How to avoid buying a 'bad house'



How to avoid buying a 'bad house'

Dealing with purchase-offer contingencies, inspections

Friday, May 13, 2005

By Robert J. Bruss

Personally, although I've bought and sold dozens of rental houses and condos, I recall only two truly "bad houses" with lots of undisclosed defects. More about them later.

Purchase Bob Bruss reports online.

Ask any real estate attorney about his or her most challenging cases, and the reply will probably be "bad houses." Although you won't find that term "bad house" defined in Black's law dictionary, it is well-known legal shorthand for a house with serious defects, which the seller either "forgot" to disclose to the buyer, or was unaware of the problem.

The reality is every house, even a brand-new house, has one or more defects. Fortunately, most defects are minor and can either be tolerated or repaired. But a "bad house" has significant defects that were not disclosed to the buyer.

Today, savvy home sellers and buyers can usually detect and reveal serious defects before the sale closes. With the current high prices of new and resale homes, many buyers feel entitled to purchase a near-perfect "model home" or at least being informed before purchase of any significant defects.

DON'T BE SHOCKED IF YOUR SELLER DOESN'T DISCLOSE ALL DEFECTS. Most states now have some requirement of required home-seller disclosures of known defects. But the disclosure forms are far from perfect. Most only ask the seller to disclose defects "to the best of your knowledge."

If the seller has not lived in the home and it has been a rental, or if it was inherited, even a truthful seller might not be aware of its defects. Or, a dishonest seller might conveniently "forget" to list all the defects of which the seller is aware. Even an honest seller might not know about all defects or could have been accustomed to them.

For example, in the 27 years I've owned my current home, I have never visited its "crawl space" beneath the house. The only individual to visit that dark area was the TV cable guy who crawled into that subterranean area about 20 years ago. Nor have I visited my attic for at least 15 years after I had a new "lifetime" roof installed. The roofer didn't say if it was his lifetime or mine.

A PROFESSIONAL HOME INSPECTION SHOULD BE REQUIRED BY LAW. Although state laws and court decisions require home seller disclosures in most states, those disclosures are not enough to protect home buyers from dishonest or uninformed home sellers.

In my humble opinion, state laws should require a professional home inspection at the time of purchase to minimize chances of serious undisclosed home defects.

Thankfully, professional home inspectors are readily available in most communities at reasonable cost of a few hundred dollars to protect home buyers. If such inspectors had been easily available about 20 years ago when I bought those two rental "bad houses," I either wouldn't have purchased or I would have insisted the seller give me a price reduction for the undisclosed defects.

Today's savvy home buyers and their real estate agents insist on including a professional inspection contingency in their home-purchase offers. That means, after the seller accepts the purchase offer, the buyer has a right to obtain (at the buyer's expense) a professional home inspection.

If significant undisclosed defects are discovered, the buyer can either cancel the purchase or renegotiate the sales price and terms.

My personal preference, whether I am a home buyer or seller, is to hire a professional inspector who is a member of the American Society of Home Inspectors (ASHI). Their membership and experience requirements are the toughest of the many home inspection groups. Local ASHI members can be found at or 1-800-743-ASHI.

Smart home sellers anticipate their buyer's professional inspection by obtaining their own professional inspection before putting the home on the market for sale. After receiving the professional report, the seller can either correct or simply disclose any significant defects.

As a home seller, my experience has been the buyer often accepts my inspector's report without a second inspection.

Whether you are the home buyer or seller, be sure to accompany the professional inspector to discuss any significant defects discovered. The two-to-three-hour inspection is time profitably spent.

HOW TO HANDLE "AS IS" HOME SALES. Many sellers of older homes prefer to sell "as is" and let their buyers deal with repairs or remodeling.

For example, if a seller's kitchen needs remodeling, many sellers prefer to offer the home at a reduced sales price and let the buyer deal with the remodeling hassles.

If you are not familiar with an "as is" home sale, that term means the seller won't pay for any repairs. However, the seller must disclose in writing all known home defects.

Another name for "as is" homes is "fixer uppers." They can be incredible bargains. But buyers should be aware the seller might be concealing "bad house" money pit defects so a professional inspection is especially warranted.

BUYERS SHOULD ASK ABOUT SPECIAL CONCERNS. As a home buyer, if you have any special concerns, don't hesitate to ask lots of questions of the seller and the seller's agent.

For example, I recently considered buying an investment property for purchase from a "for sale by owner" home seller. I knew the seller's father who died of natural causes at 93. We had a common interest in a civic project. I had a nice conversation with the heir about what a wonderful man his father was. Then the heir said, "You knew dad died in his home, didn't you?"

Although I didn't know that fact, I thanked the heir for telling me but assured him it had no influence on my purchase decision. I have bought many probate properties where the deceased owner died in the home.

But such issues can be very important to some home buyers. For example, a few years ago a San Francisco real estate broker was sued by his home buyer for failing to disclose there had been a suicide in the house. The broker testified he knew of the suicide but didn't reveal it to the buyer because (1) the buyer never asked, (2) state law didn't require such disclosure, and (3) the suicide had nothing to do with the house's structural condition or desirability.

But the immigrant buyer came from a country where a suicide in a home is considered a bad omen. The jury found the broker had no liability because the buyer didn't ask if there was a recent death in the property.

SUMMARY: The best way for a home buyer to avoid buying a "bad house" is to (1) ask lots of questions and (2) make the purchase offer contingent on the buyer's approval of a professional inspection report. More details are in my special report, "How to Avoid Buying a Bad House," available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at .

(For more information on Bob Bruss publications, visit his

Real Estate Center).

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