Legal Requirements to Selling a Home in California

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If you’re selling your home in California, it’s essential to have a comprehensive understanding of the legal requirements involved. If you know what procedures are required, you can ensure a smooth transaction and avoid potential liabilities.

In this article, we’ll go over the necessary legal steps that anyone selling their home will have to take.

Disclosing Factors Affecting Desirability

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California law requires that all sellers disclose in writing any information that may affect a potential buyer’s desire to purchase. Though these factors might not be ‘make or break’ for the buyer, it could impact the amount that they’re willing to pay.

In legal terms, these factors concerning the condition of the property are called “material facts.” A seller can face severe penalties if they fail to disclose this information.

Typically, sellers put these facts in writing in a Transfer Disclosure Statement (TDS). The point of this document is to include all relevant information concerning all of the property’s components.

While filing the TDS, you’ll have to write down information about the following elements:

  • Doors
  • Walls
  • Ceiling
  • Floors
  • Insulation
  • Foundation
  • Driveway
  • Sidewalks
  • Electrical systems
  • Plumbing
  • HVAC
  • Fencing

The above list is not comprehensive because any relevant information about the property can be considered a material fact. As long as it has the potential to impact desirability, it must be recorded. If you’re not sure about how this applies to your home, a real estate broker can help you.

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A TDS will also require that you state if any deaths occurred on the property in the last few years. If there are any noise issues in the neighborhood, that needs to be disclosed as well.

Natural Hazard Disclosure Report

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California is a resilient state and those who live there deal with a range of natural hazards. From wildfires to earthquakes, many events can have drastic implications for homeowners.

According to this blog post on ISoldMyHouse.com, California requires that you answer a series of questions related to risk. You only need to give a “yes or no” response. You’ll have to disclose whether the property is on a floodplain, a vulnerable forest fire area, or earthquake fault lines.

These required documents may depend on the county and other aspects of the real estate transaction.

An Escrow Agent

Home sellers in California are legally required to use a neutral party that facilitates the transfer. This party is an escrow company, overseeing the exchange of money and titles between the seller and buyer.

In Northern California, sellers will hire a title company which then takes care of this duty. If this applies to your situation, you still have the option to use an escrow company if both parties agree.

It’s essential to keep in mind that extra fees are involved when you use an escrow company. These additional costs bring you the assurance that everything about the sale is going well.

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Title Company

California sales must involve a title company to conduct research into the home’s history and produce a PTR. This document is also known as a Preliminary Title Report. According to the state laws, the buyer and seller can negotiate who pays for the title insurance.

Transfer Tax

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When a property is transferred from the seller to the buyer, someone must submit a document to the country recorder’s office. This paperwork summarizes the change of ownership. When you file this document, you have to pay a tax.

The California transfer tax is paid to the county. However, if the sale occurs in Los Angeles, Riverside, or San Francisco, the city collects its taxes. As with the other closing costs, you can negotiate who’s responsible for paying.

The standard of who pays is different in various places around the state. In southern California, for example, it’s usually the seller who pays. If you’re not sure, you can contact your listing agent, and they can inform you of the norm.

Capital Gains

A capital gains tax is standard in any significant transaction. It’s charged based on the difference between what you paid for a property and the sale price. This capital gains tax is collected by the IRS as well as California’s Franchise Tax Board.

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Don’t Get Bogged Down by Bureaucracy

If you’re confused or overwhelmed by the amount of paperwork, reach out to a real estate broker. There are many professionals with services designed to help Californians sell their homes. With all the legal work in order, you can focus on the appeal of your home to buyers.