“Caveat emptor” (let the buyer beware) used to be the rule for home sales. Sellers could conceal home defects from their buyers without fear of liability when the concealment was later discovered by the buyer.
But that old rule began changing in 1984 when the California Court of Appeal ruled, in the famous case of Easton v. Strassburger, that the home seller and the real estate agent had a disclosure duty to tell the buyer the hillside was unstable and had recently been repaired.
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Shortly after the sale, the hill slid into the home, causing more damage than the home was worth. Both the seller and realty agent were held liable for damages to the buyer.
In response to that landmark court decision, California became the first state to enact laws requiring sellers of one- to four-unit residences to provide mandatory disclosures to their buyers. Most other states eventually followed either with new disclosure statutes or court decisions.
Today, in most states, realty agents and home builders report the rule seems to have evolved into “Home seller, beware of the buyer.”
“AS IS” HOME SALES PROVIDE NO SAFETY FOR SELLERS. Some home sellers erroneously think if they sell their property “as is” they won’t have to disclose known defects, such as a leaky roof.
That’s incorrect. An “as is” sale simply means the home seller won’t pay for any repairs. But full disclosure of known defects is still required.
PROVING THE SELLER KNEW OF A DEFECT ISN’T EASY. Although home sale defect laws and court decisions have changed the disclosure rules in most states, some sellers still don’t disclose known defects because they fear their home won’t sell if the problem is known by the buyer before purchase.
Other sellers honestly aren’t aware of a defect, or they believe it was repaired and is no longer a defect that must be disclosed. In other words, there are still many “gray areas” of home disclosures.
A popular way many home buyers and their attorneys use to determine if the seller knew about the defect is to ask the neighbors.
For example, a few days after I purchased my home my new neighbor stopped by to introduce himself. After a few pleasantries he said, “I suppose the sellers told you about when that big hill behind your house slid into the house. There must have been at least three feet of mud.”
When I replied that the sellers told me nothing about the hill slide, my new neighbor then pointed out the drains that had been installed to drain water away from the house toward the street. That was 26 years ago. Every time there’s a heavy rainstorm, I look at that hillside to see if it’s moving. Thankfully, there have been no problems.
PROFESSIONAL HOME INSPECTORS HELP SOLVE THE PROBLEM. To help minimize after-sale lawsuits of home buyers against sellers for defect nondisclosure, in the last 15 years professional home inspections have become routine for almost every home sale.
Such pre-purchase professional inspections have even become popular for buyers of brand-new houses to be sure they were built correctly. Just because a new house is approved by the local building inspector is no guaranty of quality.
The basic idea is the professional inspector will thoroughly check a house, usually after the purchase contract is signed but before the sale closes, to be sure the seller didn’t “forget” to disclose a defect. Or perhaps the seller didn’t realize there was a problem, such as a roof leaking into the attic without any leak evidence yet within the living areas.
Most real estate agents now recommend their buyers include professional inspection contingency clauses in their purchase offers. Home buyers should always accompany their inspector to discuss any defects discovered. What sounds like a serious problem often turns out to be minor when the inspector explains it to the buyer.
If the buyer doesn’t approve the results of their inspector’s report, then the parties can either renegotiate the sales terms or the buyer can cancel the sale and get their good faith deposit refunded.
Typical professional home inspections cost about $200 to $300, usually paid by the buyer because the report is for the buyer’s benefit.
Many smart home sellers also hire their own professional inspectors before the home is listed for sale. Then the seller can either have any defects repaired or fully disclose them to prospective buyers.
For example, this technique paid off for me when I sold a rental house several years ago. My inspector pointed out a few minor defects but nothing major. However, the buyer’s inspector, a retired contractor, said the furnace firebox was cracked and had to be replaced. But my inspector, just a few weeks earlier, said the furnace was in good condition.
To resolve the dispute, both a gas company representative and my furnace repairman checked the furnace and agreed it was in good condition. I suspect the buyer’s inspector was told to find something wrong with the furnace so my buyer could negotiate a new free furnace.
HOME WARRANTY POLICY IS NO SUBSTITUTE FOR A PROFESSIONAL INSPECTION. Some home buyers mistakenly think that receiving a one-year home warranty policy, usually paid for by the seller or the real estate agent, eliminates the need for a professional home inspection. However, this is incorrect.
A one-year home warranty policy only pays for repairs to the plumbing, wiring, furnace, water heater, and built-in appliances. For an additional premium, the roof, pool and plumbing outside the home’s perimeter can also be insured.
However, to avoid paying claims, some warranty companies claim the problem is a non-insured “pre-existing condition.” To thwart that possibility, smart home buyers save their professional inspection reports to show that at the time of home purchase the component was inspected and found to be in good working condition.
WHERE TO FIND TOUGH BUT FAIR HOME INSPECTORS. Home buyers should select their own professional inspector rather than letting their realty agent make the choice. The reason is realty agents sometimes recommend non-deal-killer “easy inspectors” who will report only the most obvious home defects.
As a home buyer, you want a “tough but fair” inspector who looks out for your best interests. Retired general contractors are often ideal inspectors.
Before hiring a professional inspector, be sure to ask what inspection credentials and experience the inspector has. Since most states minimally supervise or license home inspectors, don’t count on state regulation for protection.
There are many excellent professional inspection associations. But I prefer inspectors who belong to the American Society of Home Inspectors (ASHI) because of their tough membership requirements. To become an ASHI member, the inspector must have completed at least 250 home inspections, passed a tough exam, and take continuing education courses. Local ASHI members can be found at www.ashi.com or by phoning 1-800-743-2744.
CONCLUSION. Smart home buyers, whether buying a new or resale home, make their purchase contingent on approval of their professional home inspector’s written report.
Home buyers should always accompany their inspector to discuss any defects discovered. More details are in my special report, “How to Avoid Buying a Bad House,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.
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