What is AB 968, Assembly Bill 968?

Contributing author: Andrew McClelland, Real Estate Attorney at Lunski & Stimpert

Assembly Bill 968

California’s legislature has recently passed several new laws that will impact residential real estate transactions in 2024 and beyond. This article examines one specific law affecting the practice of real estate flipping, buying a property with the intention of renovating and selling it quickly for a profit.

As explained fully below, California Assembly Bill 968, codified into law as Civil Code §1102.6h, supplements existing residential transfer disclosure requirements, adding additional obligations for flippers to provide specific types of information related to repairs and renovations performed on properties prior to resale.

Existing Disclosure Obligations Prior to AB 968

Even prior to the passage of AB 968, residential flippers already had an obligation to disclose certain information related to repairs and renovations made to properties prior to reselling them. For example, under the existing transfer disclosure form pursuant to Civil Code §1102.6, flippers are obligated to disclose information about room additions, structural modifications, or other alterations made to residential properties that are not permitted and/or not building code-compliant.

More broadly, California courts have held that sellers of residential real estate have an affirmative duty to disclose all facts regarding conditions that materially affect the value or desirability of a property. See Shapiro v. Sutherland (1998) 64 Cal.App.4th 1534. This rule applies whether or not the condition falls within the categories set forth in the transfer disclosure statement.

New Disclosure Obligations Under AB 968

AB 968 was conceived by the legislature as a way to address a need for additional disclosure requirements caused by the growing popularity of real estate flipping in California over the past several years. The short timeline involved in flipping real estate frequently leads to house flippers cutting corners by cutting corners by not obtaining necessary permits and inspections for the renovations, and by hiring cheap, potentially unlicensed workers to perform the actual work. The results of this process can include low-quality construction work, significant costs for new owners, and potentially increased risk of liability by the sellers if the new owners take legal action against them.

The Assembly comments on AB 968 explain the need for additional disclosure requirements as follows:

Existing disclosure requirements do not provide information about construction work recently completed on the property. Existing property sale disclosure requirements ask for a narrow set of information regarding work performed on the property: specifically, whether room additions, structural modifications, or other alterations or repairs were made without necessary permits. However, the current disclosure requirements do not require the seller to provide information about permitted work, including the information for the licensed contractor who performed the work. Although permitting information for a property is publicly available, a homeowner looking at publicly available permits might not know that permits are missing for work that was actually performed.

As noted above, AB 968 has been passed by the legislature and codified into law as Civil Code §1102.6h. The following is a summary of the most important and salient provisions of this new law:

AB 968 applies to sales of residential property consisting of 1 to 4 dwelling units.
It applies to residential property transactions where a seller accepts an offer of purchase within 18 months from the date that the seller took title to the property.
The law goes into effect on July 1, 2024, meaning that it applies to all property sales in which the seller accepts an offer to purchase on or after that date.
In residential transactions like those described above, AB 968 requires sellers to disclose any and all room additions, structural modifications, repairs, or other alterations to the property since the seller’s purchase of the property.
Additionally, the seller must provide copies of all permits for the described work, if any were obtained. If the seller contracted with a third party and was not provided with a copy of any permits, the seller may inform the buyer that the permits may be obtained through the third party and provide their contact information
Additionally, where the cost of labor and materials was $500 or greater, the seller must disclose the name and contact information of each contractor who worked on the property.

The new requirements of AB 968 are meant to supplement existing disclosure requirements rather than replace them, meaning that existing requirements remain in effect if applicable to specific transactions.

The information provided in this article does not, and is not intended to, constitute legal
advice, and is meant for general informational purposes only. Readers of this article should
contact an experienced real estate attorney to obtain advice regarding any particular legal
matter related to the issues presented in this article.

No reader of this article should act or refrain from acting on the basis of information on this site without first seeking legal advice from California-licensed counsel. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this article does not create an attorney- client relationship between the reader and the author.

If you liked this article, please see the following article also by Andrew: Advice to Home Flippers and to Buyers Who Purchase from Flippers.

Author: Andrew McClelland
Andrew was admitted to the California bar in 2008 and has worked as a real estate litigator for 15 years, focusing his practice on construction disputes, land use issues, co-ownership disputes, insurance coverage, and premises liability cases. Andrew is active in a number of professional organizations including the San Francisco Bar Association and the Alameda County Bar Association.

The information provided in this article does not, and is not intended to, constitute legal advice, and is meant for general informational purposes only. Readers of this article should contact an experienced real estate attorney to obtain advice regarding any particular legal matter related to the issues presented in this article.

No reader of this article should act or refrain from acting on the basis of information on this site without first seeking legal advice from California-licensed counsel. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this article does not create an attorney-client relationship between the reader and the author.