Problems!

In spite of little bumps in the road that occur during the inspection, loan approval, and closing process, most real estate transactions end up closing. Sometimes, however, the problems are of such magnitude that deal should NOT close.

I have been involved in something like 1,500 purchase transactions, both large and small. Usually the transfer was just one owner selling his lovely home to another family. In other transactions, more serious problems sometimes arise.

Under the laws of most states, the seller is required to notify the buyer and the agents of any problem they know about. This especially applies to problems that are not immediately evident or might not be discovered by an inspector. But what if the problem is of sufficient magnitude that it would cost thousands of dollars to cure? Don't you think that some sellers might not be tempted to avoid disclosing it? You bet, and sometimes his agent may be an accomplice.

That is a major reason behind having a home inspector, one retained by the buyer, do a thorough inspection of the property. Sometimes additional inspections are prudent, such as a termite inspection, roof inspection, or a geological inspection to test the stability of the soil on the lot. Normally, when inspection shows a problem the seller will cure the problem. Otherwise, the buyer would not close the escrow.

In one case I remember, a buyer was doing his final walk-thru before closing and noticed some water burbling up next to the front walk. It might have been a sprinkler that had been left on, but in this case it turned out that there was a spring right there. The question was if there was another spring underneath the slab of the home, suggesting that the home could be sitting on a big puddle of mud. The buyer backed out of the escrow and I think he was wise to do so.

In another case, shortly after the close of escrow there was a huge rainstorm and a portion of the roof caved in. This was something that had been missed by the inspector. Subsequent investigation showed that the seller had known about it from a prior inspection and hoped that no one would find out about it. The buyer sued the seller, the agents, and the inspectors and the outcome still pending. It would better have been done before escrow closed.

Here's an example of a deal that closed but should not have. At a time when the market was really hot, the buyers (not my clients) found a hillside home they really liked. The buyers made their offer and it was accepted. The contract contained the usual inspection timetable.

The initial inspection showed some cracks in the concrete slab, but the sellers said that was due to carpet problems. The buyers then wisely thought of getting a geological inspector - remember that this house was on a hillside - but they could not find one who could inspect the property on the purchase contract's timetable.

Therefore the buyers asked for an extension of the time for that inspection but the seller wouldn't grant it. They threatened to cancel the escrow and sell to someone else. The buyers’ desire then overcame their sense of caution and reason. They waived their right to the geological inspection. Big mistake.

When they moved in the also found cracks in a pool and it was determined that the pool was leaking and the entire hillside below the house was unstable. There seems to be some evidence that the seller was perfectly aware of this problem but did not disclose it. This case is currently in arbitration but the buyers will have to move out for an extended period while pilings are put in the slope to stabilize it.

In another case that happened just today, the seller's termite company’s report showed minimal infestation and damage. But the buyer's architect who was advising them about a pending re-model got up into the attic and discovered extensive termite damage so great that the buyer's backed out of the transaction.

As a buyer, you should be especially careful if a seller wants to sell the property "as-is." In some cases they may not have the money to fix anything, but I'd view it as a red flag and be especially diligent in the inspection. They may not want to fix a problem, but if you are going to have to fix it, you want to make sure that the cost to correct is adequately reflected in the purchase price.

Be very, very careful out there.