Category Archives: Inspection

A recent California case is being hailed as an expansion of the listing real estate broker’s duty to warn buyers of dangerous conditions within the house. The case is called Hall v. Aurora Loan Services, LLC, 2013 DJDAR 5460 (April 26, 2013). In many ways, however, it’s a reminder of how common sense, rather than reliance on the letter of the law, can save home sellers a whole lot of hassles — such as broken legs and lawsuits.

Here’s what happened. The home seller, prior to putting the house on the market, commissioned a home inspection. This is a common practice among sellers in order to get a heads-up on home defects and potentially fix some of them before buyers have a chance to use them as negotiating points. The inspector’s report mentioned that the pull-down stairs leading to the attic needed “repair and replacement.” (Not, obviously, the stairs shown in this artsy image.)

Wouldn’t you think common sense would be screaming in your ear at this point, “Fix it!”? Or at least put up a warning sign? Or at least ask more questions if you weren’t entirely clear on what the report was saying?

But neither the seller nor the selling broker did any of that. Instead, in keeping with California disclosure obligations, they provided copies of the inspection report to everyone who visited the house. One of those visitors was a real estate agent with her clients. The clients ascended the stairs, the real estate agent followed, the stairs collapsed, and the agent fell and broke her leg. Lawsuit time!

Not terribly surprisingly, the court said, in essence (yes, I’m paraphrasing hugely here),  “Don’t just hand people the darn report, tell them the stairs are dangerous!”

But really, the most pithy commentary on this whole sad sequence of events was offered by the bloggers at the Law Offices of James J. Falcone, who said: “The [court] opinion doesn’t say how the clients, now stranded in the attic with the agent writhing in pain on the floor below, got out of the attic.” Indeed, court opinions often leave out the most interesting facts!

In Barry Stone’s column on Inman News this week, “Resolving disputes over home repair estimates,” a worried home buyer writes in with an almost classic scenario: The buyers are in escrow, their home inspection reveals that the furnace needs repair, and now they’re negotiating with the seller over how much the repairs will truly cost (with different prices named by different contractors) and how much the seller will pay for it all.

Unlike some homebuyers who don’t know which contractors to trust, this pair feels pretty confident in their own heating repair folks — and less than eager to rely on the lower bids (surprise, surprise) from the seller’s favored contractors. As with all mid-escrow negotiations, this may come down to how badly the buyers want the place, and how hard the sellers want to push back, risking the collapse of the deal.

But there’s a wrinkle to this case that caught my eye: The buyers say, “When we insisted that the work be done by one of our contractors, the sellers’ agent said this was an “outlandish” request.” 

Where’s their own agent in this deal? Stone noticed the same thing, and said, “Hopefully you have an agent of your own who will negotiate on your behalf, rather than giving in to the sellers’ refusal.”

I’m guessing they don’t have their own agent. Dual agency — when the same agent attempts to handle the deal on the buyers and sellers’ behalf — is still “common” in the U.S., according to a survey of agents by Inman. This arrangement often arises when buyers visit an open house before getting an agent, fall in love with the place, and agree to the listing agent’s urging that, “I can just draw up all the paperwork for you and we can get this deal done!”

Hopefully the seller’s agent in the above case disclosed to the buyer  (as is legally required in most states) that they’re now in a dual-agency relationship, and got the buyer’s written consent. (But did the agent really explain what it meant?) Hopefully also, the buyers will soon catch on to the fact that the sellers’ agent is not fulfilling his or her duty, as a dual agent, to act in an unbiased manner, avoiding promoting the interests of one party to the detriment of the other. They should raise this issue with the agent and his/her broker/supervisor.

Because there’s no doubt that calling this buyer’s request “outlandish” is promoting the sellers’ interests. It’s rather, well, outlandish.

Every house that wasn’t built yesterday has its own history: Perhaps a famous person lived there, or the house was one of few to remain standing during an earthquake, or it’s where the former owners always put up the best holiday display.

When a house’s history is dramatic enough, it can actually affect the property’s market value, for better or for worse. The court cases usually emphasize the instances of “worse” — for example, when sellers fail to disclose a violent murder on the property, which despite having no affect on its physical condition, creeps most people out enough that they don’t want to pay as much for the place.

