Expert: liznarr - 11/1/2004

Question
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Followup To
Question -
Dear Liz,
I have a few questions regarding a home I signed a purchase agreement on. I live in Michigan. First off, my realtor is my sister. She is fairly new, has been an agent for about a year with not many sales.

With pressure from family members I decided to use my sister. I figured it could be a win/win situation. Ok, I signed a purchase agreement on a home and waived my right to a home inspection. My ex husband and I have renovated 4 homes and have a pretty good idea of what we are doing.

I looked at this house and there is a stucco paint (popcorn ceiling) on the main floor. There was some repatch done. My sister said the seller says it has been that way since he bought it, no water damage. ok fine. Something to fix later.

After I signed, I realized I hadnt tried to turn on the furnance. In haste, I didnt think about it. We went back and my sister said even if the furnance does not turn on, IM still responsible for the house and I have to purchase it. I thought this was odd cuz I have never had a realtor tell me this before. The furnance turned on ok. While showing my ex how great the water pressure was in the bathroom, flushing the toliet, running the shower etc.

We heard water flowing somewhere. We went into the basement, and found gallons of water running down the "stink" pipe into the basement. We flushed the toliet again and watched the waterfall. My ex said the bad stucco job was actually water damage from the upstairs bathroom. He felt the wax ring was bad. At this point, my sister admitted that she had forgot that the toliet was bad and so did the selling agent (her friend in the same office). THey said the seller would fix the toliet even though he didnt have to.

So by now Ive got a bad feeling but want the house. The driveway needs some repair but I figured I would fix taht next spring. However, when I went to purchase a homeowners policy on the house, I was refused. They said the driveway was too bad and so was the garage. I would have to buy high risk ins. at a steep rate and they would not insure the garage at all. The seller also has not fixed the toliet nor cut the grass which is now knee high.

After finding out the homeowners ins is gonna be double and they now want to inspect the inside of the home, I want out of the deal. I am buying this home at fair market value. The garage is suppose to be a selling point but if I cant no insure it, then I feel its worthless. My sister is very angry of course and says that I will not get my deposit back because the home is insureable even though its high risk. I feel I should get the deposit back because of the condition of the property now and all the problems. Im being told that i have to prove that the home is unisurable and to get 5 letters from different companies saying so. I have one letter so far. But the letter states it can be insured IF I repair everything first.

Any advice is greatly appreciated.
Answer -
Hi Lori,

While I don't think and certainly hope your sister would not have intentionally misled you, her inexperience did.  From the tone of your letter, she would benefit by attending both an ethics and a buyer representation course.  Were she not your sister, she and her agent friend in the same office, along with their Broker in Charge, would probably be looking at an ethics complaint (assuming they are Realtors®), a complaint to your state Real Estate Commission, and possibly litigation if the situation is not satisfactorily resolved prior to closing … IF, in fact, you do close.

You said your sister is very angry.  I hope she is not angry with you, because all you are trying to do is purchase a house, while assuming that YOUR interests would be represented.  Whom is your sister representing in this transaction?  And did she disclose to you in writing prior to your making an offer whom she represents?  In the real estate business, agents who hope to receive referrals and repeat business, keep their assets intact, and still be in business 20-30 years from now simply do not “forget” things like a bad toilet and allow a buyer to waive a home inspection.  Pardon my bluntness, but the situation you have described is unconscionable.

For your future reference, NEVER waive a home inspection…never, ever, period, unconditionally no!  I hope this point comes across.  I sold a house a few years ago to a lady whose brother was fairly knowledgeable about HVAC systems and wanted to do her HVAC inspection.  The brother did her HVAC inspection … and she closed with his inspection report … and she had to replace the system within six months of purchase.

Now, what can YOU do in your situation?  First of all, not having seen your Contract of Sale, I'm at a huge disadvantage.  Most reputable real estate companies use a Board of Realtors' contract that has language in it which more or less protects all parties.

Look for a clause in your Contract of Sale that refers to “Condition of Property.”  Generally, this paragraph says something to the effect that …”The SELLER warrants the heating, air conditioning, plumbing and electrical systems, well and/or septic systems, as well as all appliances to be in operative condition on the day of closing or the day possession is given, whichever occurs first.”

I went online to try and determine whether or not Michigan has a mandatory disclosure law for Sellers.  Information I researched indicates that Michigan DOES have such a law and requires a Seller to fill out a disclosure form and give a copy to all potential purchasers – up front.  You can go to http://www.aaabor.com/forms.cfm and download the form.  Be sure to download and print the form “Disclosure Regarding Real Estate Agency Relationships” on the same site.

