Sellers who jump on offers from buyers waiving the opportunity to hire an independent home inspector may rue the day they did so.
If a buyer suspects something was wrong with the property and the seller knew about it, but failed to disclose it, a lawsuit could be possible. Even if the seller had no inkling something was amiss, it’s possible a suit could contend that he or she should have known.
In other words, caveat emptor – “let the buyer beware” – could turn out into caveat venditor – “let the seller beware.”
In a recent column, real estate author and speaker Bernice Ross described a situation that happened to a friend: After the deal closed, the buyer stripped off wallpaper to discover 1-inch cracks up and down both sides of a fireplace. They also found that two beds the seller left behind were bolted to a wall, hiding a 1-inch gap between the wall and the foundation.
The seller was a sweet old lady who had the buyer over for tea and crumpets. But after these discoveries, the buyer was incensed – so much so that he sued not only the seller, but her agent.
Could Agents Be Sued?
Most states require sellers to disclose known defects in their homes to would-be buyers. But former realty broker Christian Adams said the most common lawsuits against sellers in his home state of Texas now stem from incorrect disclosures.
In today’s hyper-hot market, where houses are selling within days (if not hours), buyers are sometimes encouraged by their agents to forgo an inspection to make their offers more attractive.
But Adams, who now is chief executive officer of Repair Pricer, an AI-powered home repair estimation platform, said that advice “could place [agents] in a very compromising position.”
It might even come back to haunt the agent who advised the seller to accept an offer sans inspection.
Not everyone believes agents and their brokers could be in jeopardy. Though a “strong proponent” of home inspections, Joey Sheehan of Berkshire Hathaway Home Services Fox Bryn Mawr, Pennsylvania, doesn’t think listing agents or sellers will be particularly vulnerable to anything other than frivolous lawsuits.
Even if a seller purposely failed to disclose a known defect, a buyer who passed on an inspection would find it difficult to prove the seller had deliberately hidden the truth, Sheehan told me in an email. Theoretically, the seller could claim they really were clueless, she pointed out.
“How could the angry new owner establish there was fraud when the buyer conducted no inspection of his own?” she said.
Nevertheless, Sheehan’s firm, like many others, now has its buyer-clients sign an advisory if they skip the inspection.
“We want it on the record that we strongly urged them to conduct inspections, and that it was they who declined to do so,” she said.
On the other hand, Adams believes those agents who recommend that buyers waive the inspection contingency, and those who advise sellers to accept these offers, are in violation of the National Association of Realtors’ Code of Ethics – particularly Article 13, which said members should not engage in the unauthorized practice of law.
As he sees it, it could be argued that it is not in a client’s best interest to waive the inspection contingency or to accept such a contract. Therefore, agents who encourage these choices could be exposing their clients to undue risk, and the clients should seek legal counsel prior to proceeding.
Preexisting Conditions a Threat
Of course, not every hidden defect will spark a lawsuit.
“Not every house has something wrong with it that is sue-worthy,” Adams said.
According to Repair Pricer, a deep dive into some 50,000 inspection reports nationwide found that the most frequent issue – missing or loose electrical outlets or outlet covers – cost $109 to correct. The most expensive repair of the 10 most frequent issues – damaged or missing siding – was $478.
But anything that involves an active water leak is likely to set a buyer scurrying to court, especially if it appears the seller tried to hide it. Signs of moisture stains and water penetration were found in 39 percent of the inspections and cost $462, on average, to remedy.
Adams tells the frightening tale of a client who woke up one morning shortly after he moved in to find water dripping from an upstairs shower through the ceiling below. When a plumber took down the soaked drywall, he found a leaking pipe with a tag on it from a previous plumber who had noted the problem.
“This,” Adams contends, “was a preexisting condition that was both known and covered up by the seller. The seller was 100 percent aware of the problem but chose to cover it up.”
In today’s hot market, many buyers figure that if they don’t waive the inspection contingency, someone else will. But just because you waive the contingency doesn’t mean you can’t obtain an inspection; it just means you can’t use the findings to renegotiate the deal or cancel it altogether.
Obtaining an inspection will give you a pretty good idea of what you are getting into. And if you find the results troubling, you can always find another way to get out of the contract.
“You have the right to get an inspection, and you should,” said Adams. “And you should be getting one every year. If you don’t catch a problem early, it will lead to a more expensive problem down the line.”
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at [email protected]