When you're selling a property with potential defects, it's imperative to do your due diligence and recommend your prospective buyers obtain a home inspection. Since sellers may not provide truthful answers as to whether underlying problems exist, seller's disclosures are not always accurate. Having a neutral third-party complete a home inspection is therefore necessary for an accurate assessment of the property. Here is a real-world scenario where an agent failed to recommend a professional home inspection and ended up being sued for tens of thousands of dollars.
Situation
A real estate agent was working with prospective first-time buyers who were searching for a residential property that didn't require significant renovations. After looking at several other properties, the buyers decided to submit an offer on this home, which they were led to believe only needed cosmetic improvements.
Problem
The home needed more than cosmetic improvements. It had a history of water intrusion problems that resulted in extensive wood rot and insect infestation.
Mistake
While walking through the property, both the real estate agent and the buyers noticed water stains on the ceilings and walls in the second-floor bedrooms. The sellers had advised that the stains were a result of old damage from a pre-existing roof problem that had already been repaired. Unfortunately, the agent took the sellers at their word and failed to recommend their buyers obtain a home inspection for further investigation.
Result
After purchasing the property, a rainstorm revealed everything the sellers did not. During the rainstorm, the buyers discovered that water was penetrating the roof and seeping through the second-floor ceiling and walls. The buyers then hired a contractor who determined that the wood rot and insect infestation were so extensive that the ceiling joists, wall studs, and sheetrock all had to be replaced.
The buyers subsequently sued the sellers, alleging intentional misrepresentation, and the agent, alleging intentional misrepresentation and failure to recommend a home inspection. The parties ultimately resolved the litigation for $40,000.
Prevention
It is imperative to always conduct a careful visual inspection of any property—whether you're serving as the listing agent or the buyer's agent. Be sure to look for any clues or red flags that may indicate latent defects or extensive problems. Never act outside your area of expertise and recognize when to ask for help from another specialist or when to recommend the use of services from other professionals (i.e., home inspectors, pest inspectors).
It's essential that buyers realize their right to request any type of property inspection and that the inspection contracts and reports may contain disclaimers. Some experts recommend that, if you attend the home inspection with your client, to only listen and not provide comments or input.
If the buyer decides not to have an inspection, you need to have them acknowledge their choice in writing and keep all of these documents for your records.
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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.