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How to avoid buying bad real estate

by Patti Lyles
 

Hire own professional inspector after seller accepts purchase offer


By Robert J. Bruss

Ask any experienced residential real estate attorney about his or her most difficult case. The answer will probably involve a "bad house." While not exactly a legal term, a bad house is one where the buyer alleges the seller knew about a serious structural defect, but failed to disclose it to the buyer before purchase.

Proving the seller knew of the undisclosed defect, which the buyer usually discovers shortly after the purchase, can be very difficult. Since it's human nature to look for someone to blame, a home buyer usually looks first to their seller, then to the realty agent, and finally to the professional inspector if one was involved.

But buying a truly bad house can usually be avoided by following the correct steps. Even brand-new houses have their defects. A local building inspector's approval is no guarantee. However, whether a new or resale house is involved, home buyers can minimize their chances of making a serious mistake.

HOME SELLER DISCLOSURES ARE NOT GUARANTEED ACCURATE. Many states now require home sellers to provide written disclosures of known defects. If the seller lied and failed to disclose a defect, which the buyer can prove the seller knew about, the seller is liable to the buyer for damages.

Incidentally, the easiest way to prove what the seller knew is usually to ask the neighbors. They often know as much about a neighboring house as the seller knew.

For example, shortly after I bought my current home, one of my neighbors came over to get acquainted. After a few pleasantries, he said, "I suppose the sellers told you about when that hill behind your house slid. There must have been at least three feet of mud against the house."

When I replied that the sellers hadn't said a word about the hill slide against my house, he quickly added something about how all the new drainage toward the street probably took care of the problem.

That was 26 years ago. Every time there's a heavy rain, I look at the steep hill behind my house and wonder whether it will slide again. Perhaps it's a good thing the seller didn't disclose the slide, which was apparently corrected properly, because otherwise I might not have purchased my otherwise very desirable home.

HOME BUYER'S FIRST DEFENSE AGAINST BUYING BAD HOUSE

Today's smartest home sellers, before putting their homes on the market for sale, obtain professional home inspection reports. If any serious defects are revealed, sellers should have them corrected so they don't become detriments to a successful home sale.

The best realty agents recommend home sellers also have customary or required inspections completed before marketing the home, such as for termites, energy efficiency, well-water quality, septic system, radon, and building code compliance. Savvy home sellers then have any defects corrected to avoid later problems.

However, the home buyer's first line of defense against buying a bad house is to hire his or her own professional home inspector in addition to the required or customary specialized inspections. To avoid wasting money, the buyer's professional inspection should be completed after the seller accepts the buyer's purchase offer.

Before hiring a professional home inspector, buyers should check the inspector's credentials. Be wary of an inspector recommended by the realty agent. The inspector might be known as "easy" because realty agents don't want to recommend a tough "deal killer" inspector.

Personally, I prefer a home inspector who is a member of the American Society of Home Inspectors. This organization has the toughest experience and membership standards. Local ASHI inspectors can be found at (800) 743-ASHI.

The cost of a professional home inspection should be around $300. That's cheap because a typical inspection requires at least two hours, plus time to write the report. Smart home buyers and their realty agents accompany their professional inspectors to discuss any problems discovered.

Although I've used this example many times, it's worth repeating. Several years ago, I looked at a run-down house that had a bad fireplace crack. Fearing the entire fireplace needed expensive replacement, I made my purchase offer contingent on a satisfactory professional inspection of the entire house. When I accompanied my inspector, I asked him to check the chimney especially close. After inspecting it completely, he reported the chimney was fine and the crack could be repaired with special fireplace mortar cement for about $150.

Later, I learned many prospective buyers rejected that house because of the ugly fireplace crack. Fortunately, I made my purchase offer contingent on a satisfactory professional inspector's report, as smart home buyers should always do. If I had disapproved the report, I would have been entitled to refund of my good-faith earnest money deposit.

Incidentally, hiring a professional inspector is also a great way to avoid buying a "sick house." Don't hesitate to ask your professional inspector about moisture and mold, radon, asbestos, lead-based paint, formaldehyde, carbon monoxide and other negative influences that concern many home buyers.

