Two months ago I wrote about home inspections which generated a few more questions from readers. First, let’s keep in mind that these are legal questions, I’m not an attorney, and this is not legal advice but rather my opinion based on my knowledge and over 20 years experience in real estate.
Q: What does a home listed in "as is" condition cover the seller when selling a house?
When a property is listed in "as-is" condition, it could mean a couple of things. Mostly it is a signal to the buyer that the seller is not willing to make any repairs or offer any type of credit for issues found during a property inspection. It does not mean that the buyer has to buy the home regardless of what is found and it does not mean that the buyer is waiving his/her right to have the property inspected. All real estate agent’s representing the buyer should consult with their client about getting the property inspected. The common contract used in Northern Illinois clearly calls out a specific attorney approval and home inspection period to allow for the inspection of the property. In my opinion, all buyers should hire a licensed whole-house home inspector to review the property. It’s just good to know what you are getting. And you should do this as soon as possible so as to have time to review the findings with your agent or attorney within the 5 business day time frame – that goes fast – so don’t wait.
Q. What happens when a seller gets sued for not disclosing said issues that a home inspector found?
First, the common contract referenced above has a number of built in disclosures as does the Illinois statute – namely Residential Real Property Disclosure Form (RRPDF). In essence the contract becomes a legal affidavit were the seller is stating that they have not done any work to the property that wasn’t property permitted by the appropriate governing body that should have been permitted. In many cases this promise runs for up to 7 years after the contract so it shouldn’t be taken lightly. The RRPDF is also an affidavit signed by the seller which requires them to answer a couple dozen questions about the property and any known defects. If a seller knew of a defect, but had it repaired and the defect no longer exists, then no defect exists. But sometimes there is an attempt to fix a known defect that fails to work. If the seller knows the repair did not work and the defect still exists, it needs to be disclosed on the form. If the seller tries to hide a known defect, they could be sued for fraud. Something as simple as painting the ceiling to hide the evidence of a roof leak and then not disclosing the leak could be an issue. Of course every situation is unique, and assumptions shouldn’t be made. But hiring a home inspector would very likely uncover such an issue from the attic inspection. The results of these lawsuits can be a huge loss of time, certainly they are expensive as the losing party may be held liable for the prevailing party’s attorney’s fees, and fines and awards may be levied. It is far better off to discuss the known defects and negotiate them instead of trying to hide them.
Q. I’m buying a foreclosed property, what does the bank have to disclose?
A few years ago the law changed on this a little. That is, the RRPDF disclosure form used to say that if the seller hadn’t lived in the property for the last 12 months they weren’t required to complete the form. This language was removed a number of years ago so that certain owners of the property regardless of occupancy would still have to execute this disclosure form. That being said the form still exempts a number of ‘sellers’ from having to complete the form. One type that is specifically called out and exempted is those who have taken ownership of the property through the foreclosure process. Special note here: short sale sellers are not exempted; they must still execute the RRPDF. So a lender that forecloses on a property wouldn’t have to complete the form but they would still be required to disclose any known latent material defects on the property. But if they haven’t lived there or in many cases even set foot on the property, how would they know? So the dilemma comes up that what if a buyer put an offer in on a property like this, conducted a home inspection and found true defects, wouldn’t the seller know be aware? Maybe. The legal issue arises that there is only a suspicion that a defect exists at this time. The owner would likely need to conduct their own investigation to determine if, indeed, there was a defect in the property. And now we need to ask, why would they do that research? Right, they likely wouldn’t. So is there really something for them to disclose or not. Furthermore, the way the industry has learned to handle this situation is that both the owner/seller and the seller’s agent don’t want to see a copy of the home inspection report. And even if it is sent to them, most won’t open it. If the buyer wants out of the deal as a result of their due diligence (read "home inspection issue") the seller will simply let them go and usually return the earnest money promptly. In other words, they won’t even put themselves into the situation of whether they know of a potential defect or not.
Lastly, if a seller’s agent is aware of a known defect on the property, they are obligated to disclose it even if the seller insists on not disclosing it. Of course this puts the agent into a very difficult situation at which time I would argue they have the need to get their client to talk with an attorney to convince then to disclose the defect or the listing agent should walk away from the deal.
• Jim Haisler, MRE, RCE, is CEO for the Heartland Realtor Organization, headquartered in Crystal Lake, a nonprofit trade organization serving over 1,100 real estate related professionals throughout Northern Illinois and Southern Wisconsin. Licensed since 1996 he has a master’s degree in real estate, holds an Illinois managing broker’s real estate license, an Illinois continuing education instructor’s license and an Illinois pre-license instructor’s license.