To Disclose or Not Disclose a Home's Material Defect In Your Marketing - a Follow-Up

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Education & Training with Sell with Soul

A few weeks ago I posted a blog about whether it's a good idea or not to "disclose" an obvious material defectdefect in your public advertising of a home, or let buyers discover it on their own when they visit the house. My opinion is that it's usually best to be upfront about such things so that you are marketing to the "right" buyer, not just using a shotgun approach hoping that "right" buyer stumbles along.

Well, there's more to the story; thought I'd share.

After the blog got featured, a member wrote to me privately telling me that she was currently in that situation with a new listing. The home is cute, in a great location, great square footage and tremendous potential. BUT (sigh - always a "but"), it has a material defect that will likely scare the pants off the majority of retail buyers. The defect is fixable, but at significant cost.

My reader had debated whether or not to disclose the defect in the public comments of her MLS listing. She (and her seller) had already priced the home properly (significantly below the non-defective comps), and she knew the price would be attractive to the market.

But... to mention the defect? Or not...?

After talking with her managing broker, my reader decided to be silent on the defect in the public marketing (with a brief mention of it in the broker comments), with the goal of generating as much activity as possible from a wide spectrum of buyers. Her seller agreed with this approach and away they went.

Well, the strategy worked, sort of. They had a bunch of showings the first week - woo hoo!

But...no offers and universally negative feedback. "My buyers loved the house until they got to the basement...then... yikes!"

At the end of seven days, her sellers asked her to change the marketing to more accurately reflect the reality of the situation. They admitted they were tired of all the showings, knowing that most of the buyers wouldn't consider the home at any price, and the negative feedback was wearing them out emotionally. (The agent admitted to similar feelings - that she was starting to dread notices of showings and subsequent agent feedback).

So, the agent changed the marketing as requested and immediately was rewarded with two showings, presumably by buyers who were willing to consider dealing with the defect. The agent told me that her enthusiasm level improved dramatically once she felt she was advertising the home more accurately, and felt she'd learned a valuable lesson in marketing - "UNDERpromise and OVERdeliver!"

Which raises the question - while OVERpromising in marketing might get more buyers/customers in the door, if they don't buy because they felt misled, was the marketing effective? (I vote NO).

But was the agent wrong in trying it "her" way at first? Did she dis-serve her sellers with her initial "more-inclusive" marketing?

I don't think so, but I'd love your thoughts on the matter! I'll share mine if you'll share yours.  

EPILOGUE: Two weeks and six more showings later, the house went under contract and is scheduled to close this week.

 

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Rainmaker
4,798,170
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Well, it sure looks like disclosing is the way to go.  At least in this circumstance, and most likely in most cases.  

Apr 27, 2011 12:34 AM #22
Rainer
209,593
Dennis Duvernay Broker/Owner
Hillview Realty - Northbridge, MA

Disclose, disclose, disclose....lets be honest from the start..in Ma. it is the law.

Apr 27, 2011 01:43 AM #23
Rainmaker
733,028
Eileen Hsu
Douglas Elliman Real Estate - Manhattan, NY
LICENSED REAL ESTATE SALESPERSON

First, I think you need to follow what is the law in your state, but then it falls into the tricky situation that you need people to come and see the house for themselves and if they can see all of the positives of the home before they see the glaring weakness.  Then they can decide if the pros outweigh the big con.

Apr 27, 2011 01:55 AM #24
Rainmaker
427,439
Leslie Ebersole
Swanepoel T3 Group - Saint Charles, IL
I help brokers build businesses they love.

It depends. Some material defects don't affect the marketability of the house and can simply be noted by a little card in the house, e.g. "chimney flue needs new liner and price reflects this repair". I would be careful about what you point out in marketing materials: what of the house gets a contract gets inspected, and then falls apart after five material defects are noted? Do you put all five defects in the remarks section or in the public description.

Best to think about this on a house by house basis.

Apr 27, 2011 02:11 AM #25
Rainmaker
1,395,877
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Jennifer, the agent was wrong. All adverse material facts have to be disclosed to all potential buyers. She put her license in jeopardy. When in doubt - disclose.

Apr 27, 2011 02:29 AM #26
Rainmaker
484,557
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

Thanks for all the comments!

Michael - just to clarify, the agent didn't try to hide anything and the defect was clearly disclosed in the property disclosures. The question was whether or not to mention it in the public advertising. There was definitely no intent here to mislead anyone.

Leslie - I'm thinking that if there are five material defects (other than regular wear and tear), the property should be clearly marketed as "needing work" however you want to put that. This particular situatiion there was only one glaring problem; the rest of the house would appeal to your regular retail buyer.

Maureen - good point about the lender - in fact, the agent updated me yesterday that they did struggle a bit with the loan, due to the defect.

John and Kasey - That's the approach the agent took at first - to disclose it in the agent remarks and make the detailed disclosures available, assuming the agents would screen the property for their buyers. And maybe some did, but apparently, many did not.

