Discovering Property Defects

Of great concern to many homebuyers is the risk that they buy a house that has a problem that is not discovered until after they own the home, and the problem.   The fact is houses can have issues, from improper installations to worn out components to shifting, settling and infiltration of water.

What is a homebuyer to do?

Virtually any defect in a home can be corrected, but at what cost.  And at whose expense?   The important thing is to uncover defects in a timely manner.  In general, the sooner a problem is discovered, the more options you will have in dealing with it.

To this end, a homebuyer has several lines of defense in discovering defects in a property.

Your Inspection

It is always advisable to make a second visit with your agent to a home that you are considering making an offer on—to confirm your feelings about the home and to scrutinize it for issues that may require repair.  If you see something that would deter you from buying the property, investigate it the best you can prior to making an offer.  Sometimes you can get permission to bring in an expert, e.g., a structural engineer, to help you evaluate the item of concern before writing the offer.  It is not a bad idea to bring a contractor or knowledgeable friend or relative to your second visit to the property to have another set of eyes working for you.  You can also have your agent include language in your offer requiring the seller to make repairs as a condition of your offer.  If you discover something at this point in the process and do not enter into an agreement because of it you may be disappointed but you will not have spent money on inspections, etc. and you have not lost time.

Seller Disclosure Statement

Any seller who lists a property in the multi-list in Pennsylvania must complete a six-page disclosure statement.  Your agent is required to provide you a copy of this disclosure for your review prior to making an offer.  Both you and your agent should review this document very carefully.  Any defects disclosed by the seller are generally considered off limits as far as requesting repairs or credits during the inspection process.  If a disclosed item is unacceptable to you, your agent should write into your offer language that requires the seller to address the issue as a condition of your offer.   If you find questions that should be answered which are left unanswered, have your agent get the answers from the seller in writing or make the written responses a condition of your offer.  Sometimes the seller just overlooked the question; sometime the seller knows of a defect and, not wanting to say it out and not wanting to lie either, effectively takes the 5th amendment and does not answer the question.

Professional Inspections

Your sales agreement should be written to include contingencies for inspections of the property, usually a home, pest and radon inspection.  If applicable, you should also have contingencies for well, septic system and lead-based paint.  Along with the inspection of the physical property, you should also have contingencies for “inspection” of the title, the property boundaries, deed restrictions, easements, insurability of the property, oil/gas/mineral rights.  It is highly recommended that you attend the inspections as you will learn a lot about the property, see first-hand any major issues discovered by the inspectors and have the opportunity to ask any questions you have of the inspectors.  You can also take a few measurements while you are there to make sure the furniture you are going to purchase will fit in the house.

The objective of the inspections of the physical property is to uncover “material defects”, i.e., defects that affect health or safety or have a significant adverse impact on the value of the property.  The language in the sales agreement itself, however, allows a buyer to request repairs or credits from the seller for anything in an inspection report that is “unacceptable” to the buyer.  There are no hard and fast rules about what the buyer can ask for nor for what the seller must address.   The buyer has the right to terminate the agreement for anything that is unacceptable; the seller has no obligation to agree to any repairs or credits that the buyer requests.  Therefore, the resolution of inspection issues is another negotiation between buyer and seller through their agents, often more onerous than the initial negotiation on the agreement of sale.  Therefore, it is wise for a buyer to consider the condition of the property when determining the price he/she is willing to pay for the property and to budget for some repairs.  Otherwise the buyer sets a low threshold for having to terminate an agreement if a seller does not agree to address inspection issues that are of concern to the buyer.  If the agreement is terminated at this point, the buyer loses the cost of the inspections (typically $450 or more), usually a non-refundable deposit to the mortgage lender ($350 to $500) plus time and emotional investment.   Faced with the cost of walking away, some buyers will compromise to an extent they would not have at the beginning of the process.

The buyer can request that defects discovered in the inspections be addressed by the seller by way of a repair prior to closing, paid for by the seller, or by a credit from the seller to the buyer at closing to cover the cost of the repair.  In general, if there is only one verifiable way to perform a repair, e.g., repair a malfunctioning bathroom exhaust fan, the buyer may want to ask for the repair to be done by the seller.  In cases where there is a range of ways a repair can be done, or a possible variation in the quality or a repair, or an aesthetic aspect that is of concern to the buyer, it might be better to get an estimate from a reputable contractor and request a credit from the seller and have the repair done after closing.  Generally, you should assume the seller will take the absolute cheapest way to make a repair.  They may hire Uncle Bob, who is out of work and has a drinking problem to do the repair to help him out and save them money.  Then you are stuck with a repair that is acceptable to the seller but not to you.

Post-closing Litigation

If you find a major defect after you close on the property, you can try to have it addressed by the seller by suing the seller and/or other parties involved in the transaction.  It is extremely hard to prove that a seller knew about a defect and did not report it on the seller disclosure and a law suit can be very expensive.  The best course of action is to be conscientious in the above steps so that this one does not even come up for consideration.

Again, the general rule is the sooner the better when it comes to discovering defects in a property you are considering buying.    You will have more options and less compromise if you find something bad sooner rather than later.

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