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Purchase contingency, written defect disclosure are vital

Friday, May 19, 2006

By Robert J. Bruss
Inman News

Have you ever bought a bad "lemon car"? I have. Several, in fact. Fortunately, I was able to either get my money refunded or trade for a better car.

But getting out of the purchase of a "bad house" isn't so easy. In fact, it might be impossible. That's why home buyers need to know how to avoid purchasing a bad house.

No House is Perfect. As even home builders will admit, no house is perfect. Hopefully, the imperfections are minimal. What one person considers a defect is often not important to another person.

For example, I own a second-home residence about a half-block from a spur railroad track, which is used two times each weekday with a slow freight train in each direction. The first train of the day comes through about 8:15 a.m. Its mellow whistle is a nice wake-up call, which I don't mind. The return train comes by about 5 p.m.

While not a home defect, that quiet railroad track would be considered a serious detriment affecting nearby residence market values if many noisy high-speed trains came through every day.

However, most house defects or problems are not so obvious.

What is a "Bad House"? There is no legal definition of a bad house. But most states now have laws requiring house and condo sellers to disclose in writing all known defects that have a material effect on the home's market value.

The majority of these printed disclosure forms require the seller to disclose defects "to the best of your knowledge."

Smart home sellers, and their real estate agents, are usually quite honest about revealing obvious known defects. The reason is they don't want to get involved in a lawsuit with the buyer after the sale closes. Full disclosure prevents such lawsuits.

The best realty agents now suggest their home sellers obtain a "pre-sale professional home inspection." Then the seller will know what defects the buyer's inspector is likely to discover.

As a home seller, I've found a pre-sale inspection gives me the opportunity to repair any problems or at least fully disclose them to the buyer. Another advantage is home buyers will often accept the seller's professional inspection report (but as I buyer, I always insist on hiring my own professional home inspector).

Many Home Sellers Don't Know About Their Home's Defects. If the home seller has not lived in the house recently, he or she might not know about its defects. For this reason, most states exempt probate and foreclosure sales from the disclosure rules. Or the seller might honestly not know about the home's problems.

To illustrate, in the 28 years I've owned my current home, I have never visited its "crawlspace" beneath the house. And I have no plans to inspect that cold, dark area where, when I bought the house, the termite inspector reported there are the bones of several dead animals down there. Also, I haven't visited my attic since the new "lifetime" roof was installed about 15 years ago. The roofer didn't say if it was his or my lifetime.

Why Home Buyers Should Insist on a Professional Inspection Contingency Clause. Just in case you decide to buy a house where the seller has not had a pre-sale professional inspection, and/or the seller is dishonest and "forgot" to disclose a serious home defect, all home buyers should insist on a contingency clause in their purchase offer for a professional home inspection.

Depending on the size of the house, such inspections cost around $350, sometimes more. After the seller accepts the buyer's purchase offer, buyers and their realty agents should accompany their inspectors on the two- to three-hour inspection to discuss any unexpected problems discovered. My experience has been professional inspectors are very talkative and will reveal if a problem is serious or superficial.

If the professional inspection reveals a previously undisclosed serious problem, the buyer can then either:
a) Cancel the purchase and obtain refund of the good faith deposit.
b) Reopen negotiations with the seller for a repair credit.

Whether I am a home buyer or seller, I prefer to hire a professional inspector who belongs to the American Society of Home Inspectors (ASHI). Their membership and experience requirements are the toughest of the home inspection groups. To find a local ASHI inspector, go to www.ashi.org or call 1-800-743-ASHI.

What is an "As is" Home Sale? Many sellers of older homes decide to sell "as is." That means the seller must disclose known defects in the property but will not pay for any repairs.

For example, if a house's roof is 20 years old but isn't leaking, it is nearing the end of its useful life. An "as is" home seller can refuse to contribute to the cost of a new roof and leave it up to the buyer to decide to purchase or not.

Another reason for selling a home "as is" occurs when the residence obviously needs renovation but the seller either doesn't have the funds or doesn't want the inconvenience. Also, it is often better to let the buyer remodel to the buyer's standards rather than the seller wasting money on upgrades, which might not add to the home's market value.

Summary: The best way to avoid buying a "bad house" is to insist the seller provide a full written disclosure of known defects in the property. In addition, the buyer should insist the purchase offer contain a contingency clause making the purchase contingent on the buyer's approval of a professional inspection report. More details are in my special report, "How to Avoid Buying a Bad House," available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.

Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula