House Detective: Making the Most of Home Inspection

The House Detective by Barry Stone, Certified Home Inspector

Dear Barry: As a new Realtor, I have a question about disclosure. Today, I showed a bank-owned property to an investor. As we walked through the home, we observed obvious problems involving mold. There were black stains on some of the walls, the subarea was wet, and the place smelled from bleach. When I asked the listing agent about this, I was told that the home is being treated for mold but that there are no disclosure requirements for bank-owned property. This is puzzling. I understand that the banks are exempt from disclosure requirements because they are unfamiliar with homes they acquire through foreclosure. But shouldn’t they and their agents disclose conditions that are discovered once they are in possession of the property? Bill

Dear Bill: Your question gets right to the cutting edge of ethical responsibility. How do we define the ethics of professional conduct? Is it defined by state laws that exempt banks and their agents from disclosing what they know about a property, or is it a question of essential right or wrong, as we would teach it to our children? To most 10-year-olds, the answer would be obvious and unquestionable. As we get older, questions of moral conduct can be obscured by the fog of drifting legalities.

The specific requirements of real estate disclosure vary from state to state, but regardless of the fine print, any agent who is aware of a significant defect and withholds disclosure on the basis of a legal loophole is morally confused.

In the absence of ethical consensus, the best way to protect buyers of bank-owned property is to hire a qualified home inspector. Those who buy foreclosed homes often forego an inspection because the property is being sold as-is. They assume that since the seller (the bank) won’t fix anything, there is no need for an inspection. What they fail to understand is that the purpose of an inspection is not to compile a repair list for the seller: It is to be informed about what they are buying before they buy it.

Regardless of what the listing agent is willing to disclose, be sure to advise your client of the importance of a home inspection when buying property from a bank.

Dear Barry: We’re getting ready to sell our home but are worried about the large cracks in our patio. We think they were caused by tree roots, but the trees have been removed. My husband says the only way we can pass a home inspection is to replace the whole patio. I’m hoping there is a less expensive way to pass the inspection. What do you advise? Farzy

Dear Farzy: A home inspection is not a final exam that must be passed in order to sell a property. Its purpose is simply to provide disclosure of defects. Your husband is correct that large patio cracks can only be eliminated by replacing the patio, but homebuyers are mainly concerned about the condition of the house, not the pavement. As long as there are no major cracks in the building, the patio condition is a peripheral issue.

There are very few people who would decline to buy a home because of patio cracks. Otherwise, there would be a lot of unmarketable homes. My advice is to list the patio cracks on your disclosure statement and sell the property as is.

The House Detective by Barry Stone, Certified Home Inspector

Dear Barry: I’ve been a Realtor for less than a year. As a new agent, my biggest concern is liability and lawsuits for undisclosed property defects. When I studied for my real estate license, much was said about the risks of nondisclosure. They taught us about disclosure forms, the kinds of things we should disclose, the importance of home inspections, and much more. What advice would you give a new agent regarding disclosure? Bob

Dear Bob: As they told you in real estate school, disclosure has become the central aspect of the realty profession. As you apply those teachings, remember that defect disclosure has two essential components; reducing liability (the legal component) and representing the interests of clients (the ethical component). Unfortunately, there is too much emphasis on the first of these principles, at the expense of the other. Many agents cover the legal bases and perform the recommended procedures for avoiding liability, but without a full commitment to the basic idea of maximizing disclosure to homebuyers.

Articles in Realtor magazines often address this important subject, but they focus primarily on the legal approach, rather than the ethical one. For example, articles encourage agents to recommend home inspections in general, but warn them not to suggest a particular inspector. The gist of this advice is to avoid liability for a faulty home inspection. Instead of choosing an inspector for their clients, agents are advised to provide a list of inspectors from which clients can make their own choice. In theory, this relieves the agent of liability if the inspector does a poor job. If a major defect is overlooked, it is the client, not the agent, who chose the inspector. From a legal perspective, there is some wisdom in this prescription, but an essential element is missing.

Absent from this approach is the suggestion that referral lists should contain only the most qualified, most experienced, most thorough home inspectors available. The emphasis is on the legal aspect of liability, rather than the ethics of promoting top-level disclosure. This is why novice home inspectors, regardless of inexperience, are often named on these referral lists.

Most agents are familiar with local home inspectors and know who among them are the most qualified and thorough. Agents who are truly ethical and prudent gravitate to the best home inspectors and bravely recommend them to their clients. Agents who are fearful of detailed inspections often mislabel the best home inspectors as “deal breakers” or “deal killers.” This is a grave ethical error. By withholding the names of those inspectors from their clients, they are as guilty of nondisclosure as someone who hides a cracked foundation or a leaky roof.

The full answer to disclosure liability is not contained in legal forms and procedures. It resides in a total commitment to inform homebuyers of every significant issue. Every known defect should be disclosed in writing, and the most thorough home inspectors should be seen as allies, not threats, in the disclosure process.

As you continue your real estate career, remember that the only property defects that create liability are the ones that are not disclosed. So be a proactive discloser, and affirm that commitment by recommending the best home inspectors to all of your clients.