But even something like the aforementioned holiday display can affect a buyer’s enjoyment of the property. A couple I know bought a house where the owners had accompanied their holiday light show with a “Santa’s workshop” setup in the garage — with the result that, for years after my friends bought the place, kids would show up demanding to see Santa. (Fortunately, the sellers had warned them in advance, so there was no need to drag Santa into court.)

The question when selling a house is, do you play up the history or not? I imagine this was discussed by the owners of a property sold last week in North Oakland. The house was once owned by Black Panther co-founder Bobby Seale’s parents. Back in the 1960s, Seale, Huey Newton, and others met there — they apparently drafted the Panthers’ manifesto in the dining room.

Some prospective buyers, upon hearing this news, might have said, “Cool.” Others might have wondered what they’d tell the folks back in Peoria. Perhaps in response to this possible mix of audience responses, the sellers here took a low-key approach. They didn’t mention — much less play up — this bit of history in the house’s listing materials. It merely received a quiet mention in the disclosure packet. Instead of focusing on history, the sellers played up all the contemporary features they’d added to the house — maple cabinets, quartz countertops, and so on.

That didn’t stop the sale from becoming a local news item, however:

Here are the stories from the Huffingon Post (“Black Panther House Sold in Oakland“) and the San Jose Mercury News (“Black Panther birthplace flipped and sold as trendy Oakland showpiece“).

The big news in real estate law these days is a decision by the Pennsylvania Supreme Court holding that a home buyer has the right to sue the seller and the real estate agent for neglecting to disclose a murder/suicide that had taken place in the house for sale. (See Milliken v. Jacono, 2011 PA Super. 254). The crime took place in 2006, when Konstantinos Doumboulis, who owned the home prior to the Jaconos, allegedly shot his wife and himself, leaving his children to call 911.

It was a crime that made the news, such that two professional real estate appraisers stated (on behalf of the buyers) that the property was worth 10-15% less as a result. The buyers themselves stated that they wouldn’t have bought the place had they known.

The Milliken case is based on a Pennsylvania law requiring sellers to disclose “material defects” in a property during the sales process. Nearly every U.S. state has a similar law, or common law concept, mandating that sellers tell prospective buyers what they know about the property — instead of withholding key facts that might affect how much the property is worth, under the bad old rule of “caveat emptor” or buyer beware.

The Pennsylvania supreme court’s decision doesn’t seem too surprising, although it was hardly inevitable, given that the trial court had ruled in favor of the sellers. Court decisions across the U.S. have emphasized home sellers’ responsibilities to be upfront about the condition of the property — not just regarding physical defects, but other matters that may affect what an ordinary consumer would be willing to pay. A classic example is the 1991 Stambovsky v. Ackley case, from New York, holding that the sellers of a Victorian mansion that had become the site of local haunted house tours should have told the buyers about its supposed ghostly inhabitants. (For details, see “Buying a Haunted House: How Will You Know Beforehand?“)

One thing that does stand out about the Milliken case, however, is the home sellers’ assertion that they asked their real estate agents something along the lines of, “Should we tell the buyers that they’ll be living on the site of a recent murder/suicide?” and the agents said, “No need.” That’s a rather large “oops” on the agent’s part, and a reminder that agents are not lawyers, and should not be looked to as the last word on such matters. Not that all home buyers need a lawyer in order to fill out their disclosure forms, but given the general real estate wisdom that sellers should err on the side of disclosure, specifically to head off the possibility of lawsuits, I would have thought the agents themselves would have had the wits to advise the buyers to consult a lawyer.

For more information on disclosure requirements and best practices, see Nolo’s article on “Required Disclosures When Selling Real Estate.” And if you’re a home buyer, do your research before relying entirely on the sellers’ disclosures! A little Googling about the previous sellers might have turned this news story up.

Spending millions of dollars on a home is, apparently, no guarantee that it won’t come with defects.  Just ask recording artist Rihanna, who bought a $6.9 million Hollywood property only to discover that it flooded during rains; or MGM-Studios head Roger Birnbaum, who bought a $16.5 million mansion which, he says, “began to leak like a sieve” during winter. Both have recently filed suit against their sellers, asking for monetary damages to cover repairs.

