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How to avoid
buying a 'bad house'
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Dealing with purchase-offer contingencies, inspections
Friday,
May 13, 2005
By Robert J. Bruss
Inman News
If
you, a friend or a relative ever bought a "bad house," it is an event that
is never forgotten and is often shared with others in hopes they won't
make the same mistake. Another name for a bad house is a "money pit."
Personally, although I've bought and sold dozens of rental houses
and condos, I recall only two truly "bad houses" with lots of undisclosed
defects. More about them later.
Purchase Bob Bruss reports online.
Ask any real estate attorney about his or her most challenging
cases, and the reply will probably be "bad houses." Although you won't
find that term "bad house" defined in Black's law dictionary, it is
well-known legal shorthand for a house with serious defects, which the
seller either "forgot" to disclose to the buyer, or was unaware of the
problem.
The reality is every house, even a brand-new house, has
one or more defects. Fortunately, most defects are minor and can either be
tolerated or repaired. But a "bad house" has significant defects that were
not disclosed to the buyer.
Today, savvy home sellers and buyers
can usually detect and reveal serious defects before the sale closes. With
the current high prices of new and resale homes, many buyers feel entitled
to purchase a near-perfect "model home" or at least being informed before
purchase of any significant defects.
DON'T BE SHOCKED IF YOUR
SELLER DOESN'T DISCLOSE ALL DEFECTS. Most states now have some requirement
of required home-seller disclosures of known defects. But the disclosure
forms are far from perfect. Most only ask the seller to disclose defects
"to the best of your knowledge."
If the seller has not lived in
the home and it has been a rental, or if it was inherited, even a truthful
seller might not be aware of its defects. Or, a dishonest seller might
conveniently "forget" to list all the defects of which the seller is
aware. Even an honest seller might not know about all defects or could
have been accustomed to them.
For example, in the 27 years I've
owned my current home, I have never visited its "crawl space" beneath the
house. The only individual to visit that dark area was the TV cable guy
who crawled into that subterranean area about 20 years ago. Nor have I
visited my attic for at least 15 years after I had a new "lifetime" roof
installed. The roofer didn't say if it was his lifetime or mine.
A
PROFESSIONAL HOME INSPECTION SHOULD BE REQUIRED BY LAW. Although state
laws and court decisions require home seller disclosures in most states,
those disclosures are not enough to protect home buyers from dishonest or
uninformed home sellers.
In my humble opinion, state laws should
require a professional home inspection at the time of purchase to minimize
chances of serious undisclosed home defects.
Thankfully,
professional home inspectors are readily available in most communities at
reasonable cost of a few hundred dollars to protect home buyers. If such
inspectors had been easily available about 20 years ago when I bought
those two rental "bad houses," I either wouldn't have purchased or I would
have insisted the seller give me a price reduction for the undisclosed
defects.
Today's savvy home buyers and their real estate agents
insist on including a professional inspection contingency in their
home-purchase offers. That means, after the seller accepts the purchase
offer, the buyer has a right to obtain (at the buyer's expense) a
professional home inspection.
If significant undisclosed defects
are discovered, the buyer can either cancel the purchase or renegotiate
the sales price and terms.
My personal preference, whether I am a
home buyer or seller, is to hire a professional inspector who is a member
of the American Society of Home Inspectors (ASHI). Their membership and
experience requirements are the toughest of the many home inspection
groups. Local ASHI members can be found at www.ashi.org or 1-800-743-ASHI.
Smart home sellers anticipate their buyer's professional
inspection by obtaining their own professional inspection before putting
the home on the market for sale. After receiving the professional report,
the seller can either correct or simply disclose any significant defects.
As a home seller, my experience has been the buyer often accepts
my inspector's report without a second inspection.
Whether you are
the home buyer or seller, be sure to accompany the professional inspector
to discuss any significant defects discovered. The two-to-three-hour
inspection is time profitably spent.
HOW TO HANDLE "AS IS" HOME
SALES. Many sellers of older homes prefer to sell "as is" and let their
buyers deal with repairs or remodeling.
For example, if a seller's
kitchen needs remodeling, many sellers prefer to offer the home at a
reduced sales price and let the buyer deal with the remodeling hassles.
If you are not familiar with an "as is" home sale, that term means
the seller won't pay for any repairs. However, the seller must disclose in
writing all known home defects.
Another name for "as is" homes is
"fixer uppers." They can be incredible bargains. But buyers should be
aware the seller might be concealing "bad house" money pit defects so a
professional inspection is especially warranted.
BUYERS SHOULD ASK
ABOUT SPECIAL CONCERNS. As a home buyer, if you have any special concerns,
don't hesitate to ask lots of questions of the seller and the seller's
agent.
For example, I recently considered buying an investment
property for purchase from a "for sale by owner" home seller. I knew the
seller's father who died of natural causes at 93. We had a common interest
in a civic project. I had a nice conversation with the heir about what a
wonderful man his father was. Then the heir said, "You knew dad died in
his home, didn't you?"
Although I didn't know that fact, I thanked
the heir for telling me but assured him it had no influence on my purchase
decision. I have bought many probate properties where the deceased owner
died in the home.
But such issues can be very important to some
home buyers. For example, a few years ago a San Francisco real estate
broker was sued by his home buyer for failing to disclose there had been a
suicide in the house. The broker testified he knew of the suicide but
didn't reveal it to the buyer because (1) the buyer never asked, (2) state
law didn't require such disclosure, and (3) the suicide had nothing to do
with the house's structural condition or desirability.
But the
immigrant buyer came from a country where a suicide in a home is
considered a bad omen. The jury found the broker had no liability because
the buyer didn't ask if there was a recent death in the property.
SUMMARY: The best way for a home buyer to avoid buying a "bad
house" is to (1) ask lots of questions and (2) make the purchase offer
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 $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.
(For more information on Bob Bruss publications,
visit his
Real Estate Center).
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