Homebuyers come in many varieties: Some are gullible, some naïve’, some suspicious, and many are in between. While it is true that first-time homebuyers should, due to their lack of experience, be extremely cautious and careful, it is not necessarily true that more experienced buyers can relax their guard. In fact, over the years, I’ve seen experienced homebuyers make boneheaded mistakes, over-relying on their past knowledge.
In most cases, when problems arise, they result from inadvertence on both sides – not outright seller deception. For example, Question No. 5.B. of the Seller Disclosure Statement asks: “Are there any additions, conversions or remodeling? If yes, was a building permit required? If yes, was a building permit obtained? If yes, was final inspection obtained?” The question is in the singular: “…was a builder permit required?” It is not plural. So if the sellers had secured only one permit thinking one was all that was necessary, and answered “Yes” to the questions, may they be held liable? And what about the buyers, who relied on the erroneous answer, rather than checking with the city building department to follow-up? Were they negligent in failing to do so?
In the balance, buyers have the heavier responsibility, since mistakes or miscommunications can leave them with a home with defects that will now need repair. The seller has been paid, and may be long gone. Accordingly, what follows is a list of some of the more common buyer oversights/mistakes that can, after closing, result in disputes that find their way into mediation and arbitration.
1. Trust But Verify. Using the above example – where the sellers were honest, but mistaken – there are certain rules buyers should remember:
- Sellers’ answers are, per the form, based solely upon their “actual knowledge”. They are not guarantees or warranties. In other words, sellers can be wrong, without being liable. Only if they know that their answers are incorrect can they be held to account.
- Unless there is reliable proof the seller is outright lying – which is a rarity – I submit the burden of responsibility has shifted to the buyer to perform their own due diligence on this point; go to the city or county, and verify whether all of the remodeling work was permitted and inspected by a building official.
- Trust but verify applies to virtually every other aspect of the evaluation process. For example, if a problem is reported to have been repaired, always confirm that the issue was, in fact, permanently In many cases of water leaks, the repair occurs in the summertime, before winter rains test the adequacy of the job. This may require hiring an independent expert for confirmation, or at least reviewing the receipts describing the work before closing.
2. Water Always Wins. With water and water leaks, the law of gravity reigns. This means whether a repair was effective depends on whether the leak can find an alternative route to invade. So, if the seller reports having recently repaired a water leak, the prospective buyer should verify the efficacy of the work. This may mean hiring another professional to review and evaluate the repair job. Once buyers let their inspection contingency period lapse, they have accepted the condition of the property, with all defects, known or unknown.
3. Talking With Neighbors. Don’t wait until after closing to meet the neighbors. They have no investment in the transaction, and can be a good source of general information about the area, impending construction nearby, safety concerns, etc. In the event the property is in a condo development, neighbors can be a good source of information about HOA governance, upcoming assessments, and potential construction defect issues.
4. Off-Site Conditions. Other than the vague and open-ended question at the end of the Seller Property Disclosure form[1], you will notice that there is nothing about off-site conditions. There is a good reason for this: Where do you stop? One mile radius? Two miles? What about the gravel pit five miles away that sounds like a war zone when excavating rock? Certainly, most buyers would want to know about this, even if the noise was infrequent. But doesn’t this open the door to a bevy of other questions, such as impending developments down the street increasing traffic, rumors about a new transit station nearby, airline flight patterns, etc., etc.?
In the final analysis, it is my belief the Seller’s Property Disclosure Statement should be construed to be focused solely on “the seller’s property”. Otherwise, the sky, literally and figuratively, is the limit. Buyers should spend as much time finding out about what’s going on in the neighborhood as they do in making sure the home is free of material defects. Read the community newspapers; talk to neighbors; talk to shopkeepers.
5. Understanding The Limits Of A Professional Inspection. While most people read the various items addressed in their inspection report, they often don’t read the terms, limiting conditions, and disclaimers. For example:
- Most reports contain a liquidated damage provision that limits the inspector’s liability for errors to the cost of the report. In other words, a buyer’s sole recourse for failing to identify an adverse condition requiring thousands of dollars to repair, will be the price of the report – at most, a few hundred dollars.
- Inspectors are not responsible to verify compliance with building codes.
