
shall be posted in a conspicuous place at any office where
offers to sell or lease lots in the subdivision are
regularly made. [Sec. 1108.1.]
This bill would provide that, if the subdivision is to be
used for residential purposes, the public report shall
disclose that notwithstanding any provision in the purchase
contract to the contrary, a prospective buyer has the right
to negotiate with the seller to permit inspections of the
property by the buyer, or the buyer's designee, under terms
mutually agreeable to the prospective buyer and seller.
COMMENT
1. Stated need for legislation
The Coalition of California Home Inspectors, sponsor of
this bill, states that a small minority of home builders
refuses to permit prospective buyers of new homes in a
subdivision to arrange for a home inspection prior to
purchase.
The sponsor states that, as the purchase of a home is
usually the largest investment people make, it is
imperative that they have all the information necessary
for an informed decision before buying the home. The
sponsor believes that a home inspection conducted
independently of the seller can be a useful source of
such information.
According to the sponsor, the standard form home purchase
contracts used by subdivision home builders normally are
silent on the issue of home inspections. Prospective
purchasers who decide to arrange for a home inspection
often have no difficulty in doing so; from time to time,
however, home inspectors hired by prospective buyers have
been escorted off the property as trespassers by a few
AB 452 (Correa)
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home builders hostile to the notion of pre-purchase
inspections.
This bill would require the subdivision public report,
which must be provided to prospective home buyers prior
to the execution of any purchase contract, to disclose
that buyers have the right to negotiate with the seller
for a home inspection by the buyer or the buyer's
designee "on mutually agreeable terms."
2. Bill is intended to raise awareness
Neither existing law nor the provisions of this bill
would require home builders to agree to independent
pre-purchase home inspections. Nor would the bill expand
prospective buyers' rights to seek inspections; buyers
already have the right to ask to conduct an inspection
and, if they choose, to walk away from the proposed
purchase if their request is denied. The sponsor agrees
that even the circumstances prompting this bill would not
be legally altered by its passage; home builders would
still be within their rights to refuse to allow home
inspectors on, or to escort them off, the builders'
property.
Instead, the bill seeks to notify prospective buyers,
through the public report, that they have a right to
negotiate for a pre-purchase home inspection. The
sponsor states that the intent of the bill is "to create
awareness with the public of the availability and value
of such services."
3. Sponsor says amendments have neutralized opposition
As originally introduced, this bill would have declared
any impairment of a home buyer's ability to have a home
inspection prior to purchase to be an unfair business
practice. The sponsor states that the amended language
in the current version of the bill was the product of
discussions with the DRE, the California Building
Industry Association, and the California Association of
Realtors, and appears to have neutralized any potential
opposition by these parties to the bill.
4. Additional considerations
AB 452 (Correa)
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The Coalition of California Home Inspectors' sponsorship
of a bill to create awareness of the "availability and
value" of home inspections should at least raise the
question of whether this bill promotes good public policy
or simply provides legislatively mandated free
advertising to a particular business. The disclosure of
a "right to negotiate" for a home inspection in a
Commissioner's public report might be taken as the
Commissioner's recommendation, which arguably should be
left to the discretion of the Commissioner.
One way to address this question would be to review the
language of the Transfer Disclosure Statement (TDS)
required in most sales of residential property other than
builder sales of newly constructed homes. [ See Civil
Code Sec. 1102 et seq .] In addition to the many specific
disclosures the TDS requires of the seller, the
statutorily-mandated form includes the following
capitalized statement in large type:
BUYER(S) AND SELLER(S) MAY WISH TO OBTAIN PROFESSIONAL
ADVICE AND/OR INSPECTIONS OF THE PROPERTY AND TO PROVIDE
FOR APPROPRIATE PROVISIONS IN A CONTRACT BETWEEN BUYER(S)
AND SELLERS(S) WITH RESPECT TO ANY ADVICE/INSPECTIONS/
DEFECTS.
[Civ. Code Sec. 1102.6.] Among the real estate
transactions exempted from the requirement of a TDS are
transfers "required to be preceded by the furnishing to a
prospective transferee of a copy of a public report
pursuant to Section 11018 of the Business and Professions
Code" - that is, builder sales of newly constructed
homes. [Civ. Code Sec. 1102.2.] The public report,
then, with its disclosures to prospective buyers of new
homes, appears to serve a roughly equivalent purpose to a
TDS for other home purchases.
Since the Legislature has found the advisement of the
right to seek a home inspection important enough to be
included in the language of a TDS, it would appear to be
consistent with existing law to require an equivalent
notification in a subdivision public report for new home
purchases.
Support: None Known
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Opposition: None Known
HISTORY
Source: Coalition of California Home Inspectors
Related Pending Legislation: None Known
Prior Legislation: None Known
Prior Vote: Assembly Business and Professions Committee
11-0
Assembly Floor 75-0
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