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How to Avoid Buying a Real Estate Lemon.

lemon photo by charles chan on flickr The interesting thing about lemons is that they're pretty to look at. They also smell really good. That's one reason why they're used as the enticing scent in a lot of cleaners. The smell of lemons makes you think clean.

Well, if you're purchasing a brand new appliance, a new car or a new home...you should also be tuned into the "smell of lemons." Except that in this case...it's best to avoid them. Because purchasing a real estate lemon can be a very very expensive and heart wrenching money pit.

First of all...let's be clear on this one thing. There's no such thing as a perfect house. Every house will have it's little quirks or develop them over time. Maintaining a home by regularly taking care of the little things can prevent major expense. Little things... like cleaning out roof gutters, fixing leaky faucets, repairing worn out grout, changing furnace filters, and having regular service check ups for major appliances can catch issues which are easily fixable.

But, what happens when you purchase a home which looks wonderful...or you think looks wonderful only to find that there are some major issues which need to be addressed. We recently AVOIDED such an experience with a client. The home was one of the cutest homes I'd seen. Our client didn't think that a home inspection was necessary. We persisted in urging them to reconsider.

Thankfully they did. You see the picture perfect home sort of fell apart under closer inspection. A qualified home inspector located all sorts of problems which were not readily discernible. There were issues with the roof, the foundation and most significantly...an issue with the heating system in the home which could have caused grave bodily harm. The furnace was leaking carbon monoxide! Fortunately, our client listened to our counsel. We were able to negotiate for these items to be repaired or completely replaced BEFORE the home was purchased. We later on found out that the homeowners had purchased the home WITHOUT having the home inspected.

Here's a Few Simple Tips that you can take to Avoid buying a Real Estate Lemon:

1. Carefully Review what the seller has Disclosed about the home on the Seller's Disclosure form.

By law, in the state of Michigan, this form must be shown to potential buyers of every home within 72 hours of an accepted offer. Idealy, you should be able to examine it when you are pre-viewing a home you might have an interest in purchasing.
The Seller's Disclosure asks the home owner to reveal what they know about material aspects of their home such as the current and historical welfare of items such as: if the roof leaks, whether the furnace works, if there has been water in the basement or if there has ever been damage to the home by flooding or fire. This form can be used as evidence of deception by a home owner in the state of Michigan. Make sure you examine it carefully.

2. Hire a Qualified Home Inspector to Examine the home thoroughly before you buy it.

It's a highly risky investment to place thousands of dollars into purchasing a home and fail to pay a few hundred dollars to have it inspected professionally. A home inspector who is ASHI certified is probably a good place to start. In addition, make sure that you attend the home inspection. Not only does this allow you to see first hand the items that the inspector may refer to in their report, it also provides a valuable education to you regarding maintaining your home.

3. Obtain the services of a Competent Real Estate Agent.

A good real estate agent will advise you to hire an inspector and may be able to give you references to inspectors they have worked with in the past. This is a helpful starting point as a home inspection is not a service that you utilize on a regular basis. One of the most important benefits of a good real estate agent will be their ability to negotiate on your behalf AFTER the home inspection is completed. A good negotiator can SAVE you thousands of dollars in unexpected surprises OR facilitate an exit out of a bad situation.

If you're interested in looking for homes and getting a thorough analysis which includes making sure you don't pay TOO MUCH for the home you'd like to purchase, please contact us. Our goal is to utilize wisdom to Move Your Dreams into Reality.

phto courtesy of charles chan on flickr.com

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Posted by Lola Audu~Real Estate Broker/Owner Grand Rapids, Michigan Real Estate on 10/23/2007 06:09 PM

Comments (40)

home buyers, home purchase, home purchasing, home inspecting, audu real estate

This post has been included in Michigan Information Kent County, MI Information

40 Comments on How to Avoid Buying a Real Estate Lemon.

OCT

2007

Great post, Lola. Over here in Ann Arbor 90% of us leave the disclosures in the houses. I'm starting to get away from it as it's too much information until an offer comes in. What do you all do in GR?

