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How Paradigm Shifts in Buyers' and Sellers' Rights and Responsibilities Are Affecting Agents Today

If there is one thing that can be said about a career in the residential real estate sales world, it's that staying in it long enough will cause a licensee to experience paradigm shifts in the landscape of buyers’ and sellers’ rights and responsibilities.

PREFACE

Over the years, there have been enormous changes impacting the way sellers and buyers are forced to confront one another. Those who are old enough to remember the halcyon days of the 1970s may remember not only double-digit mortgage interest rates, but also the prevailing doctrine of “caveat emptor,” which is Latin for “Let the Buyer Beware.”    

Sellers who disclosed unfavorable aspects of their properties were noble, as there were few statutory or regulatory requirements compelling a seller toward full and honest disclosure. Home inspection contractors were also few and far between.

As the 80s evolved into the 90s, things began to shift in a big way. Many states enacted seller's disclosure laws. Most states also eventually enacted Consumer Fraud statutes, permitting a disgruntled buyer to be awarded a multiplier of his actual damages, as well as attorney’s fees, should he prove to have been the victim of a seller who had failed to abide by the applicable seller’s disclosure law. 

Something has happened in the past couple of years, however. Perhaps it is simply a swing of the pendulum; perhaps it is a correction of the market. Or, perhaps, it reflects the perfect storm of low interest rates, the COVID-19 pandemic, and plentiful spending money, but one thing is certain—the residential real estate market has become a seller’s market, big time. As licensees, many of us have seen firsthand the lightning speed in which properties come onto the market and go under contract, often within hours, not days. 

The current market has led to a buyer’s feeding frenzy. Many buyers are submitting offers with no contingencies and offering more than the asking price. Here’s one real-life scenario.   

SITUATION

The seller (we’ll call him Sal) and his wife have owned their 40-year-old home for more than 25 years. The couple is ready for a downsized, one-story condo and list their spacious single-family home with a local agent (we’ll call her Aggie).

Aggie advises Sal to “Leave everything to me.” Over the span of his ownership, Sal has retained numerous contractors and workmen who have conducted a variety of cosmetic and remedial projects. In addition to remodeling the kitchen and a bathroom here and there, there have been new windows, a new roof, and once, about eight years earlier, a significant repair to the finished basement involving the removal and replacement of drywall and insulation due to damage caused by water infiltration. The extent of the infiltration is not clear, nor is it clear whether there was ever any sort of post-repair air quality testing in the aftermath of that event. However, what is clear to Sal’s soon-to-be-former neighbors is that the repairs to Sal’s basement had been somewhat extensive, requiring several days’ worth of contractor activity, replete with lots of sawing, banging, and drilling.  

Of course, Aggie presents Sal with a seller’s disclosure statement which Sal dutifully completes, although it is not clear the extent to which the basement repairs, or the reasons behind the need for them, has been addressed on the disclosure statement.  

Aggie then announces a plan which, at best, is a departure from the norm. Aggie (not Sal) immediately hires a home inspection contractor. 

MISTAKE

There is a contract executed by Aggie (not Sal) and the service is paid for by Aggie (not Sal). The home inspector is retained to perform a typical, thorough home inspection and write his usual detailed report. There is no air quality testing, nor moisture intrusion testing, nor radon testing performed by the inspector. Nor is there any indication in the 40-plus page report that the home inspector was ever provided a copy of Sal’s disclosure statement. Accordingly, it is unknown whether the home inspector was ever made aware of the water intrusion incident eight years prior.

In any event, once the home inspection report is issued, Aggie bundles it up with a carefully prepared color brochure citing the features of the property (authored by herself, of course) and leaves ample copies of each on the kitchen counter for review and collection by any prospective buyer and/or agent. 

What message is this sending? It should seem somewhat clear, perhaps even to the untrained buyer’s agent: “Don’t even think of submitting an offer with an inspection contingency in it! We’ve already done the work for you.”   

It is hard to imagine a scenario more fraught with risk. Since the home inspector has been hired and paid for by the agent, Aggie, she is the one making representations about the nature and characteristics of the property. She now becomes the owner of the story of the home. And by doing what she has done, she has thrown the proverbial wet blanket all over the agent for the prospective buyer. She has put her colleague in a horrible and risky position. 

A buyer comes along (we’ll call him Bing), and his agent (we’ll call him Chet) is now all but precluded from providing Bing with good advice (i.e., “You must get an inspection of your own.”) since Chet will otherwise have to encourage Bing to rely on Aggie’s inspector. 

Chet is in the unenviable position of having to choose between his fiduciary duty to his buyer or his acceptance of the word of a colleague who has made representations that can’t be confirmed. Chet is in a moral, if not an ethical, conflict with his client. 

As is outlined above, even under the best of conditions, buyers will often opt to waive the inspection contingency. The skillful agent can permit this to happen only if he is able to establish (later) that the buyer’s choice was against his best advice. But when the buyer is already leaning toward waiver, the less-than-gentle shove by the listing agent certainly co-opts the ability of the buyer’s agent to steer his client in the right direction. 

By undertaking the task of ordering and obtaining a home inspection report, Aggie has effectively prevented Chet from being able to do his job. With a colleague like this, who needs enemies?  

RESULT

Bing entered a contract with Sal to purchase Sal’s property at close to $30,000 above asking price. In the agreement, Bing waived all inspections, choosing, apparently, to rely on the home inspection report prepared by Aggie’s hand-picked inspector. Over the past five years, Aggie has accounted for several hundred referrals to this very inspector.

Now, nearly six months after closing and after some recent fairly wet weather, Bing’s neighbors have begun to notice Bing do-it-yourselfing in his basement and carrying rolled-up sections of his basement carpeting out to the trash pile on Monday morning. Some of those new neighbors are solicitous of Bing’s circumstances. (Bing’s first language is not English, and although he is a scientist working for a sophisticated local pharma company, his ability to comprehend written, complex English documents is suspect.) 

Once Bing picks up more conversational English, a cordial conversation might reveal some simple facts to Bing, which Sal (and Aggie, for sure), wish hadn’t been said.

PREVENTION

Even in times when the housing sellers’ market is booming, you must not take on more than your role as a real estate agent. As a seller’s agent, you should not make representations of a property's condition by contracting a home inspection company on behalf of the seller. As the buyer’s agent, it might be tempting to allow your buyer to waive inspections, contingencies, etc. to give them a leg up in negotiations. However, this is not best practice, and you should advise in writing that a no-hooks offer is not recommended.

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The purpose of this article is to inform and insulate real estate professionals from potential monetary claims and professional grievances. The fact patterns are from actual claims against real estate agents. While the author is an experienced claims representative, the opinions expressed herein are general in nature, not fact nor state specific; and therefore, should not be taken as a substitute for legal advice from an attorney licensed in your state. This article was produced in conjunction with AXA XL and is not to be taken as legal advice.