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How Silly Real Estate Disclosures Get Created

Kevin Boer, Broker Owner, 3 Oceans Real Estate, Inc. ()

December 4th, 2007 · 9 Comments

It’s a sad world we live in. We kill several trees per real estate transaction, largely due to the increasing number of should-be-obvious-to-most-reasonable-people disclosures attached to every contract. At every real estate legal update (including the last one I attended before leaving Alain Pinel Realtors) we get regaled by stories about how a particular disclosure came into existence. The story usually has three high points:

  1. Person A buys a home from person B.
  2. Person A regrets buying said home.
  3. Person A hires clever attorney, who sues person B for not revealing that .

Case in point: The Public Schools Disclosure Impacted Schools disclosure, a double-whammy of sorts: a should-be-obvious disclosure wrapped up in a cryptic (and/or mis-worded) headline, now being used by several local brokerages.

Key clause:

…there is no guarantee that a student will be accepted in the proximate neighborhood school…buyers are advised to consult directly with the appropriate school district office to determine the availability of classroom space in the neighborhood of interest.

I’ll bet you this disclosure came into existence something as follows:

John and Jane sported 44 years of formal education between them — including at least three different Ivy League institutions — and an alphabet soup of credentials, including two MBA’s, a JD, an MD. They both had six-figure incomes (the first digit not being a “1″ in either case) and had stashed away $1M from years of aggressive saving plus some extremely lucky stock options.

John and Jane had a son, Joey, whom they were determined would have all the same opportunities they had, plus more. Though Joey was only 4 years old, they had already started on the application process for the Stanford, Harvard, and Yale classes of two-thousand-twenty-something. (Ok, slight exaggeration.) Part of the master plan involved sending little Joey to the absolute best schools available, and they just don’t make ‘em better (at least in California) than they do here in Palo Alto.

So…they bought a $2M house in Palo Alto, right around the corner from a school with an API score of 970.

Fast forward one year. Little Joey is about to enter kindergarten. John and Jane go to enroll him in the neighborhood school…and find out, to their horror, not only that Joey’s class is already full, but that their particular side of the street has been re-assigned to a different school! That’s right, a different school. Still in the Palo Alto school district, mind you, but the new school is a full half-mile away and (shudder!) the API score of said school is only 930 and the other kids going to that school come from the $1.5M-per-house part of Palo Alto.

Naughty, naughty! John and Jane should have done their homework. Arguably, their agent should have better informed them. And perhaps it’s not entirely unreasonable to assume (Benny Hill caveat to the contrary notwithstanding) that proximity to a school equals access to that school. However, given how important education was to John and Jane — you would think they would have done some friggin’ research of their own!

You know where the story is going. They head to their attorney, who looks over the transaction paperwork for a loophole. Aha! The sellers (maliciously) didn’t disclose that living in that home didn’t necessarily entitle Joey to attend the nearest school! Bingo!

What happens after the big lawsuit file arrives on the broker’s desk with a resounding (and expensive-sounding) thud doesn’t really matter as far as this story is concerned. Reasonable or unreasonable, dumb or not, win or lose…from now on, in every transaction, every agent, just to be careful, just in case…has to explicitly explain to his her clients that “proximity to neighborhood schools does not guarantee access.” To make sure they really get this point (and to reduce the risk of a re-occurrence of this lawsuit), they now have to also sign yet another silly disclosure.

Really, now, can’t we just all be reasonable?

When it comes to real estate transactions, I guess the answer is, tragically, no.

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Tags: Consumer · Disclosures · Industry · Palo Alto

9 responses so far ↓

  • 1 Chris Iverson // Dec 4, 2007 at 7:47 am

    Thus, the point of hiring a local, qualified real estate agent. Only someone immersed in the educational silliness that is the Palo Alto Unified School District would know about this issue, and be able to bring it to their clients’ attention.

  • 2 Kevin Boer, Broker Owner, 3 Oceans Real Estate, Inc. () // Dec 4, 2007 at 8:49 am

    Absolutely! But to have to actually, in writing, disclose about it? I’ll grant you, it’s not as silly as the “California Red Legged Frog Disclosure” that’s mandated in some areas, but it’s still a stretch that reasonable people need to be protected from themselves in such a fashion.

  • 3 Jonathan Dalton // Dec 4, 2007 at 10:48 am

    But what if the school district decides to change the boundaries. Should you have known that it could do such a thing?

    These are the reasons the contracts keep getting longer and longer and longer …

  • 4 Diane Aurit // Dec 4, 2007 at 1:10 pm

    I must admit, for the first time I actually appreciating how simple real estate is since I moved from CA to NC. North Carolina does not require sellers to disclose anything. That is correct, ANYTHING. It is a buyer beware state. After 15 years in real estate in California I am amazed every time I look at our little two- page sellers disclosure with the column options for “No Representation” by each question.

  • 5 Danilo Bogdanovic // Dec 4, 2007 at 2:02 pm

    As Jonathan said, this is why the contracts keep getting longer and longer. As of two years ago, the DC/MD/VA Regional Sales Contract went from being 5 pages long to being 10 pages long. Funny thing is that 3 of the paragraphs added were agent/broker “CYAs” and redundant.

    As far as that suit and situation overall, I don’t believe that it’s for the buyer to rely solely on a real estate agent/broker for that information. Even real estate agents/brokers get told the same thing here in Loudoun County as consumers/parents do - “School boundaries can change at any time and we can not guarantee that the boundaries will remain the same in the future nor that all students will be accepted.”

    Even if I was given “inside information” by a top school official, I would not bet on that information as being true (they’ve been wrong before). I always direct buyers to the county school web site for information on boundaries and enrollment and let them come to their own conclusions.

  • 6 Lenore Wilkas // Dec 4, 2007 at 4:24 pm

    This is the same issue in San Mateo specific to one school, Baywood. Boy, do I spend time talking about how impacted that school is and bla, bla, bla. The best part, though, comes in February when all of the local TV news crews shoot the parent’s overnight for enrollment. So people do begin to understand the situation. The biggest issue here is the lack of these people accepting responsibility for their own actions. It’s just too easy to file a law suit. Perhaps that’s what needs to change???

  • 7 Kevin Boer, Broker Owner, 3 Oceans Real Estate, Inc. () // Dec 4, 2007 at 6:07 pm

    The old timers tell me of doing deals 30 years ago when the purchase contract was one page, and the deal was consummated with a simple handshake. Things have certainly changed since then!

  • 8 Kevin Boer, Broker Owner, 3 Oceans Real Estate, Inc. () // Dec 4, 2007 at 7:45 pm

    Diane — That is pretty unbelievable from our vantage point here in California. You mean that if there’s a bad roof leak which the seller has done a quick patch-up job on, the seller is not even obliged to disclose that?

  • 9 Brian Brady // Dec 9, 2007 at 12:04 pm

    If parental involvement is the major contributing source to educational success, what message will they be sending Johnny with this lawsuit?

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