Beware of Zillow Purchase Agreements

Rinat Klier Erlich

In many transactions, Zillow acts as seller and it insists on using its own purchase agreement. Below are issues you should consider when advising your buyers whether/how to use the Zillow agreement.

Insurance: Many errors and omissions insurance policies require the brokers to use California Association of Realtors (CAR) or other trade organization (like AIR Commercial Real Estate) forms. When using those forms, the carriers typically allow for a 50% deductible reduction. A Zillow purchase agreement will be non-compliant in this regard.

Ability to Counsel and Advise: As licensees and especially as fiduciaries, brokers are assuming the duty to counsel and advise the buyers in their transactions. (Field v. Century 21 Klowden-Forness Realty (1998) 63 Cal.App.4th 18). However, if the buyers use a purchase agreement like the Zillow agreement, the broker may not be as familiar with it, as the broker is familiar with the CAR or AIR agreements. Therefore, when using the Zillow agreement, it may be difficult to properly counsel the clients.

No Built-in Protections: There are several places in the Zillow agreement where the buyer releases the seller and the listing broker from liability. There are no such protections to the selling broker. Moreover, the CAR purchase agreement has many disclaimers, warnings and other built-in protections (especially in the new purchase agreement), prompting buyers to retain a qualified California real estate attorney, advising buyers that certain waivers are against the broker’s advice, reminding buyers that brokers are not construction experts and cannot give legal advice, etc. There are no such built-in protections in the Zillow agreement, and any disclaimers and releases only apply to seller and the listing broker.

No Procedures for Cancellation: For those who are comfortable in using the CAR Notice to Perform and Demand to Close Escrow, no such forms exist in connection with the Zillow agreement. In fact, these forms cannot be used, because the contract does not provide for their use.

Only Three Contingencies Are Built In: Appraisal, financing and sale of buyer’s own home are the only contingencies in the Zillow agreement. Physical inspection is not a contingency. It is simply something the buyer does during its due diligence period.

The Physical Inspection Acts Like a Passive Contingency: Unless buyer advises the seller by the due diligence expiration date that it wants to cancel (which is 10 days and not 17 like in the CAR agreement), then all physical issues are waived. It states: “In the event buyer fails to deliver the termination notice to seller . . . buyer shall have no further right to terminate this agreement pursuant to this section.”

This passive waiver can cause confusion, but there is also room for mistakes in missing the deadlines, causing the buyer to miss the opportunity to cancel the agreement.

Moreover, buyer may ask seller to make repairs and that adds five more days for seller to respond. However, if seller is non-responsive, all buyer can do is cancel. This also means that the negotiations for repair may occur after the buyer actually cancels the agreement.

Buyer Has Limited Options in Suing Seller: If seller fails to satisfy its obligations, buyer may terminate the agreement and receive a return of the deposit; however, buyer cannot sue seller for specific performance or for any monetary damages. There is also no attorney’s fees allowed under the agreement. This means that if seller breaches, all buyer can do is cancel the agreement. In the CAR purchase agreement, a seller cannot cancel the agreement (unless seller has a contingency or buyer breaches first).

Further, if buyer elects to proceed with closing after discovering a misrepresentation, under the Zillow agreement the buyer “waives and releases any and all claims, liabilities, losses, costs or expenses (including attorneys’ fees) against seller.” California case law however, allows a buyer who discovers discrepancies, to close escrow and sue later. (Jue v. Smiser (1994) 23 Cal. App. 4th 312). The Zillow agreement takes that option away from the buyer.

Buyer’s Obligations Expanded: Under California law, buyer can rely on what the listing broker and seller put in the MLS and provide through disclosures. (Civil Code section 1088). Under the Zillow agreement, buyer “shall be solely responsible to verify and confirm . . . the accuracy of any statements provided in the listing information for the property, including . . . renovations, the characteristics of the neighborhood, access to certain utilities, and the proximity to any schools or the applicability of any school districts.” The Zillow agreement also includes a release and hold harmless agreement as to the seller and listing broker.

More Releases: Buyer also releases the seller and listing broker in the Zillow agreement from any losses whatsoever relating to environmental and physical conditions affecting the property. This includes, indemnification of seller from any future governmental claims relating to violation of any code or regulation on environmental matters.

Assignment: In the Zillow agreement, an assignment by buyer has to be consented to by seller (the new CAR agreement allows buyer to assign the contract within the contingency period), but seller can assign the agreement without buyer’s consent.

Disclosures: Under the Zillow agreement, “buyer waives any right to receive a completed seller’s property disclosure statement as required by applicable law or custom in the jurisdiction where the property is located.” This should be unacceptable to buyer, because disclosures cannot be waived under California law. (Civil Code section 1102(c) “Any waiver of the requirements of this article is void as against public policy.”) It is recommended that brokers fill out the broker portion of the disclosures and advise their clients in writing that seller is refusing to provide additional disclosures in violation of California law.

In addition, the current Zillow agreement is behind in catching up with all the new California statutes. It does not provide for a Wildfire Disaster Advisory, Fair Housing and Discrimination Advisory and California Consumer Privacy Act Advisory. It is recommended that

brokers give those forms to their clients regardless of the Zillow agreement, so that brokers will be complaint.

Privacy: The Zillow agreement solicits an agreement by buyer to “participate in up to three (3) customer surveys . . . during the one (1) year following closing” and it “authorizes seller (including its parent entities, affiliates, and their service providers) to use automated emails to buyer. . .”

Mediation: There is no agreement to mediate (with no penalty if a party files a lawsuit without mediating first).

Increased Deposit: There is no provision or form for an increased deposit, which could invalidate the liquidated damages clause.

Liquidated Damages: There is no option for the buyer to disagree with a liquidated damage clause. It is mandatory. However, it is typically recommended that in a seller market the buyer not sign the liquidated damage clause because seller will not be damaged if the buyer breaches.

Seller in Possession There is no form for a short-term lease or seller to remain in possession. This can cause issues after close of escrow.

In summary, the above points are the main risks in the Zillow agreement, but there are of course many other provisions that are lacking, which CAR has added to its purchase agreement and related forms. Beware when your buyers decide to use the Zillow form and give them written notification of its risks, without providing any legal advice.