You're in the market for a home. You're already preapproved for a loan. You find what looks like the perfect home to buy.
But how can you be sure it has no hidden defects?
In the last few years, the statutes and court decisions of most states have changed the common law rule of caveat emptor (let the buyer beware). Today, the practical rule has become "home seller (and thy real estate agent) beware of the home buyer, the buyer's lawyer and the buyer's professional home inspector."
The best way to avoid buying a "bad house" is to make your purchase offer contingent on your approval of a professional inspection report. After the seller accepts your offer, then you can hire a professional inspector to determine if the seller and the listing agent fully disclosed all known defects in the residence.
DON'T BELIEVE HOME SELLER DISCLOSURES. To protect sellers and their listing agents from lawsuits, several states, including Florida, now require written disclosure of all known home defects. The best realty agents require their sellers to provide additional written disclosures, answering questions about the condition of the home and its components.
These mandatory and voluntary disclosure forms are just the beginning. Some sellers "forget" to disclose serious defects. And other sellers honestly doesn't know about a home defect. (Can you imagine that?)
For example, a few years ago I sold a rental house to two young investors. I provided a written disclosure that, to the best of my knowledge, disclosed all known defects. A few months later, the buyers told me the attic was filled with my former tenant's junk, which cost them considerable money to have hauled away.
Frankly, I didn't even know that house had an attic, and I had no knowledge it was filled with junk. Thankfully, I sold that house "as is" (which means the seller will pay for no repairs), so I had no liability to those buyers, who are still my friends.
A HOME BUYER'S BEST PROTECTION IS A PROFESSIONAL INSPECTION. When I began investing in real estate (shortly after the Civil War), there were no professional home inspectors. Buyers were on their own. But within the last 10 to 15 years, professional home inspections have become widespread in every state.
Buyers realize the modest inspection cost of about $300 is money well spent. Realty agents encourage their buyers to include home inspection contingency clauses in purchase offers because such inspections often prevent lawsuits against sellers and realty agents for nondisclosure.
Many sellers, upon their listing agents' recommendations, obtain such inspections at the time of listing to (1) correct serious defects and (2) provide a copy of the inspection report to buyers. Buyers frequently accept such seller-provided reports and waive obtaining their own.
HOW TO FIND A COMPETENT PROFESSIONAL HOME INSPECTOR. In most states, anyone can become a so-called home inspector with no professional requirements. Only California, Oregon, Minnesota and Texas minimally regulate home inspectors. The result is that virtually anyone can print business cards and stationery, calling themselves professional home inspectors.
Although the home inspection field is virtually unregulated, there are superb professional home inspectors. Many are retired general contractors who thoroughly understand residential construction. But there are also equally good professional inspectors who use checklists and modern test equipment that the "old-timers" don't use.
One of the best ways to locate a competent home inspector is to look for members of the American Society of Home Inspectors (ASHI). To become an ASHI member, applicants must provide proof of on-the-job experience and pass a tough exam.
To locate local ASHI members, call toll-free 1-800-743-2744, go to www.ashi.com, or check the phone book Yellow Pages under "home building inspections" or a similar heading.
BUYERS AND SELLERS SHOULD ACCOMPANY THEIR INSPECTORS. After the seller accepts the buyer's purchase offer, provided it contains a home inspection contingency, the buyer should hire a professional inspector. The buyer and the buyer's agent should accompany the inspector to discuss any defects discovered that the seller did not previously disclose.
Sellers and their listing agents should also be present for the inspection. To illustrate, several years ago I sold a rental house that my inspector had previously inspected. Unfortunately, I did not know when the buyer's inspection would take place, so I wasn't there for it. The buyer's inspection report said the furnace was defective, but I knew it was in good condition.
To refute the buyer's inspection report, I had a local gas company representative and a furnace repairman attest the furnace was in good condition. If I had been present for the buyer's inspection, I probably could have avoided the need for the subsequent inspections.
HOW TO HANDLE DEFECTS DISCOVERED BY THE BUYER'S INSPECTOR. When the buyer's inspector discovers defects that were not previously disclosed by the seller, the buyer has several alternatives: (1) cancel the sale and obtain a refund of the earnest-money deposit, (2) agree to a credit from the seller to pay for repair of the discovered defect, or (3) if the seller refuses to provide a repair credit, the buyer can elect to purchase the house "as is."
CONCLUSION. Professional home-inspection contingency clauses should be in every home-purchase contract. Even when the seller has disclosed all known defects, buyers should hire their own inspector to verify the accuracy of the seller's disclosure or to discover previously undisclosed home defects. For more details, please consult a local real estate attorney.