Find property flaws before it’s too late

July 1, 2010 | 46 Comments


MSN’s Smart Money just came out with this great article that deals with the importance of having a potential home inspected prior to buying or even making an offer.

Don’t let your new home become a money pit of despair. Let a home inspector find the home’s hidden defects before you get stuck with the bill.

By Lisa Scherzer of SmartMoney

Find property flaws before buying (© SuperStock)


    After a home inspection turned up everything from leaky toilets to termites, Cincinnati couple Hannah Powers and Ben Clinkinbeard thought about rescinding the $305,000 offer they’d made on a four-bedroom home. Instead, they got an estimate for the cost of repairs, and worked it out that the seller would pick up the $10,000 tab. “You can’t wash dishes and flush the toilet at the same time,” Powers, 28, says. “That’s a problem you’d think someone would mention.”

Though you may think you’ve found your dream house, no property is perfect. For buyers who signed contracts before May 1 to meet the deadline for the homebuyer tax credit, now is the time to make sure your new home isn’t hiding any defects or problems.

Some homebuyers, in the rush to meet the deadline to get the tax credit, may have overlooked a few of “these issues related to home inspection,” says Robert Lattas, a real-estate attorney in Chicago.

Here’s what you should know.

Inspection contingency
As Powers and her husband did, buyers should be sure to make the purchase contingent on a home inspection. The contingency period typically lasts a week or two. This is when the buyer should get an inspector to check the house for problems that need fixing — and to look for other obviously important information that could kill the deal. This could include things like water damage, a furnace that’s too old or flaws in the foundation.

And with the hurry to get contracts done by April 30, “I’m sure there were many contracts that did contain a post-contract inspection period,” says Alan E. Katz, a real-estate attorney with Greenfield Stein & Senior in New York.

Keep in mind, however, that while a standard home inspection can be revealing, inspectors technically don’t have to check for problems with appliances, sprinkler systems, septic systems, smoke detectors, lead paint, radon, asbestos or pests. Some inspectors, who may also be engineers, can check on these details, but often they’d be considered extras.

Negotiating the repair
Many states, including Illinois and New York, require home sellers to fill out a property disclosure statement, which is supposed to note any “material defects” with the house that are known to the seller.

If the inspection uncovers a problem that wasn’t noted in the disclosure form, the buyer might — depending on how the contract clause was drafted — have the right to terminate the contract, have the problem fixed by the seller before closing or get a credit for the cost of the repair at closing, Katz says.

If the seller lied on his report — for example, he knew there were flooding issues but didn’t disclose the information — the buyer could sue. But the buyer would need to be able to convince a judge or jury that the seller knew of the material defect and did not disclose it to the buyer, Lattas says.

Most real-estate agents and attorneys representing homebuyers would recommend against letting the seller handle the repair. The risk here is that the seller will do a shoddy fix-up job. As a buyer, “I don’t want the seller to fix these issues, because I’m not aware of their quality,” Lattas says. A better alternative is to try to negotiate a repair credit as Powers and her husband did. But be aware that the contract might cap the credit amount.

Final walk-through
A standard contract typically includes a provision requiring the seller to “maintain” the property between the contract date and closing date. That means if the buyer sees a gash on the hardwood floor during the final walk-through that wasn’t there at the time of inspection, that’s considered a changed condition. “You might be able to bring this up and ask for a price abatement,” Lattas says. At that point, the seller will likely concede — he’s out of the property and presumably buying another home.

Also note that every contract indicates what in the house is included in the purchase price and what’s not. Ellen Assael, a real-estate agent with ZipRealty in Westchester, N.Y., had a client who, during the final walk-through, discovered that all the air-conditioning units had been removed. Under the contract, the units were supposed to be left in the house. “There was big trouble at the closing table,” Assael says. Ultimately, the seller gave the buyers a credit.

Property permits
Did the seller add a porch to the house or renovate the kitchen? If he did, make sure you have an amended certificate of occupancy or building permit that verifies the improvements were reviewed by the municipality and done according to code.

“Sometimes owners don’t even know they need to get a permit to reflect the addition,” Katz says. Either way, buyers should have a provision in the contract that has the seller saying that the structure doesn’t violate any code. This could also affect the buyer’s ability to get bank financing. “If you don’t have a valid certificate of occupancy, the bank won’t go through with the mortgage commitment,” Katz says.



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