HOUSE BILL REPORT

SHB 1420

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As Amended by the Senate

Title: An act relating to real estate seller disclosure.

Brief Description: Revising real estate seller disclosure requirements.

Sponsors: House Committee on Commerce & Labor (originally sponsored by Representatives Conway, Condotta, Maxwell, Williams, Chandler, Wood, Hinkle and Kelley).

Brief History:

Committee Activity:

Commerce & Labor: 1/30/09, 2/6/09 [DPS].

Floor Activity

Passed House: 3/3/09, 97-0.

Senate Amended.

Passed Senate: 4/15/09, 48-0.

Senate Amended.

Passed Senate: 4/22/09, 49-0.

Brief Summary of Substitute Bill

  • Modifies the definition of "unimproved residential real property" to mean unimproved property with a maximum permitted development, without further subdivision of the property, of one to four residential units or structures and does not include commercial real estate or timber land.

  • Adds an exemption from the seller disclosure requirements for transfers to a buyer who intends to acquire property primarily for agricultural, commercial, investment, subdivision, or other business purposes.

  • Modifies several questions on the seller’s disclosure statements for unimproved residential real property and improved residential real property.

HOUSE COMMITTEE ON COMMERCE & LABOR

Staff: Alison Hellberg (786-7152)

Background:

Required Seller Disclosures for Transfers of Residential Real Property.

A seller of residential land must provide a buyer with a disclosure statement about the land unless the buyer waives the right to receive it. The disclosure requirement applies to sales of unimproved residential land and improved residential land. "Unimproved residential real property" is defined as property zoned for residential use that is not improved by residential dwelling units, a residential condominium, a residential timeshare, or a mobile or manufactured home.

The disclosure forms are specified in statute. The disclosure for unimproved residential land concerns title, water, sewer/septic systems, electrical/gas, flooding, soil stability, environmental, and homeowners' association/common interests. The disclosure for improved residential land concerns title, water, sewer/on-site sewage system, structural, systems and fixtures, homeowners' association/common interests, environmental, and manufactured and mobile homes.

The disclosure statement must be provided within five business days, or as otherwise agreed to, after mutual acceptance of a written purchase agreement between a buyer and a seller. Within three business days of receiving the disclosure statement, the buyer has the right to approve and accept the statement or rescind the agreement for purchase. If the seller fails to provide the statement, the buyer may rescind the transaction until the transfer has closed. If the disclosure statement is delivered late, the buyer's right to rescind expires three days after receipt of the statement.

Certain transfers of residential real property are excluded from these requirements, including a:

The seller and any licensed real estate salesperson or broker is not liable for error, inaccuracy, or omission in the disclosure statement if the seller or real estate salesperson or broker had no actual knowledge of the error, inaccuracy, or omission. The Consumer Protection Act does not apply to violations, but a right of action is preserved against the seller or against any agent acting for the seller under common law, statute, or contract.

Summary of Substitute Bill:

The definition of "unimproved residential real property" is modified to mean unimproved property for which the maximum permitted development, without further subdivision of the property, is one to four residential units or structures under the county or city ordinances or comprehensive plans applicable to that real estate and does not include commercial real estate or timber land.

An exemption to the seller disclosure requirements is added for transfers to a buyer who intends to acquire the property primarily for agricultural, commercial, investment, subdivision, or other business purposes.

Unimproved Residential Real Property Disclosure Statement.

In addition to technical edits and clarifications, several questions to the disclosure statement are modified in the sections that concern title, flooding, soil stability, environmental, and full disclosure by sellers.

Title.

Flooding, Soil Stability, and Environmental.

Improved Residential Real Property Disclosure Statement.

In addition to technical edits and clarifications, several questions to the disclosure statement are modified in the sections that concern title, water, structural, systems and fixtures, environmental, and full disclosure by sellers.

Title.

Water.

Structural.

Systems and Fixtures.

Environmental.

EFFECT OF SENATE AMENDMENT(S):

Changes to the definition of "unimproved residential real property" are removed, except that timber land is not considered unimproved residential real property.

The exemption from disclosure for transfers to a buyer who intends to acquire the property primarily for agricultural, commercial, investment, subdivision, or other business purposes is eliminated.

The environmental disclosures in the unimproved residential real property form are modified. The question related to flooding asks has there been rather than is there any flooding, standing water, or drainage problems on the property that affect the property or access to the property. The requirement that the seller only disclose information about certain substances, materials, or products if the presence of which violates any environmental law is removed. The seller must disclose the presence of any substances, materials, or products in or on the property that may be environmental concerns. The requirement that a seller disclose information about any soil or groundwater contamination is restored.

The disclosure form for the transfer of improved residential real property is also modified. On the question related to water right permits, certificates, or claims, the question is removed regarding whether the water withdrawn from the water source is less than 5,000 gallons a day. A seller is required to disclose a roof leaking within the last five years rather than if the roof leaks.

The requirement that the seller only disclose information about certain substances, materials, or products if the presence of which violates any environmental law is removed. The seller must disclose the presence of any substances, materials, or products in or on the property that may be environmental concerns. The requirement that a seller disclose information about any soil or groundwater contamination is restored.

The provisions of the bill only apply to sales of property that arise on or after the effective date.

Appropriation: None.

Fiscal Note: Not requested.

Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.

Staff Summary of Public Testimony:

(In support) The real estate industry has been working on this issue for several years. A few years ago the Legislature passed a bill requiring use of a seller disclosure form for unimproved residential land. The definition tends to include lots of property that is intended for commercial use and that has led to unintended consequences and increased risk. The form is really meant to be used in the residential context. It is important that “commercial real estate” be excluded from the definition. This coincides with industry, buyer, and seller expectations.

Because of realtors' positions, they have a unique eye to the difficulties of these transactions. There are several questions that sellers and buyers have identified as ambiguous. This is an opportunity to clean up the form. The issues related to the form are really between the buyer and seller – not realtors. The term “substantially adversely” from the real estate brokerage relationship has been added for clarity. Sometimes, for example, easements benefit the property. The issue for the buyer is whether there are negative issues related to any easement.

Some technical amendments may be necessary, particularly related to the questions about utility poles and related to standing water.

(In support with amendment) A clarifying amendment is requested on the wood burning appliance question to remove the word "manufactured" and just use fireplace.

(Neutral) The wood burning device question is a good addition to the form. There are some concerns with the standing water and flooding questions. Governments maps may be inaccurate at times and miss localized flooding. The question should be amended to address that.

(Opposed) None.

Persons Testifying: (In support) Bob Mitchell and Annette Fitzsimmons, Washington Realtors; and Chris Osborn, Northwest Multiple Listing Service.

(In support with amendment) Carolyn Logue, Northwest Hearth, Patio and Barbecue Association; and Gary Smith, Independent Business Association of Washington.

(Neutral) Tom Clingman, Department of Ecology.

Persons Signed In To Testify But Not Testifying: None.