HOW TO HANDLE "AS IS" HOME SALE

Recently I had the pleasure of visiting Sarasota and Tampa, Fla., where I observed many modestly priced fix-up homes with for-sale signs. As these are my favorite type of profitable home purchases, I was drooling at the profit opportunities.

Although I didn't have time to investigate, when a run-down home is offered for sale "as is" that means it is offered in its present condition and the seller won't pay for any repairs. However, in most states, sellers must disclose in writing the known defects of as is homes. Selling a home as is is not a way to avoid defect disclosures.

However, to avoid buying a bad house, prospective buyers of as is homes should condition their purchase offers on a satisfactory professional inspection report to be obtained by the buyer after the seller accepts the purchase offer.

IF BUYER DOESN'T ASK, SELLER USUALLY DOESN'T HAVE TO TELL

Except for statutory defect disclosure requirements, which vary by state law, if a buyer doesn't ask, the seller usually doesn't have to disclose. It's up to the home buyer to ask about special concerns.

For example, if the roof leaked, but the seller had a new roof installed a year ago and it hasn't leaked since then, the seller isn't required to disclose the roof previously leaked. However, if the seller knows there is toxic mold in the attic from the leak, the mold problem should be disclosed.

But some problems are of special concern to just a few buyers. Death on the premises is one of these potential problems that bother some buyers but not others.

To illustrate, 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 knew about the suicide, but didn't disclose it because the event had nothing to do with the house's structural condition or desirability. However, the buyer came from a country where suicide on a property is considered a bad omen. After learning about the suicide, the buyer sued the realty broker. The jury found the broker had no liability because the buyer didn't ask if there had been a recent death on the property.

CONCLUSION. The best way to avoid buying a "bad house" is for the buyer to ask lots of questions and make their purchase offer contingent on a satisfactory professional home inspection. Buyers should strive to learn everything possible about the home before purchase.

Inspector's in the House

by Patti Lyles
 What's the big deal about home inspection?

"My real estate agent keeps harping on home inspections. She insists that I get one for the house I'm buying. The last time I purchased a home (1975), nobody mentioned anything about inspectors (which saved me a few hundred dollars), and things worked out just fine without one. According to my agent, it's a big mistake to close escrow without an inspection. To me it seems like a needless expense. Please explain: What's the big deal, these days, about home inspection?"

In the years since your last home purchase, disclosure of property defects has become the primary focus of most residential real estate transactions. During the mid-1970's, home inspectors made their quiet debut on the real estate scene. Gaining gradual recognition over the past 10-15 years, they attained prominent acceptance as a distinct and essential profession.

To those who approach real estate with the old "as-is" mind-set, the advantages of home inspection are not immediately apparent. But make no mistake a thorough inspection can shield you from costly discoveries after the close of escrow. It's one of the best consumer protection services available.

Every home, regardless of age or quality, harbors a small, medium, or large list of defective conditions; some obvious; some only apparent to those who know how and where to look. When you hire an experienced, qualified home inspector, there is no question as to whether unknown defects will be found; but rather what, where, and how serious, dangerous, or expensive the defects will turn out to be.

Most homebuyers spend fifteen minutes to an hour walking through a home prior to making an offer. At best, this provides a general impression of the overall physical condition. But what about foundations and structural framing, attic construction, insulation, ventilation, and roof conditions. These are just a few of the hundreds of considerations included in a home inspection.

Above all, let's not forget building safety. An inspector can alert you to red flag issues involving the electrical wiring and fixtures, fireplaces and chimneys, gas fixtures such as furnaces, water heaters, cooktops, and ovens, railings at staircases and decks, tempered safety glass in required locations, and automatic reverse of garage door openers.

Furthermore, an inspector can forewarn you of problems involving faulty ground drainage, defective plumbing, substandard construction, firewall compliance, building settlement, leakage, general deterioration, inoperative fixtures, and so much more.

Clearly, your agent understands this process and the importance of equipping you to make an informed purchase decision. Be thankful that she's working to protect your financial interests. With a detailed home inspection, you will know what you are buying, before you buy it. And that could save you thousands of dollars and years of regret.

"The home we're buying has brick fireplace with a gas log set-up; that is, a gas burner and cement logs. We'd like to burn wood logs instead, to get some heat in the house, but we're wondering what problems this might entail. What is your advice?"

