Brain Teaser! Disclosure Requirements on Highest Legal Use Properties

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Monkey BoyOK, here's a brain teaser.

Say you have listed a building that consists of two commercial units downstairs and 2 residential units upstairs.

What disclosures should you use-commercial/residential or both?

This question came up on a transaction one of my TC's was working on. Upon asking the broker, his answer was, "We go by highest legal use then prepare disclosures accordingly". In this case, he believed the highest legal use was the commercial portion of the property therefore commercial disclosures should be used (Legal description of the property is commercial mixed use).

But when the use is split 50/50 how do we justify highest legal use?

Does income from the units help to identify this? What if the rent from the income units generates more per month than the commercial units. Would the highest legal use than be residential use and therefore we use residential disclosures?

Let's use another example. A 3000 sq. ft. home is located on a 13 acre parcel that is zoned for horses. Since there is more land than house, does this mean we use land disclosures only?

Being the contract nerd that I am, I had to find out the real story. So I contacted the California Association of REALTOR's® legal department.

In so many words a good way to look at this particular situations is to identify which units will have the highest chance of litigation.  If the most litigious type of transaction is a residential sale, then the answer on a 50/50 split use would be residential.

I'm more comfortable with this answer. How about you?  

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