Berkeley Real Estate Deal Killers: RECO Edition
By Stephanie Root
One reason that Berkeley real estate deals can get held up in the title office is because those involved don't know about the city's RECO ordinance which involves upgrading the property to meet energy efficiency standards.
If you're purchasing property in Berkeley, you should know that in many cases, though not all, it’s the SELLERS’ REPSONSIBILITY to be in compliance BEFORE SELLING the property.
If the deal goes through without the seller meeting the requirements, guess who’s responsibility it will ultimately become? Yes, you the buyer and yes, it translates into spending more money.
Now that’s fine if you intend to remodel your newly purchased house/condo etc. anyway. But what if you are an investor and you want to purchase a property that’s in dire need of a rehab and the seller is supposed to be in compliance before selling it to you?
Since the seller is selling the property in a debilitated state, it’s obvious that he/she doesn’t want to put more money into making the property energy efficient. They’re looking for a quick sell. So what do you do?This happened to some of my clients who were interested in purchasing a fixer. First I checked to see if the property had met the requirements (and this can be a little tricky if your agent doesn’t know what informational systems to check). Next, I informed them about RECO by giving them information that briefly explains what it is, how to meet the requirements, and who’s responsible for being in compliance. I knew that technically, the seller could not “pass on” the responsibility on to my clients.
So instead of having this issue kill the deal, I told my clients that if they purchased the property, they would have to meet the requirements even though this was originally the sellers responsibility. They were fine with being responsible for the upgrades because they were going to do upgrades to the property anyway. With this out of the way, we could close the deal without any surprises and hang ups at the title office.
But what if the seller was going to close that transaction with someone who was unaware of RECO and not in agreement with having the responsibility shifted on to them. I did some research and talked to the department heads at the RECO office. They explained that some realtors will take the transaction to “outside” title companies because they are less likely to catch local ordinances. This seems to suggest it’s the title company’s responsibility to catch this problem.
Pam Roda, at Financial Title in Albany California informed me that the general public needs to know that local ordinance compliance issues are not necessarily a matter of title. However, they are willing to handle these issues as a matter of courtesy to sellers and their real estate agents if THEY ARE INSTRUCTED to do so.
So buyers and sellers, to avoid any surprises at title, like having your deal delayed or killed because of local ordinance issues, make certain you understand your responsibilities and have your realtor help you understand them so you can have a hassle free closing at the title company.
So there you have it, RECO in a nutshell.
If anybody has any other questions about local ordinances, let us know and we'll get to the bottom of it for you.