The crackle of a traditional log fire can certainly provide a cozy and romantic ambiance to your living room. But contrary to common belief, a masonry fireplace provides very little heat to the interior of a home. If you stand near a wood fire, you will enjoy the warmth of radiant heat, but while this is happening, the convection which draws smoke up the chimney is also drawing the warm air from within your house, sending it in the direction of Santa Claus after the stockings have been stuffed.

If you wish to heat your home by burning wood, the best approach is to install a fireplace insert. Basically, this is a wood-burning stove, specifically designed to be set into the combustion chamber of a fireplace. To determine which insert model will fit your fireplace and provide the greatest amount of heat per volume of wood, consult a certified chimney sweep.

"AS-IS" Home Sale - I am so confused EXPLAIN

by Patti Lyles
Don't be afraid of contingencies

By Robert J. Bruss

Whether you are a home buyer or seller during the peak 2007 spring home sales season of April through June, you will probably encounter the term "as-is" sale. Just as used-car dealers sell thousands of automobiles "as is" without any warranty or representations, houses and condominiums are sold using the same term.

But an "as is" home sale is different. Thanks to state laws and court decisions, a real estate "as is" sale is far more complicated than the sale of an "as is" used car.

An automobile "as is" sale means "buyer beware." However, the best way to describe a real estate "as is" sale means "trust, but verify," as the late President Reagan said many times when referring to political situations.

WHAT IS AN "AS IS" HOME SALE? Simply stated, an "as is" home sale means the seller must disclose to the buyer all known defects, but the seller will not pay for any repairs.

Does an "as is" home sale mean the seller doesn't have to disclose known defects and can conceal them, as the seller of a used car might do? The answer is "definitely not."

Although two or three states still seem to follow the old common-law rule of "caveat emptor" (let the buyer beware), the modern law today in most states has evolved to "Let the home seller beware of the buyer and the buyer's lawyer."

In other words, even "as is" home sellers must reveal to the buyer all material defects of which they are aware. But "as is" sellers do not have to make any warranties or representations, and need not pay for any repairs to correct material defects.

WHY MANY HOMES ARE SOLD "AS IS." The reason many older homes are sold "as is" is because the seller doesn't want to pay for any repairs.

For example, if I were selling my house "as is" today, I would have to disclose the wood garage door is slightly warped and doesn't close tightly. As an astute buyer, you would surely observe this 1-inch gap at one corner. But the automatic door opener functions well and does its job. I would leave it up to the buyer to decide if he or she wants to install an expensive new garage door, but I'm not going to waste money repairing or replacing the still-good existing door.

There are at least four major reasons some home sellers want to sell "as is": (1) the seller doesn't have the money to correct the disclosed defects and prefers to let the buyer fix the problems; (2) the buyer is likely to renovate an older "fix up" house so the seller would be wasting money on minor repairs; (3) the seller has owned the house many years and doesn't insist on earning top dollar; and (4) the seller doesn't want the hassle and inconvenience of fixing the problem.

Possible additional reasons for "as is" home sales include the seller (1) recently acquired the residence by inheritance or purchase and is reselling for a quick profit; (2) hasn't lived in the property and is not aware of its problems; and (3) doesn't want any responsibility for fixing problems that might occur after the sale closes.

HOME WARRANTY POLICIES OFFER LITTLE PROTECTION. When purchasing an "as is" house, buyers should not be lulled into a sense of security if the seller offers a one-year home warranty policy as a sales incentive. Such policies have many exclusions and offer little real protection against serious home defects.

Home warranty companies are "pros" at using the pre-existing-condition exclusion. Although they are eager to accept the seller's or realty agent's policy cost of $400 or more, these companies are notorious for refusing to repair or replace items by claiming the defect existed at the time of the home sale but was not yet manifest. Buyers who collect anything from a home warranty company should consider themselves very fortunate.

HOW "AS IS" HOME BUYERS CAN PROTECT THEMSELVES. Knowing the key reasons many home sellers elect to sell "as is," home buyers can benefit from such sales if they know how to protect themselves. Rather than reject such a home sale, usually advertised "as is" in the local MLS (multiple listing service), savvy buyers welcome such profit opportunities.