Hi Missy, Our Board has given real estate agents the ability to post a link to the Seller's Disclosure on line for quick download. Many agents now have the disclosures on line as opposed to leaving them in the home.

I am all about disclosures. It still amazes me how many buyers agents NEVER ask for one when they are writing up an offer.. let alone doing contracts. I feel sorry for the buyers, but I am not here to tell someone how to do their job especially when I am the listing agent.

Wow, Desiree...that is amazing to me too! In Michigan, the law stipulates that a buyer MUST be shown a Seller's Disclosure within a very specific period of time. Buyer's can walk-out of a transaction without consequence if this form is not made available to them.

We also have a law that buyer MUST be given the seller's disclosure....within (I put in 4 days) and same here...they can walk. We usually just give the disclosure with the accepted offer. In any case...your points are always to the point and with great detail. I see how you conduct business in the way you write.

Hi Sally, When I meet with clients who are home owners, I let them know how important this form is to the transaction. I believe that honesty is the best policy. Most home buyers are not looking for a home without any imperfections...they simply want to know what the truth is so they can make an informed decision.

Lola, we post our sellers' disclosures both in the MLS and on every property website. We're required to furnish them to buyers, who have 3 days to review them with a "free out".

It's important that buyers of NEW homes also have inspections done, preferably at various stages of construction before various items are "buried" by sheet rock, etc.

Excellent point about buying a new home Sharon. Thanks for adding value to this discussion. The loan officers whom I've worked with for construction loans have several inspections built into the process including examining foundations.

Lola~ here in NJ do the buyers examine the disclosure statement, they sign the disclosure statement. If the sellers have been honest and the inspection has been top notch and thorough, then there should be very few problems.

Hi Lisa, Is there a time constraint in New Jersey for buyers to review the Seller's Disclosure? In Michigan, a buyer not having access to the Seller's Disclosure can be grounds for the deal falling apart if the disclosure contains information which is deemed unacceptable to the buyer.

Howdy Lola

This is a very good post.

I would like to thank you for all home inspectors every where for telling folks, they should have a home inspection.

Here in NH the buyers are given the disclosure when they first look at the home. I always ask my clients to attend the inspection.

Have a good one

Hi Dale, It's never made sense to me that people would be unwilling to spend money on making sure that what they were buying was in good shape or that at least they understood what the problems were. Our office also has an agent present at the home inspections. We believe that knowing what happened during the inspection enables us to serve our clients better during the negotiation process.

Good points. One of the nicest looking homes I sold had the most issues also. The owner had a relative to the remodeling and the inspector came back with a long list of things done wrong. In the end the seller gave a cash credit for the buyers to have all repairs done to their satisfaction. The inspector earned his money that day.

Hi Lola, lemons are not always easy to spot even when they smell good! This is a great post to give people the guides to a better purchase. Nice post Lola.

Hi Randy, usually I'm pretty good at spotting items...but this one made us glad that we ALWAYS recommend a home inspector. It was a really cute home! When the inspection report came back...we were all a little shell shocked but thankful that we had gone through with the inspection.

Thanks for stopping by Gary. I appreciate your comment.

I can't imagine not having an inspection in a market like this. The horror stories about clients who purchased above sales price with no contingencies continue to rear their ugly heads around here. A recent Post article had a women looking at $40,000 or more in repairs or she couldn't live there. Yikes!

Josette, even WITH an inspection, there's not an absolute guarantee that every single thing will be caught so it can be addressed. But at least, as an agent, you have done the best you can to ensure the welfare of your client's best interest. Like you, I can't imagine why anyone would not advise a client to have a home inspection.

lola,

Thanks for the post. very practical and sound advice for even the most savvy buyer.

Lola~~ I can't even imagine anyone buying a home without a good home inspection. I know a lot of agents in my area dread a thorough homes inspection. However, it they really thought about it, they would come to realize that it actually protects the seller and the agent. When buyers sue, it is when they have been deceived or worse.

