Monday, March 24, 2008

Disclosure Reports

Sellers: Don't withhold bad inspection report
Hiding unfavorable information can backfire, spark lawsuitBy Dian Hymer, Monday, March 24, 2008.
Inman News
Inspections are an important part of home buying, but the inspection process can be nerve-racking for both buyers and sellers. Both parties want the deal to go through without a hitch. However, sometimes problems surface that the buyers weren't aware of when they entered into contract.
All houses have defects, even new ones. So it should come as no surprise when defects are discovered. The pertinent issues are: Is there a problem? How serious is the problem? How much will it cost to repair?
A home inspector may have a contractor's license. But, few inspectors also are engineers, architects, and plumbing, heating, roofing, wood pest (termite) and drainage contractors. Nor are they pool, spa, sprinkler or security-alarm specialists. For this reason, most home inspection reports are loaded with disclaimers and recommendations to contact the appropriate specialist to evaluate the severity of a problem.
HOUSE HUNTING TIP: It's highly recommended that buyers follow up with further inspections, and get estimates to repair defects that are a concern before removing an inspection contingency. An inspection contingency protects the buyers, but only if they carry through and complete necessary inspections.
Don't be surprised if a second opinion confuses rather than clarifies an issue. For example, a home inspector might be concerned about the internal mechanics of an older furnace. And, he may not have the expertise necessary to say with confidence that there is no problem. So, he recommends that the buyers consult with a licensed heating contractor.
Just because an inspector suspects there might be a problem doesn't mean that one exists. Several years ago, buyers of an older home in the Oakland Hills east of San Francisco were advised to have a heating contractor check the furnace because the home inspector thought it might need replacing for safety reasons. A furnace with a cracked heat exchanger leaks carbon monoxide fumes that can be deadly.
The buyers called in a heating contractor who inspected the furnace and said that it needed replacing. The buyers were disappointed, but wanted to continue with the sale. So they asked the sellers to share in the expense of a new furnace.
The sellers weren't convinced that the furnace needed replacing. And they didn't want to contribute to the cost of a new one if it wasn't necessary. They contacted a second reputable furnace contractor who inspected the furnace and said it was fine and didn't need replacing.
To resolve the dispute, the buyers and sellers agreed to call in an inspector from the local utility company who would have red-tagged the furnace and put it out of commission if it was dangerous. The verdict was that the furnace was fine and had years of life left.
More and more, sellers are having their homes inspected by professionals before putting their homes on the market. This is done so that sellers have an opportunity to make repairs before marketing or for disclosure purposes.
It is risky for sellers to hide a bad report from buyers. There have been cases where sellers chose not to give the buyers a report they didn't like. Later, the buyers coincidentally called in the same contractor for an opinion who informed the buyers that they had already done a report on the house for the sellers.
Lawsuits have resulted from sellers withholding detrimental reports, although disclosure laws vary from state to state. Check with a knowledgeable real estate attorney for answers to questions about a seller's disclosure obligations.
THE CLOSING: Sellers who aren't pleased with a report should consider getting a second opinion and disclose both reports to the buyers.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Jim W Hildreth

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