Additionally,  while you are on this site, click on “For Consumers” then “Code of Ethics” then “2004 National Association of Realtors Code of Ethics and Standards of Practice” and read the paragraph under Article 2.

Were you provided a Seller disclosure on this property?  If so, was there any mention of any of the defects you have referred to?  If not, and the Seller and/or the Seller's agent KNEW of any defects and failed to disclose them to you, this is commonly referred to as fraud (intentional misrepresentation).  The fact that an agent may have “forgotten” to disclose is no defense.  

If your Contract of Sale is subject to financing, and if your lender will not fund your loan unless all these defects are corrected, my opinion is that you ARE entitled to receive your earnest money back UNLESS … there is language in your Contract which otherwise contradicts this.

In addition, IF there is no language in your Contract stating that YOU are responsible for correcting all defects in order to obtain hazard insurance, my additional opinion is that if the Seller wants to sell, the Seller should correct.  Otherwise, I would not think you are obligated to correct such items at your expense.  Had you known in advance of making your offer that the property was only able to be insured under the classification of HIGH RISK, you might have an obligation to pay the high premium.  From what you have written, however, you had no reason to suspect the home would be classified as high risk.

I cannot and do not give legal advice.  It sounds like you would be well-served to contact an attorney to interpret your Contract of Sale and advise you of your legal rights.  I would suggest your doing this as quickly as possible.

I hope the above information is helpful to you.  Good luck to you and write again if you have additional questions.

Regards,

Elizabeth Narr


Wow, thanks for the great information. I was ready to give up the fight, take my loss of my deposit cuz Im dealing with my sister here. I started to think I didnt have a leg to stand on in this deal. I did forget to mention to you that we do have seller disclosures in the state of Michigan. The problem with the toilet was NOT mentioned on the disclosure at all. My sister asked me several times if I SURE, I wanted to waive my right for a home inspection. She felt I should have got an inspection done. I wonder now, if she was trying to get me to have an inspection so I would find the toilet. I dont know, I dont think it would have been a big deal if she would have just said something about it upfront. I could have just asked the seller to fix it and get it documented.

I know its a good idea to have an inspection but in the state of Michigan, home inspectors do not have to be licensed, so you basically pay 250.00-500.00 for someone to walk thru and tell you what they think of the house. I can have my Ex do that for me. So taht is why I chose not to have one done cuz its very hard to find someone that is on the up and up. So anyway, I was quite impressed with how much info you gave me. During this stressful time, you showed me that I do have a leg to stand on. But now that means saying my deal is unethical. Im worried this could ruin my sister's career.  She already told me Im making her look bad on this deal by backing out. Im dreading the whole thing but learned something from it all too. Thanks again for your info.

Lori

Answer
Hi Lori,

Thanks for the update.  Hopefully, you will be able to get out of this deal by using the lender “out” if all repairs are not made by the Seller; and maybe the Seller will release your earnest money without hesitation since he did not give proper disclosure.  

If you look for other homes, find a reputable home inspector who IS licensed – and don't be bashful about asking for references – and don't just ask, investigate the references.  I'm sure that there are some good inspectors in Michigan.  By using a licensed, bonded home inspector, the inspector will be taking on some liability for any defects that are missed that he should have caught.  As always, be sure to read any disclaimers in any home inspection report.

If the Seller KNEW about the toilet and did not disclose, in my opinion you STILL have the right to insist that the Seller correct the toilet and any additional damage caused by the toilet PRIOR to a closing – if you still want the property.  

This should not ruin your sister's career.  You haven't said she's unethical, and I was not implying that, either.  You said your sister “forgot” that the toilet was bad; and I responded with the fact that an agent forgetting to disclose is not a valid defense.  Fraud (INTENTIONAL misrepresentation) would come into play when there was intent to deceive.  It was an oversight, admittedly, on your sister's part; but oversight can land us agents in major trouble and boiling water.  If this is your sister's listing, it would be a good idea for her to have the Seller revise his disclosure statement immediately and indicate that the toilet is bad.
 
She is gaining invaluable experience now, and the fact that this situation is able to be dealt with BEFORE a closing should be a relief for everyone.  Your sister will quickly learn that there is no real estate transaction worth risking her real estate license for.  Better a deal down the drain (no pun intended) than to end up in Court later.

I hope that you get everything worked out to your satisfaction.

Good luck to you.

Regards,
Elizabeth Narr