SELLER’S DISCLOSURES AND THE HOME INSPECTION
One of the more frustrating, but necessary elements of representing a seller or buyer of a house is getting through a home inspection. In order to better deal with this ordeal we must first look at why it is so important and then look at the best way to educate the parties as to what to expect. In order to avoid any problems during the process it is best for the parties to be forth right and make sure it is clear to all the parties as to what their obligations are.
WHY IS THE INSPECTION SO IMPORTANT
New York is what is known in legal jargon as a “Caveat Emptor state” which literally means “Let the buyer beware” This has been handed down through old English common law. The buyer in New York must insure that everything with the property is satisfactory before they sign the contract and unless the contract sets forth conditions which seller must correct the buyer is purchasing the property “AS IS”. There are certain customary conditions which seller will insure, such as the treatment of termites, and most contracts will provide that appliances, plumbing, heating and electric systems will be in working order AT THE TIME OF CLOSING. There are no guarantees or warranties provided. The electric system may be working at the time of closing, but a buyer may discover after they move in that the 60 amp service that was adequate for the 85 year old seller, who has owned the house for 70 years, is not adequate to run an air conditioner and charge a cell phone at the same time. There is no recourse once the contract is signed. First time buyer’s usually are surprised to find this out and I am often asked “What happens if the washer breaks the day after we close” of which I reply “Welcome to home ownership”.
ARE SELLERS REQUIRED TO DISCLOSE
Case law has created exceptions to the Caveat Emptor rule. Even though the buyer must do their own due diligence before purchasing a house, the seller can not intentionally conceal defects. So if a Seller knows of a defect they can not purposely cover it up and make it difficult for a buyer to discover. A Seller must also disclose any material facts which a reasonable buyer would want to know before committing to buying a property. The clearest example would be if there had been a horrific crime, such as the murders of the Difeos in the famous “Amityville Horror” house. It would be reasonable to assume that a buyer would want to know of such an occurrence. New York courts have found that a seller must even disclose the fact that a house has a reputation of being haunted, even though there have been no proven occurrences of any hauntings. The New York Supreme Court found that the fact that the house had a reputation in the community as being haunted required that seller, and their agent disclose this to potential buyers. I recently had a case where a buyer was purchasing a large estate and a new survey disclosed a small cemetery on the property. The grave markers were from the 18th and 19th Century. This was never disclosed and was in a wooded section of the property and not easily discovered. My client’s loved the property and actually found the presence of the cemetery “cool” so it did not effect their decision to purchase the home, however, if my client’s were not so open minded I am certain that we would have had reasonable cause to terminate the contract due to seller’s failure to disclose.
The New York State property condition disclosure act
In order to protect buyers from the harsh reality of the states “Caveat Emptor” tradition in 2002 New York State Legislature enacted Article 14 of the Real Property Law, known as the “property condition disclosure act”. The law, in my opinion, has provided the buyer with no further protections. The law requires a Seller to prepare an in depth property condition disclosure statement and provide it to prospective buyers at the onset of the transaction. You can find a copy of the required statement online by searching New York State property condition disclosure Statement. The statement goes into details of all known conditions to the property, however, imposes no liability upon seller if they are incorrect. What makes the law even more ineffective is the fact that the Seller can “opt out”. The seller can elect not to provide the disclosure and in turn will be required to give the buyer a credit of $500.00 at the time of closing. Oddly, this is roughly the cost of the home inspection. Even if a Seller is willing to give the disclosure I strongly urge that the purchaser obtain an inspection. I advise them that you can not rely on the sellers statement. If the Seller is mistaken or dishonest, your sole recourse would be to sue the seller. Nobody wins in such cases except the lawyers. Better to do your due diligence and greatly reduce any possible issues.