(And we thought it didn’t rain much in Los Angeles!)

Any lessons here for us non-celebrity buyers of non-mansions? How about:

• No matter how famous the seller, ask lots of questions before the sale. Birnbaum bought his home from a big-name Hollywood talent agent turned house flipper named  Sandy Gallin. The house sure looks nice — in fact, you can peep at its current listing, because Birnbaum is trying to sell the place for $16 million. (Does he really want to claim it’s made of “the finest materials and accoutrements?”) But if what Birnbaum is alleging is true, Gallin’s fame doesn’t translate into a leak-proof roof.
• Filing suit makes people mad. Witness the TMZ reports about Gallin’s response to Birnbaum’s lawsuit, in which he calls it a reflection of Birnbaum’s “ well-known miserly and parsimonious behavior. ” That’s why I recommend trying a demand letter and mediation before marching into court, as described in this free Nolo article, “Home Defects: Sue the Seller?”
• Not only should buyers get a home inspection done before buying (duh), but be alert to any signs that the inspector isn’t exhibiting Sherlock-Holmes-like vigilance. In Rihanna’s case, she claims that the inspector initially reported that an improperly sloped exterior door potentially allowed for water intrusion; but when the seller then argued that the area was fully protected by a seven-foot overhang, the inspector basically rolled over (my words, not hers) and said it was fine. No surprise, Rihanna is also suing her home inspector.
• Litigation is expensive, regardless of the size of your home. Legal experts estimate that Rihanna, for example, may have to spend six-figure amounts for legal fees, hiring teams of experts to demonstrate that the inspector’s conduct fell below the expected standard of care in the industry, getting estimates of repair costs, and more. (This according to the article, “Why high-end buyers of real estate need to be cautious,” by Bradley P. Boyer and Saundra K. Wootton, in the Daily Journal, a legal trade publication.) None of those costs are tied to square footage!
• Moisture problems lead to big repair costs. (No wonder insurance companies raise your premiums when they hear about them.) When buying a home, look hard for any evidence of staining, dampness, or rot, and don’t rest until you’ve made sure the house has no history of leakage (or that any such history has been dealt with appropriately). You may need to ask for repair reports, or go to your city building department and get records of permits for repairs and improvements.

Here’s some more free info for home buyers: Nolo’s article, “Get a Home Inspection,” which describes how to find a good inspector, what inspections are needed, and more.

At last, someone has written a cogent explanation of what the buyer should (or has a right to) expect when buying a house “as is.”

Frankly, I’ve been confused by the differing accounts I’ve read or heard — some say “as is” means that you pays your money and gets what you gets, no basis for price reductions (or later lawsuits)  if any repair needs turn up. Others say that you can still include an inspection contingency and ask for repairs — which makes one wonder, “In what sense is that sale ‘as is?’”

So, big thanks to Tara-Nicholle Nelson for her article “Buy real estate ‘as is,’ use inspection contingency,” syndicated by Inman News.  I haven’t been able to find the article online yet (I read it in the Montclarion), but it’s sure to turn up one of these days.

In the meantime, here are the most important points:

• The meaning of “as is” varies by state.
• In most states, it means the buyer takes the property “as disclosed.” So anything the seller revealed to the buyer ahead of time, such as a leaky roof, becomes something you cannot go back and negotiate over. Any surprises regarding the house’s condition, however, are fair game for negotiation.
• In a few states, it doesn’t matter what the seller told you, “as is” means you accept the risk of flaws in the property.
• Regardless of what state you’re in, insist that an inspection contingency be included in your offer.  That way, if the house’s repair needs turn out to be more than you want to take on, you can at least back out of the sale without losing your earnest money deposit. You might even be able to negotiate with the seller despite the “as is” clause, with the seller’s willingness to pay for repairs or agree to a price reduction dependent on how eager he or she is to sell. (But, as Nelson points out, it would be unethical to try negotiating over issues that were disclosed by the seller from the beginning. )

And, a final tip from me: Remember to choose an inspector with a reputation for giving houses a detailed once over. Get independent recommendations — some real estate agents, unfortunately, will recommend inspectors who soft pedal problems and therefore ensure that the deal goes through.