- If the adverse condition is hidden by furniture, rugs, etc., the inspector is not required to move the obstruction to investigate.
- A report may only be relied upon by the person ordering the report. Inspectors have no liability to third parties who use a report commissioned by someone else, e.g. a back-up buyer.
- Inspectors may estimate remaining life of a roof, but it’s only from the ground – they are not roofing experts, and do not climb up to inspect.
6. Eyes Wide Open. In the infatuation of the moment, after closing, many buyers may see issues that, upon reflection, they wonder how they missed, or why they ignored following up. For example, why does the lot makes a curious jog, or why does the fence seems slightly out of alignment? Is there a boundary issue that should have been vetted? Why are some of the doors out of alignment? Is there a settling problem? If there is a sump pump, what is the frequency of the water problem, and is the pump functioning adequately? It is not enough to be satisfied with the fact that it works when turned on. If the basement smells musty, get to the source of the problem. The solution might be resolved simply by installing a dehumidifier – or it may not. For this reason it’s sometimes helpful for buyers to bring a disinterested friend or relative with them when viewing the property, for an extra set of (dispassionate) eyes.
7. Don’t Ignore Publicly Available Information. In Portland, this means reviewing Portland Maps.[2] It contains a wealth of valuable information, much of which a buyer should not expect their broker to provide, due to Fair Housing risks. With a few mouse clicks, buyers can access tax assessor information, building permit data, zoning regulations for the property, parks, nearby public schools, crime statistics, natural disaster hazards, transportation, and sewer, water and garbage information. Demographic information is also available from the U.S. Census Report.[3]
8. Realtors® Are Not Property Condition Experts. Realtors® are responsible for putting seller and buyer together, making sure buyers get the Seller Property Disclosure form, and generally facilitating a successful closing of the transaction. This can run the gamut of services, from helping arrange for access to inspectors, to messengering documents back and forth. But brokers are not expected or required to be the eyes and ears of their clients, watching for evidence of defects, opining about certain exceptions on the preliminary title report, or giving advice on whether to lock in their interest rate. The law is very clear on this point; so even if a broker thought they knew the answer, say to what a particular title exception meant, the proper response is not to render that opinion, but to encourage the client to get professional assistance, either from their lawyer, or the title company. The broker’s value in the transaction is to “facilitate” it, i.e. making sure all the T’s are crossed and I’s dotted, securing information sought by the buyer-client such as names of possible contractors, or other experts, and coordinating the flow of documents and information.
9. The Older The Home, The Greater Is Buyer’s Due Diligence Duty. A home built in 1930 may be classic in every sense, but the lapse of time means that more attention needs to be paid to things. For example, are the visible lines of occupation actually located along the legally described boundary? Fences, shrubs, and other evidence of use and possession, can ripen into ownership over time. In such cases, perhaps it is a good idea to locate the surveyed corners, and find the pins, if possible. If the home is using natural gas, what happened to the oil tank? Has it been removed? In the City of Portland, some older properties share a sewer line. This means that the City will require the lines be separated, and if an easement is necessary to run across one’s land, it will have to be recorded before closing. What is the condition of the foundation and crawl space? The attic and roof? If there is an historical designation, it must be thoroughly vetted.
10. Follow Up On All Written Explanations In Seller’s Disclosure Form. It is my belief that in most cases, once a seller includes additional information or provides a written explanation, the burden of responsibility shifts to the buyer. In other words, the seller has met his or her legal responsibility. For example, if the sellers disclose they had a leak in the roof, and it was repaired in July and has not leaked since, that is “adequate”. More information may have been helpful, such as the name of the contractor and a description of what work was performed; but if the buyers are interested – and they should be – they can ask for this information. But if there was no buyer follow-up, and the transaction closed, a subsequent leak in the same area is not the seller’s fault. The repair may not have been adequate, but the buyers had the ability to vet that issue. Having failed to do so within the inspection contingency period means they have accepted the risk of not asking for more information when they could. ~PCQ
[1] Question 9.A. asks: “Are there any other material defects affecting this property or its value that a prospective buyer should know about?”
[2] https://www.portlandmaps.com/
[3] https://www.census.gov/quickfacts/table/PST045215/4159000