The best way for a buyer to protect against an unscrupulous seller who "forgot" to disclose a serious but known home defect is for the buyer to include a professional inspection contingency clause in the purchase offer.

Buyers of every house and condominium should include such an inspection clause making the purchase offer contingent on the buyer's approval of their professional home inspector's report. That means, after the home seller accepts the buyer's purchase offer, the buyer hires a professional inspector and then approves or disapproves their written report.

Home buyers should be wary of inspectors recommended by the real estate agent. Such an inspector might be known as "easy" and not a "deal killer." Ask such inspectors recommended by a realty agent about their experience, background and professional memberships.

An excellent credential is an experienced independent inspector who belongs to one of the professional home inspections organizations. Personally, I recommend members of the American Society of Home Inspectors (ASHI) because of their tough membership requirements. Local ASHI members 1-800-743-ASHI.

WHEN "AS IS" MEANS A BARGAIN PURCHASE. As explained, there are many legitimate reasons for selling a house or condo "as is" after all known defects are disclosed so the buyer can consider them when making a purchase offer.

Many home sellers are not fully aware of their home's defects. For example, years ago I bought a run-down, fixer-upper, "as is" house that obviously needed work. It had been listed for sale at least six months. The seller was an estate. Noticing many defects, I made a very "lowball" purchase offer, thinking it would be rejected. To my shock, it was accepted.

But my offer included a professional inspection contingency clause. I accompanied my professional inspector, as home buyers should always do. He discovered several problems of which I was not aware. We discussed them and he estimated the approximate repair costs (ethical home inspectors are not in the repair business but they usually know if a problem is expensive or inexpensive to fix).

When I received the complete written inspection report a few days later, I showed it to the listing agent. He asked me point blank "OK. How much of a repair credit do you want?" Based on my inspector's very rough estimate, I said $25,000. Later that day, the estate representative agreed to a $25,000 repair credit, which more than covered my fix-up costs.

"AS IS" HOME-BUYER ALTERNATIVES. Even when buying an "as is" home where the seller fully discloses all known defects, as in my home purchase explained above, a professional inspector will often discover unexpected serious defects. When that happens, the buyer has several alternatives.

One is to cancel the purchase and obtain an immediate full refund of the buyer's good faith deposit. But a better alternative is to use the professional home inspector's written report to re-open negotiations to obtain a repair credit for the estimated cost of correcting the unexpected problems.

Especially in a slow "buyer's market," many home sellers are so glad to receive any purchase offer they will gladly agree to credit the buyer with the estimated repair cost.

A repair credit is usually better than a price reduction because the mortgage amount is usually not affected. Another advantage of a repair credit is the buyer can shop around after the sale closes and often reduce the actual repair cost.

SUMMARY: Just because a house or condo is offered for sale "as is" does not mean it should automatically be rejected. But buyers should be very cautious of "as is" sales, realizing the seller might not have disclosed all known defects.

However, savvy buyers insist on a written disclosure of all known defects and a purchase offer contingency clause for the buyer's approval of a professional home inspector's written report. For more details on "as is" home sales, please contact a local real estate attorney.

Multi-family without permits

by Patti Lyles

Dear Patti,

My mother purchased a home that was listed as a multi-family residence. It was originally a single family home, divided into a duplex; with a third unit converted from a garage. All of these changes were apparently made by the sellers; all without permits and all without having been disclosed. Surprisingly, the county lists her home as a multi-family residence, while the city shows it as a single-family dwelling. Now that my mother wants to refinance the property, she's concerned that the lack of permits may be a problem. How should she deal with this situation? – Chris

Dear Chris,

The fact that one municipality recognizes your mother's home as a multi-unit property could be helpful but may not be conclusive. The alterations to the building definitely required permits, and the sellers should have disclosed that permits were lacking. When refinancing, the lender may or may not become aware of the permit status, but when your mother resells the property, she will have to provide disclosure of this condition to the next owners. You should consult a real estate attorney like Ernest Fox in Santa Cruz to determine the full implications of this situation.

The power of permits

by Patti Lyles
 Make home renovation worth your time, money

By Dian Hymer

Dealing with a city's building department can be a nuisance, depending on where you live. The cost of obtaining permits ups the overall cost of a project. However, skipping the permit process can potentially cost you much more.

