Seller-Buyer Protocols In Oregon Residential Sale Transactions

Introduction. Most Oregon residential transactions are documented by one of two Sale Agreement forms, the OREF form, created circa 1997, or the Oregon Realtor (“OR”) form which was created circa 2020-23. Both forms are continously updated. (Readers are encouraged to compare both forms before deciding which one to use. In either case, these documents are proprietary and should not be used in violation of their copyright.)¹

As explained below, the term “protocols” refers to the steps sellers and buyers follow throughout the transactional process. Over the past 25+ years, with the proliferation of state and federal real estate laws and regulations, most Oregon residential transactions have followed a “lock-step” approach, commencing with seller’s acceptance of buyer’s offer (or buyer’s acceptance of seller’s counteroffer) and ending with closing, when seller’s deed to buyer is recorded and possession changes hands.

Seller Property Disclosure Form. The genesis of this form goes back to 1993, in which the Oregon Legislature gave residential sellers a choice of offering buyers a “Disclosure” form or a “Diclaimer” form.  The Disclosure form required sellers to answer a series of quesions about the property, and the Disclaimer form “disclaimed” all representations about the property. The immediate result was that most attorneys advised their clients to disclaim everything, rather than disclose anything. This approach did nothing to enhance transparency, so the disclaimer alternative was abandoned. In Oregon we’ve used the Disclosure form ever since. Buyers had (and still have) an absolute 5-business day right of revocation following delivery of the form.

Generally, the 1993 Disclosure form remained substantially the same over the years, only with slightly improved text and a few new questions for sellers to answer. It is still not a model of draftsmanship (which is what occurs when representatives from the various stakeholders – e.g., title companies, consumer groups, Realtor groups, lenders, insurers, contractors, etc. – must all agree on the final product.

Nevertheless, the Disclosure form is an important first step in giving buyers a starting point for conducting their due diligence. However, sellers’ representations in the form are not warranties; they are based only upon the seller’s “actual” knowledge” i.e., what he or she believes at the time of completing the form, without necessarily having performed any investigation in advance.  The form warns that sellers’ representations are not intended for buyers to rely upon in lieu of conducting their own inspections and other due diligence. At best, the Disclosure form is a starting point for buyers. If negative information is revealed by the seller, e.g., prior flooding in the crawl space, it is required to be explained in an accompanying addendum, and the responsibility then shifts to the buyer to further investigate and evaluate the issue.

Real Estate Sale Agreement. Normally the buyer and/or their Realtor draft the Sale Agreement for submission to seller. Before acceptance, the only substantive information a buyer has about the property consists of  data and facts obtained from available public records and the multiple listing service (“MLS”) where the seller’s broker has listed the property.

• Buyer Due Diligence. Once the offer is accepted, the Sale Agreement permits buyer to complete their due diligence by the exercise of several inspection contingencies including, among other things,  the status of title and the physical condition of the property and its operating systems. Another major buyer contingency makes the transaction subject to a satisfactory appraisal and financing. If the buyer is dissatisfied (in his/her sole discretion) with any one of these contingencies, he/she may give timely written notice to the seller or their broker, to terminate the transaction and obtain a full refund of the earnest money deposit.
• Buyer Warnings. In addition to making the offer contingent upon buyer’s satisfaction with all of their contingencies, the Sale Agreement carries with it several warnings to buyer:

• • Section 10 (Property Inspections) advises buyers to have a complete inspection of the Property by qualified licensed professionals (e.g.,  for structural condition, soil condition/compaction/stability, survey, etc.). It also provides that if the buyer proceeds to close the transaction, he/she waives all contingencies and accepts the condition of the Property.
    • The Sale Agreement also provides that the inspection contingency will expire at an identified time, and unless buyer gives timely written notice of termination, he/she will be deemed to have accepted the condition of the property. In other words, “silence is consent.”
  • Section 14 (Seller Representations) of the Sale Agreement warns that the seller representations are not warranties regarding the condition of the Property and are not a substitute for buyer’s responsibility to conduct their own independent investigation, including the use of professionals, where appropriate.
  • As if these warnings were not enough, the Sale Agreement contains at Section 16 an As-Is provision: “Except for Seller’s express written agreements and written representations contained herein, and Seller’s Property Disclosure, if any, Buyer is purchasing the Property “AS-IS,” in its present condition and with all defects apparent or not apparent.”
  • Section 41 (Offer to Purchase) acknowledges that Buyer has fully read and understands the terms of the Sale Agreement and “has not relied on any oral or written statement made by Seller, Seller’s Agent, or Buyer’s Agent that is not expressly contained in this Agreement.”
    • This warning is important because the listing agreement and broker’s promotional literature can contain descriptions amenities that will not become a part of the Sale Agreement unless expressly incorporated into it.
    • Accordingly, the safest practice for buyers and their brokers is to specifically include in the offer any important representations or promises about the property that are not found in the Sale Agreement. In short, unless expressly included, ancillary promotional information (e.g., “property abuts Green Space that cannot be developed”) does not become a part of the Sale Agreement.

Conclusion. In summary, residential real estate transactions in Oregon divide buyer and seller responsibilities as follows:

• Sellers’ duties are to complete the Property Disclosure form based upon his or her “actual knowledge” and per the terms of the Sale Agreement, make certain representations contained it that document. These representations provide that they are made to the “best of Seller’s knowlendge.”  Sellers should carefully review these representations before signing the Sale Agreement. Query: Is this it or does seller have any further duties of disclosure beyond these two forms? The answer is Yes. Oregon’s common law, i.e., the law developed in written opinions from the appellate courts over the years, still applies. This will be covered in a subsequent post.
• Upon mutual execution of the Sale Agreement, the buyer’s duty is to exercise their due diligence responsibilities during the prescribed contingency periods. As noted above, although buyers have a right to rely upon seller’s represetnations, they are not warranties or guaranties, and should not be relied upon to the exclusion of their own due diligence. During the various contingency periods in the Sale Agreement, buyer must review and evaluate all important information, such as the preliminary title report, professional inspections, sewer/septic reports, and any other agreed-upon inspections or tests, and secure purchase money financing (unless it is a cash offer) based upon an appraisal that is not less than the agreed-upon sale price of the home.

If these protocols are followed, buyer will be able to make an informed decision whether to: (a)  Allow their contingencies to lapse and close the transaction or (b) Timely withdraw from the transaction and obtain a return of the earnest money deposit. ~ Phil

______________________________________

1. In the interest of full disclosure, as legal counsel for OREF during its first approximately 20 years I was very involved in the development of the OREF Sale Agreement and all of its other real estate forms.