Expert: Heather - 4/13/2008

Question
Hi Heather

My husband and I are under contract on a bank owned foreclosed home. We've done an inspection and based on that, the work necessary to get the house in acceptable condition is pretty extensive (there are roof leaks, rotted sliders, broken skylights, bathrooms are very
outdated, kitchen etc) most of which were visible at the showing and we were aware of. Having said that, it has been assessed for 250k and we are under contract for 170k so we understand the value and initially thought we knew how much we'd have to invest to get it in good condition. The concern is that during the inspection the real estate agent representing the seller disclosed that the pipes had frozen this winter and there was damage to the plumbing. Consequently the water was shut off and the house was winterized. Because the water was shut off the inspection could not determine the condition of the plumbing. We don't know the extent of the damage or how much that will cost and are doing our best to asses that with information we do have.

I would like to counter the offer and ask for repairs or an allowance for the plumbing damage. Not to mention that the extent of the roof damage in the master bedroom is a lot worse than we had anticipated and the room will basically have to be completely gutted and rebuilt. However; our agent insists that it is a good buy at 170k and we may lose the house if we play that game. What bothers me is the unknowns as well as the fact that the seller did not disclose that the pipes had frozen and that there was plumbing damage they were obviously aware of. My questions: Did the seller have the right to refrain from disclosing this info or are they breach of contract? Should we accept the contract or counter? Is this a red flag? What would you recommend we do?

I am really stressed as to what we should do. What is the right thing etc. By the way this will be our home and we do like the house.

Thank you so much in advance.

Isabel  

Answer
Hi Isabel -
Never be pressured into a deal.  The plumbing damage could be extensive and after making repairs of $20-$30,000, which it could easily be, your deal isn't so great.

In my state, the seller must disclose that sort of information. I am not an expert in every state law, but usually the resident or private seller must disclose any material defect that could affect the value of the property.  However, the bank is usually not liable to this kind of disclosure because they never lived in the property and when buying a foreclosure, it is the buyer's responsibility to discover this type of damage during the inspections.  In my state, every buyer signs a waiver noting they understand the bank is not responsible for the property's condition and has no liability in non-disclosure of a material defect.

Based on that, you have two options.  Accept the deal and realize you may have a huge plumbing bill (or maybe not -- it might not be bad depending on how accessible the plumbing is where the damage and/or breaks are) OR counter.  In the counter, you could either ask for more time to assess the plumbing damage OR ask for money back to deal with the problem.  But never let a real estate agent pressure you in to paying more for a property than its worth to you.  Its not their pocket book that will be affected if the problem is huge - it's yours.

If the bank doesn't counter or give you credit, you may have dodged a bullet by walking away.  If the request is reasonable based on this type of discovery, the banks are stupid and if they've had the property for a while, they will often give credit for this type of thing as long as you're able to provide documentation on the problem (an inspection report for example).  Its not something the appraiser would have been able to discover.  

If it were me and I liked the property, I'd counter.  The worse thing that could happen is the bank says no.  I hope you're working with an agent who is representing you.  You should never work solely with the listing agent, who is only looking out for the bank.  That's a huge mistake and gets you the kind of advice you shared with me.  Besides it costs you nothing (the bank will pay the agents no matter what) and it may save you some money and grief by having a professional represent your interests.

Good luck on whatever you decide.