(SANTA CRUZ COUNTY  building department IS THE WORST IN CALIFORNIA per a 2005 Sentinel article.  My experience is that this statement is accurate)

One homeowner jeopardized a profitable home sale because a significant remodel to the house was done without required building permits. In this case, the renovations added about 1,000 square feet to the building. The buyer's appraiser searched the public record for the recorded square footage of the house.

The public record indicated square footage for the building that was far less than the measured square footage. The appraiser refused to give full credit for the additional square footage unless the seller could substantiate that the work was permitted by the local building department.

Without full credit for the additional square footage, the house would appraise for much less than the contract purchase price. The buyer wouldn't pay the price he'd offered if the house didn't appraise for that price.

To remedy the situation, the seller went to the city building department and took out permits. Penalties were assessed so the permit fees were higher than they would have been if he'd taken permits out to begin with. This seller actually got off easy. The city building inspector could have required that walls be opened up to check the electrical and plumbing installations, which would have cost even more.

HOME SELLER TIP: It doesn't make good financial sense to spend a lot of money on a major renovation without obtaining the building permits that are required by law. The value of the work can be diminished if required permits aren't obtained. In some places, you might be required to undo work that was done without permits. And, you could be stopped from completing a job until you obtain the necessary permits.

To make sure that you don't get into trouble when you sell you home, check with your local city or county building department to find out what, if any, permits are required before you start a home renovation project. Not all projects require permits, and this will vary somewhat from one place to the next.

Generally, permits are required for work that might impact the health and safety of a building occupant, like running a new gas line so that you can relocate your furnace. Structural modifications or additions also usually require permits. You may need several permits for such things as foundation, electrical and mechanical.

Permits can be obtained by homeowners or their contractor. You may be able to save money if you take out the permits yourself and agree to be present for inspections. Some contractors have been known to talk homeowners out of the permit process because it saves the contractor time.

Make sure if you do ask your contractor to take out permits that he actually does it. Some unsuspecting homeowners have discovered after a job was complete that the permits were never obtained. Keep copies of permits and make copies available to buyers when you sell your home.

Sometimes permits for work are obtained, but the final approval is never received. This can have implications for the next person who tries to take out a permit to do work on the house. A San Francisco Bay Area home buyer discovered after closing that a permit to change the furnace had never received the final approval.

She hired a contractor to do termite work, which required a permit. When the contractor went to the city to obtain a permit, he was denied. The outstanding permit needed final approval before a new building permit would be issued.

THE CLOSING: Sellers who do work without required permits, or who don't have permitted work signed off, should disclose this to the buyers before closing to avoid legal problems with the buyers after closing

 Illegal additions alleged to be 'public nuisance'

By Robert J. Bruss

In 1999, Jimmy Jen purchased a dilapidated single-family house. Based on prior experiences with the local building inspectors, he applied for a permit to do only $2,500 of minor dry-rot repairs.

Instead, Jen added a two-room extension, plus a second-floor addition, altered the basement to create four habitable rooms and a garage, constructed new decks on the roof, and installed extensive new plumbing and electrical wiring.

The building inspector learned about the work that was not authorized by the building permit for dry-rot repairs. A "stop-work notice" was posted at the house, but Jen continued work. He also ignored a second stop-work notice and continued construction.

In 2000, Jen submitted another building permit application. But the building inspection department and the city-planning department ruled the nonpermitted work was a public nuisance that had to be removed.

Jen was ordered to remove the entire three-story addition and obtain a new building permit to rebuild. But he refused to comply.

In late 2000, the city filed this lawsuit against Jen, alleging a public nuisance (there were no fire-stops between floors in the construction), violation of state housing laws, failure to comply with an abatement order, and unlawful business practices.

If you were the judge, would you impose a civil fine on Jen and order him to pay the city's legal expenses to enforce its building permit rules?

The judge said yes!

The evidence in this case is overwhelming, the judge began, that Jimmy Jen did not comply with city building requirements to obtain a permit before beginning construction work.

Even after being cited for building permit violations, Jen continued construction and he was cited again, the judge explained.

When a property owner fails to obtain building permits before beginning construction, the city is entitled to order the illegal construction demolished, the judge emphasized.