ADVISE PARTIES OF INSPECTION REALITIES
Outside of these exceptions it is up to the buyer to “discover” any defects. Most lay people, myself included, have no idea what they are looking at when they commit to buy a house. They look at the room size, the amenities, the appliances, the schools, the neighborhood the kitchen cabinets. All important considerations, however, most do not look at the foundation, the age of the roof, the condition of the heating or air conditioning system, the plumbing and electric. Of those that do look at these items only a very few actually know what they are looking at. Hence the need for a Home Inspection. Many brokers and sellers fear the home inspection and feel that many are deal killers. To some extent they are correct. But as I often say it is not WHAT is said it is HOW it is said. Expectation is everything.
When I am first contacted by a seller, I advise them to do their homework and make sure that they get the house ready. They should take an inventory and be aware of the defects and short comings of the property. They should be aware if any certificates of occupancy or compliance are needed, and when possible they should correct defects and obtain needed certificates. If they are unwilling to make corrections this should be disclosed to buyer when negotiating the contract and purchase price. If, using the example of the house with 60 amp service, you advise the buyer that the electric will need to be upgraded when negotiating the price, the buyer will not be able to renegotiate after the home inspection for this reason.
When a buyer retains me to represent them in connection with their purchase I encourage them to obtain a home inspection for all the reasons stated above. I feel it is very important that I explain that the inspector is hired to find things wrong and let them know that the inspection is as more an educational tool than a negotiating tool. I strongly encourage them to attend and stay with the inspector. Most of all, ask a lot of questions. The inspector will inform you of how things operate and what you will need to know to maintain all the systems of the home. Again, they will find problems, this is not a new house and there will most likely be things that are inadequate and need attention. I advise them that these things fall into 3 categories, The obvious, the acceptable and the deal breaker. The obvious being that the price was which agreed upon was based upon the apparent condition of the property, If the front door has a big crack down the middle of it is disingenuous to renegotiate the price after the inspection because the front door has a crack. This condition was obvious and taken into account when negotiating the original price.
Where the inspection comes more into play is where there are conditions disclosed which the buyer had no way of knowing when agreeing on the price. Lets use, for example, the roof. A buyer with out any disclosures otherwise given, will assume that the roof is in good shape when agreeing on the price. The inspection discloses that the roof has three layers of shingles and is at the end of it’s useful life and that it will need replacement in the next year at the cost of at least $15,000.00. When this happens I get the panicked call from the buyer saying that “THE SELLER HAS TO FIX THIS”. The first thing I say is that the seller does not have to do anything. The seller can simply say too bad take it as is or move on. It is important to immediately present this situation to the seller and see if they are willing to move off the purchase price or make other concessions towards resolution of the issue. A lot comes into play with this regard, and a lot has to do with market situations. If the Seller feels that they are “giving away” the house (and what seller does not feel that way) they are going to be less amenable to making any concessions. However if the seller is more realistic and does not want to lose the buyer, they may be willing to reduce the price.
Same goes for the buyers end. I explain to the buyer that it is great that they discovered the problem with the roof, but it does not necessarily mean that they should forgo the deal if the seller is not willing to make any repairs or concessions. With the knowledge obtained from the home inspection the buyer will reduce the “element of surprise” and will know what they are getting into and what to expect in the future. They will be able to budget for the repair and when the time comes they will be ready. The buyer must take all this into account. They know the market and may ffe that the house is still a good deal even though they will be faced with this capital expenditure in the upcoming year, or the costs of eventual repairs may cause the house to become unaffordable. When buyers decide to go forward with the deal with the bad roof, where the seller refused to negotiate any repair or reduction, I let them know that it is going to suck when it comes time to repair the roof, but at least you had the opportunity to prepare and by the way “Welcome to Home Ownership”.
So in conclusion, material disclosures and the home inspection are necessary steps in the home purchase transaction. They should not be avoided or downplayed. Any material facts which would effect a buyer’s decision must be discussed with seller and disclosed to buyer. The Home inspection should be embraced and the parties should be made aware of its importance and what they can expect. The better the communication at the onset of the process the more likely it is that a smooth transaction will follow