What Home Sellers Don't Tell Buyers
As buyers ease back into the battered
real-estate market, they're often hitting a stumbling block:
fibbing by home sellers.
Eager to unload their abodes, some sellers exaggerate the size
of their lots or their houses. Others minimize their
property-tax or utility bills, conveniently forget about pests,
or downplay flooding problems or noise.
Real-estate experts say that while such misrepresentations
aren't new, the tough market of the past few years has made
buyers more wary, partly because they can't expect rising home
prices to bail them out of costly mistakes. As a result, deals
are taking longer, and more of them are falling apart as buyers
find properties sometimes aren't all they're supposed to be.
More than 30 states have disclosure laws requiring sellers to
tell prospective buyers and agents about leaky roofs and other
problems, according to the National Association of Realtors. But
there's often a gray area involving the disclosure of problems
the seller may not know about, such as a long-ago flood or
States are also increasingly passing laws requiring homeowners
to disclose environmental issues, such as the presence of radon
gas, a contaminant linked to lung cancer, and underground fuel
tanks. In California, the checklist of required disclosures is
so long that a cottage industry has sprung up of firms that help
sellers prepare the forms.
Given the complexity of disclosure laws, it's not surprising
that potential buyers don't hear about every problem in a house.
Besides the issue of fibbing, sellers may genuinely not know
about problems. And even if they do, the laws generally don't
apply to bank-owned homes transferred in foreclosures, which now
constitute a larger share of sales.
Buyers need to do their own due diligence and not rely
exclusively on what sellers and agents say. They should hire an
independent home inspector or home-inspection engineer, one not
referred by the seller—and be aware that real-estate agents
typically represent the seller.
Here are some of the common misrepresentations and white lies
that buyers may hear as they shop for a house, according to
real-estate experts and state regulators:
This House is on Two Acres
Disputes about property dimensions; how many square feet in a
house or condo, or its exact boundaries; are common. Sometimes
buyers don't learn the exact dimensions until the lender's
Listing agents usually accept a seller's word on property
dimensions, says Diane Saatchi, a senior vice president at
Saunders & Associates, a real-estate firm in Bridgehampton, N.Y.
"We tell everyone to verify," she says. Smaller dimensions also
can cause an appraisal to come in lower than the agreed-upon
purchase price. Low appraisals are a leading cause of ruined
deals in today's market. A properly worded appraisal contingency
in the purchase contract would allow you to scuttle the deal or
find other financing if the appraisal comes in low, says New
York real-estate attorney Michael Xylas.
"We Don't Have Pests"
A basic home inspection generally doesn't include a peek inside
walls or underground for termites and mold, which are among the
top complaints. Inspections for mold and radon gas also
generally aren't included; usually buyers must order these
inspections separately. Other inside-the-wall problems include
faulty wiring and old plumbing, which also may require
James Holtzman, a financial adviser at Legend Financial Advisors
Inc. in Pittsburgh, says sellers of the 1901 house he bought in
August 2006 said its electrical wiring was completely upgraded,
yet an electrical inspection revealed only one of three floors
had been totally upgraded. The seller then knocked $6,000 off
the sales price before they went to contract so Mr. Holtzman, 35
years old, could pay for the necessary work.
"This Place Never Floods"
Even arid states such as Arizona and New Mexico have occasional
flash floods, and water and drainage problems aren't always
obvious. June Walbert, 52, a certified financial planner at
USAA, a financial-services company, says her San Antonio house
received a clean bill of health from a home inspector before she
bought it six years ago. But 10 days after she moved in, the
sewer backed up, flooding the house, and she had to fork over
$2,800 for repairs. "It was a rude surprise," says Ms. Walbert,
who adds she asked her home inspector and the seller for
compensation, but didn't get it.
Bill Richardson, outgoing president of the American Society of
Home Inspectors, says a general home inspection wouldn't catch
that unless the sewer line was visible from the basement or
water backed up into sinks and tubs or toilets.
"Taxes and Maintenance Costs are Low."
Home buyers often gripe about tax and utilities bills that are
higher than sellers said they were. Homeowner association and
condo dues and assessments are also common complaints. Sometimes
sellers simply underestimate the bills, or forget to include
recent or expected increases, agents and brokers say. Taxes can
also be deceptively low because of unrecorded improvements like
decks and finished basements. Ask to see recent bills, and check
with the tax assessor's office for up-to-date information.
"This is a Quiet Neighborhood."
Sellers may play down distractions that could drive you crazy,
such as barking dogs or idling buses. A charming park by day
could be a teen hangout at night. Your best bet is to view a
property at different times of the day. "I can't tell you how
many times in my career buyers didn't go there in the night
time, even though I told them to. You spend more time in the
house at night than during the day," says Ms. Saatchi, the New
York real-estate agent. Talk to neighbors and peruse the local
newspapers and blogs to get a feel for a place, and check with
police for crime.
"There's Going to be a Golf Course, a Pool and a Party Room."
Builders of many developments that broke ground during the
housing boom ran out of money before the project was completed.
Many homeowner and condo associations also are strapped because
of delinquencies and defaults. Some states require upfront
disclosures about this, but you should also ask neighbors, not
just sellers, about any promised facilities. Also, check titles
to be sure that specific parking spaces, storage units or other
facilities are included in a property sale.