Because Jen was such a flagrant law violator, he is ordered to pay a $150,000 civil fine plus the city's attorney fees of $837,000, the judge ruled.

Based on the 2006 California Court of Appeals decision in City and County of San Francisco, 37 Cal.Rptr.3d 454.

Built without a permit

by Patti Lyles

Dear Patti,

Our home has an addition, built without a permit before we owned it. Until recently, there were no problems, but lately we've noticed settlement cracks in the foundation and a slight sloping of the floor. My husband says this is not a big deal, that most homes in the area have cracks because of the clay soil. If we paint the house and sell it, do you think the small cracks in the foundation would hinder the sale? --Linda

Dear Linda,

In today's litigious business environment, the last thing you want to do is paint and sell. Foundation cracks and an uneven floor may or may not be signs of serious structural problems. But a definite determination should be made prior to selling the property. If you were to sell the house, and a major foundation problem were later discovered, you could spend three years and large numbers of dollars in needless litigation. The safe and sensible approach is to hire a licensed structural engineer to fully evaluate these conditions. If the cracks and sloping indicate no significant problem, you'll have engineering documentation to assure buyers and to protect yourselves from future liability. If a serious problem does exist, you'll be able to disclose it to buyers or have it repaired prior to sale.

Seller should always get home inspection

by Patti Lyles
If you don't, be prepared for legal troubles and long time on market

Tuesday, June 19, 2007

By Barry Stone

Dear Barry,

The other day, my father mentioned that if he sells his house he will not allow a home inspector on the property. This sounded pretty rash to me. If he forbade a home inspection, what would he be required to disclose? If defects were discovered after the sale, wouldn't he be liable? --Mary

Dear Mary,

Home inspections have come to be regarded as a reasonable and routine procedure when buying a home. In fact, most real estate purchase contracts specify inspections as a buyer's option, thereby obligating sellers to accommodate this normal disclosure process. If your father were to refuse a home inspection of his property, he would not only violate that contractual provision but would foster an air of suspicion in the minds of most buyers. Even if he had nothing to hide, his position would appear suspect.

Worse yet would be his legal posture if undisclosed problems were to arise after the close of escrow. Even if he had no prior knowledge of existing defects, who would trust the denials of a seller who had stood in the way of the standard discovery process.

If your father wants to conduct an as-is sale, this can be done without prohibiting a home inspection. In fact, the safest approach would be to hire a home inspector of his own to provide thorough disclosure of defects and to demonstrate that there are no intentions to withhold vital information about the condition of the property.

As to which conditions he, as seller, should disclose, the best practice is to tell all. Anything and everything that could possible warrant concern on the part of a buyer should be fully divulged. This is the best way to avoid liability after the deal is consummated.

We’re BACK in the Saddle again!

by Patti Lyles

 Compelling Update:

We’re BACK in the Saddle again!   After 9 straight months of sales declines, we’ve had three straight months of increased sales.  Can’t consider that a Fluke. Home sales in Santa Cruz rose 8.7% in January compared to January 2005.  Home sales were up 9.9% in January and that is great news for Sellers.  The good news in all of this?  Buyers and sellers are finally making deals! Inventory fell 20.2% and is now at its lowest level since January 2006.

Home Prices, on the other hand, continued to fall for single-family homes with the median price down 1.3% from the month before, off 4.3% year-over-year.  The average price rose 2.9%, down 2% compared to last December.

For Buyers, the market looks to be tightening up.  That happened because Inventory is now at its lowest level since last February.  Prices took a tumble in last year from May thru December, but we expect them to firm up as the spring selling season begins.  If you are looking to buy, this may not be a bad time to do it, especially with mortgage rates at their low for the year. For sellers, if you really want to sell your home, you need to entice offers and then negotiate them. Remember, in a market like this, your first offer is very often going to be your best offer.

The real estate market is very hard to generalize.  It is a market made up of many micro markets especially here in the Santa Cruz County so call me to hear from the horse’s mouth what is up in your area.

 

 

 

                                                               

Displaying blog entries 81-89 of 89

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Photo of Patti Lyles Real Estate
Patti Lyles
Century 21 Showcase, REALTORS
P.O. Box 67275
Scotts Valley CA 95067
831-335-2100

DRE #01385517