In Louisiana, our purchase agreements have a space for the buyers to initial that they have received the purchase agreement - they get them up front before writing an offer. We also post them online on MLS for agents to download, which has been great since it keeps us from tracking down a listing agent for them prior to writing. In my office, we also have a standard form we make the buyers sign if they opt out of inspections that basically says "I'm ignoring the advice of my agent". I haven't had a buyer yet pass up the opportunity to do an inspection.

Appreciate your stopping by to read and comment William.

Joan, I consider a home inspection a tool which aids in risk management. Having another set of experienced "eyeballs" looking at a home carefully aids in protecting the interests of my buyer. We've also had situations like the one described above, in which home owners were able to discover a potentially life threatening defect in their home.

Lisa...the 'Opt Out" form is a great idea. It forces buyers to really think about the implications of the decision they are making to forgo a home inspection.

OCT

2007

Buyers should never buy without an inspection. RE the Sellers Disclosure, often times these don't say very much because the owner is an investor and has never lived in the home.

Too true. It's amazing how much looks can be deceiving.

Here in CA we have 7 days to provide sellers disclosure. As a buyer agent, i always request it when offer has been accepted but very few agents, at least in San Fernando Valley have provided disclosure upon offer acceptance. however, as buyers agent i schedule the home inspection within 3 days after acceptance and I attend inspection to view future repairs and to understand what is behind a nice house. thanks Lola, your article is nicely written. Lupe from Burbank CA

Lola, excellent points for all buyers - whether seasoned buyers or first-timers. 3 simple points yet all 3 combined can help ensure that buyers are not stuck with that lemon. The "lemon law" in Michigan applies only to automobiles after all!

Lola

Leave it to you to turn lemons into lemonade! Nicely done.

Lola, thanks for this great post! Sometimes the homeowner doesn't even know about problems that may exist in their own home as you had pointed out. I had a seller fill out the property disclosure and once the inspector looked at the home, it was discovered that the roof needed replacement and my seller had no idea. It benefits everyone to have an inspection.

Lola~in response to your question is there a time constraint. None that I am aware of. I make sure my buyers get a disclosure as soon as they express interest in the property. It helps in making an informed decision for an offer and if the offer is successful, a tool for the home inspection.

Great info to get out to the consumer. I'm glad the days are gone when home inspections were avoided to have a clean contract. I never liked having a client buy a house as-is...you just never know what could be wrong.

Bob & Carolin, The investor market is growing here too, but most of the time the sellers we deal with have knowledge of the home.

Thanks Kristy.

Lupe, your time period is more longer than ours. If the Seller's disclosure must be delivered by mail, then the time frame is extended to 120 hours. However, because faxes and e-mail are legal tender, this is usually not necessary.

Hi Kris, these are simple but important components of managing risk.

Hi Allison...hadn't thought of it quite that way before. :)

Absolutely Patricia!

Lisa, it's always interesting to hear about real estate norms across the country. Thanks for coming back to answer my question.

Absolutely Chelle. Having an inspection is something I have always encouraged my clients to do.

Howdy Lola

It is always good for the agent to come to the home inspection also. It also helps the inspector if the clients agent is there.

Have a good one

I agree with you our buyers really depends on us to help them with purchasing a home; therefore having an inspector to help them in buying a home is very important.

I think the downside on this is when the broker is more motivate for his commission than helping the buyer get a home that is not a lemon.

Great post - when acting as a buyer's agent our number one priority has to be protecting our client's best interests - something that we cannot do without an inspection.

A great post as usual, thanks for the good words, keep 'em coming.

Lola, Lola. The agent comes FIRST.

The poor sellers in that house may have had their life saved by selling their home before cold weather when the heat would be on.

Some builders in my area are including Carbon Monoxide detectors in their homes as well as smoke detectors. Not a bad idea.

I'm so adamant about home inspections, I pay for the dang things.

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