It can happen in any market, and it still happens now and then in the one we are in. A property that is especially "hot" becomes available. Maybe it is simply a matter of price. Maybe it is location, or some special feature -- physical, historical, or otherwise. Whatever it is, many people want the property, and sometimes at whatever the price. In short, it is the kind of property listing that produces a bit of a frenzy.
This situation creates issues for both sellers and listing agents, and for buyers and their agents. The latter may want to make the offer as "sweet" as possible; whereas the listing agent wants to protect the seller. He or she not only wants to obtain the best possible price, they also want to avoid getting into an escrow that may fail. The interests of the buyer and the seller converge in this respect. They both want a contract with as few contingencies as possible.
In such a situation, listing agents may specify in the listing, or in the informal talk that goes on between agents, that, to be acceptable, an offer must not contain any contingencies. And, whether or not the listing agent has said this, in a highly competitive situation, a motivated buyer may specify that all contingencies are waived. In street talk terminology, the buyer is to have no way out of the deal.
Whether or not it is wise for a buyer to agree to such terms is not at issue here. We simply acknowledge that it happens.
In California -- where, I suspect, such transactions are more likely to occur -- a listing agent needs to be careful if he really wants to ensure that the buyer will have no way out. Even if the buyer may be willing to waive all his inspection rights and typical contingencies such as loan approval and a termite report, California law may still provide him with a couple of "outs."
In most transfers of residential property, California law requires that the buyer be provided with certain statutory disclosures -- the TDS (Transfer Disclosure Statement) and the NHD (Natural Hazard Disclosure Statement). There are a few exceptions to this requirement, such as probate or foreclosure transfers.
The NHD is a disclosure as to whether the property is located in certain natural hazard zones, such as an area of potential flooding. It can be completed by the seller, but almost never is. The law allows for the information to be provided by a third-party disclosure company, and the seller simply signs the statement.
The relevance of these mandatory disclosures to the issue of the buyer having a way out, is that they typically carry with them a 3-day right of rescission (5-day if they are delivered by mail). There is, though, no right of rescission if the disclosure is provided before a purchase contract is formed.
If the seller and his agent want to be sure that the buyer has no right of rescission, they must see to it that the buyer receives these required disclosures before an offer or a counter offer is accepted. This is easily accomplished, but it is certainly out of the normal flow of events.
Because the NHD is usually provided by a third-party, it is important that a report is ordered as soon as possible, prior to offering the property for sale. Likewise, the TDS should be completed before the property is brought to market.
In the case of the TDS, however, there is a little ambiguity. It has to do with whether a TDS is completed when the seller's portion is done, or whether the agents' portions must be filled out as well. The law is silent on this matter, and there is no precedential court case.
Caution would suggest that, in these circumstances, the buyer should first receive a TDS completed by all the parties. This would require the buyer's agent to report on a visual inspection of the property prior to writing the offer. Again, that would be out of the normal flow of events, but something that wouldn't be too difficult to accomplish. It might present a bit of a problem for the listing agent, but what a nice problem to have.
