One of the complaints I hear periodically from buyers and sellers is pretty simple: “Why is there so much paperwork?” It’s a fair question.
After 40 years of selling real estate and originating mortgage loans in California, I can tell you that the amount of paperwork involved in a real estate transaction has increased dramatically. And if the direction of new laws and regulations is any indication, we’re probably not going back.
When I started in the real estate business in the mid-1980s, a transaction was substantially simpler. Purchase agreements were shorter. Disclosure packages were smaller. Loan files were considerably thinner. There were fewer mandated forms, fewer advisories and fewer situations requiring additional disclosures or redisclosures.
Today, particularly in California and even more so in Los Angeles, a residential real estate transaction can generate what feels like a mountain of documents. I understand why that can be frustrating. But there’s something important to remember: We’re not selling a used lawn mower at a garage sale.
We’re transferring an asset that may be worth $800,000, $1 million, $2 million or substantially more. For most people, their home represents one of the largest financial assets they will ever own, and buying one may be the largest financial commitment they will ever make. That carries consequences.
Why Has the Paperwork Grown So Much? A modern California real estate transaction can involve the purchase contract and addenda, agency disclosures, seller disclosures, property condition disclosures, natural hazard information, environmental disclosures, insurance issues, HOA documents, title reports, escrow instructions, financing documents, appraisal requirements, inspection reports, local ordinances and numerous statutory and contractual advisories.
And that isn’t necessarily the end of it. As I’ve said numerous times “It’s never over till it’s over”. Circumstances can change during escrow. New information can be discovered. A report can reveal something that wasn’t previously known. The seller may need to supplement an earlier disclosure. Financing terms can change. An HOA may provide additional documents. Insurance availability can become an issue. A government requirement may apply that wasn’t apparent at the beginning. Sometimes that means redisclosure. That can be especially frustrating to a seller who believes, “I already filled this stuff out.”
But real estate disclosure isn’t simply about completing a form and putting it in the file. It’s about making sure the parties have the information they are legally and contractually entitled to receive, and documenting that they received it.
Los Angeles Adds Another Layer. California already has an extensive regulatory environment for real estate, but properties in Los Angeles County can bring additional considerations. Depending upon the property and location, we may be dealing with wildfire and defensible-space requirements, rent control or tenant protections, retrofit requirements, local point-of-sale requirements, HOA regulations, insurance availability, environmental and natural-hazard issues, and other city, county and state requirements.
A property that looks simple from the street may not result in a simple transaction.
And the rules don’t stand still. Over my career, I’ve watched new laws, regulations, disclosure requirements and lending rules continually become part of the transaction. Every year, it seems there is something new that brokers, agents, lenders, escrow officers, title companies, buyers and sellers have to address.
The Mortgage Side Has Changed Just as Much
I’ve also been originating mortgage loans since the late 1980s, so I’ve watched the same evolution on the financing side. Today’s borrower receives substantially more documentation explaining the loan, its costs, interest rate, payment, closing expenses and other terms. Lenders have extensive requirements for documenting income, assets, credit, property condition, appraisal, insurance and the borrower’s ability to qualify. Then there are compliance disclosures, timing requirements, acknowledgments and final closing documents.
Again, people sometimes ask: “Why do I have to sign all of this?” Because a mortgage isn’t a casual transaction either. Someone may be borrowing hundreds of thousands—or millions—of dollars, secured by real property, potentially for the next 30 years.
There needs to be a clear record of what everyone agreed to. A Signature Doesn’t Always Mean You’re Agreeing With Something. This is another area that sometimes causes unnecessary anxiety. Many signatures in a real estate transaction aren’t necessarily saying, “I agree with this.” Often they’re saying: “I received this.” Or: “This was disclosed to me.” Or: “This was explained to me.” Or: “I understand that this issue exists.” Those distinctions matter.
Good real estate professionals shouldn’t simply throw a stack of documents at a client and say, “Sign here.” Part of our job is helping clients understand what they’re signing, why they’re signing it and what it means to the transaction.
More Paperwork Isn’t Necessarily a Bad Thing. I certainly don’t agree with every regulation or every piece of paperwork that has been added over the past four decades. There are forms and requirements that can seem redundant, and sometimes the volume itself makes it harder for consumers to identify the information that really deserves their attention.
There is a legitimate argument that more disclosure doesn’t always equal better understanding. But there’s another side to it.
Many of these requirements exist because somewhere along the way there was a problem. A buyer wasn’t told something. A seller didn’t understand an obligation. A borrower didn’t understand the loan they were getting. An important property condition wasn’t disclosed. A dispute ended up in court. A new law, regulation, advisory or disclosure frequently followed. Multiply that process over decades and you begin to understand how we got here.
The Paperwork Also Protects the Transaction. Documentation isn’t just about government regulation. It’s also about reducing misunderstandings. What did the seller disclose? What did the buyer know? What inspections were performed? What did the buyer approve? What contingencies were removed? What repairs were requested? What did the lender require? What did the parties ultimately agree to?
If a disagreement comes up six months or three years after closing, memories can be very different. The transaction file provides a record. That’s important for the buyer, the seller and the professionals involved.
Forty Years Later, the Business Is Different. When you’ve been doing this for approximately four decades, you get an interesting perspective. I’ve watched contracts get longer. I’ve watched disclosure packages grow. I’ve watched lending regulations multiply. I’ve watched insurance become a much bigger part of whether a transaction can close.
I’ve watched technology eliminate much of the physical paper while, ironically, dramatically increasing the number of pages people are expected to review and sign. Electronic signatures have made the process easier, but they haven’t made the transaction simpler. And I don’t see that reversing anytime soon.
It’s Not a Garage Sale. I understand why buyers and sellers get tired of paperwork. I do too.
But when we’re transferring an asset potentially worth seven figures and arranging financing that may affect someone’s finances for decades, there should be documentation of what everyone knew, what everyone disclosed and what everyone agreed to.
My job as a broker isn’t to make clients sign unnecessary paperwork. It’s to help make sure the transaction is properly documented, the required disclosures are made, the parties understand what they’re signing, and unnecessary problems are avoided after closing.
So yes, there is a lot of paperwork. There will probably be more in the future. But when you’re buying, selling or financing one of the largest assets most people will ever own, it’s not a garage sale.
If you’d like to discuss what these changing market conditions mean for your home, your buying plans, or your financing options, feel free to reach out. In today’s market, having current information and a sound strategy can make all the difference.
Ron Henderson GRI, SRES, SFR, RECS, CIAS, CREN, GREEN
President/Broker
Multi Real Estate Services, Inc.
Chairman – OutWest Marketing Meeting (Real Estate Education)
DRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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