Kelly - PERFECT! I used a similar strategy once with a house that was near a highway... let me know how that turns out!

Donne - Yep. While it's not the listing agent's job to make the buyer's agent look good, I can't see any benefit in making him or her look BAD! That was one of my main objections to putting the comments only in the broker's remarks - if the agent misses it, he's not going to be happy about that and who does that benefit?

 

Apr 27, 2011 02:42 AM #27
Rainmaker
160,728
Retired Notworking
Tallahassee, FL

Interesting post and comments. When I'm representing buyers, I really appreciate accurate descriptions of homes so we don't waste anyone's time. If the buyers are short on cash and don't want to make any repairs themselves, I don't want to show them a house with an expensive problem. It helps if descriptions give you some warning that doesn't have to be explicit. If a vague statement alerts me to a problem, I call the agent before showing.

Apr 27, 2011 02:44 AM #28
Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

We have to disclose any material defects. Does it have to be in the marketing? No, but I do think it is on a case by case basis. I have one listing where I put in the agent notes for agents to contact me for a list of needed repairs. Once I give them the list, some will say, "no thanks," others say "let me check w/ my client" a few say it doesn't matter.

Apr 27, 2011 03:02 AM #29
Rainmaker
705,843
Richard Bazinet /MBA, CRS, ABR
West USA Realty - Scottsdale, AZ
Phoenix Scottsdale. Sellers, Buyers & Relocations

Hi Jennifer - Like Micheal #27 responded, at least in AZ,  any disclosure of facts known by the listing agent that may affect the decision of a buyer 'must' be disclosed, this is not an option. That being said, how this is conveyed is another matter. I agree with you, disclosing it wisely in the right manner, it may attract more effectively the right buyer to a successful conclusion. 

Apr 27, 2011 03:05 AM #30
Anonymous
Jeff Pearl

I think it's always best to disclose everything, whether it's required or not. Some buyers don't want to buy a construction project or have time to deal with a 203K. If they need to get moved, get to work, and get their kids enrolled in school for example, they probably won't have time for a fixer upper and having to find contractors, get estimates, etc.

Apr 27, 2011 03:19 AM #31
Rainer
26,904
Jim Keilson
Maryland Home Inspection Services, Inc. - Gaithersburg, MD
Specializing in Mold and Radon Gas Testing.

I agree with Dennis, "Disclose, disclose, disclose....lets be honest from the start..in Ma. it is the law."

If you know of any defects in the property and do not openly disclose it you should have to assume the liability of your actions or lack off.  That is very dishonest biz if you ask me and gives your industry as a whole a bad rep for being dishonest.

Apr 27, 2011 03:37 AM #32
Rainer
423,008
Peggy Chirico
Prudential CT Realty - Manchester, CT
REALTOR® 860-748-8900, Hartford & Tolland County Real Estate

If it's a material defect, it must be disclosed.  We upload the property disclosures to MLS so everyone can see the detailed comments.  We also have an agent to agent section where facts impacting the sale may be entered.  I think in the long run, as you have mentioned, if buyers are mislead, the seller may get tons of showings that may go nowhere, much to the frustration of both parties. 

Apr 27, 2011 04:53 AM #33
Rainmaker
1,561,684
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

If it's a known material defect, it should be disclosed.  Having the foot traffic through a home is one thing, but when they leave and are perturbed it's not going to get the seller anything like an offer.  I had one listing agent who knew the siding was bad.  They continue to market it with "wood" siding, and it's pre-fab, and failing. 

Apr 27, 2011 05:03 AM #34
Rainmaker
511,478
Robert L. Brown
www.mrbrownsellsgr.com - Grand Rapids, MI
Grand Rapids Real Estate Bellabay Realty, West Mic

Well it worked out in the end for the seller. To me it's a toss up. I've never been faced with this situation before. As commented above it's a material defect and here it has to be disclosed as well.

Apr 27, 2011 06:29 AM #35
Broker_partner
33,934
Tricia DeSouza
HomeSmart - Scottsdale, AZ
Selling Scottsdale Luxury

I have never listed a property with a defect that would turn away a potential buyer but I think if I did, I would prefer to be upfront in the listing. Otherwise, it can be a waste of time for everyone involved from the buyer and seller to the agents.

Apr 27, 2011 07:58 AM #36
Rainmaker
778,502
Robert Rauf
HomeBridge Financial Services (NJ) - Toms River, NJ

It just shows that honesty is the best policy!

I hope you are having a great week!

Apr 27, 2011 08:07 AM #37
Rainmaker
571,868
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Jennifer,  From a strictly sales oriented approach I always feel it is better to disclose up front ( better yet to fix it ! )  than to end up defending or explaining why the buyer should fix something !  Disclosing also enhances the agents status as being honest.

Apr 27, 2011 09:01 AM #38
Rainmaker
1,027,150
Susan Haughton
Long and Foster REALTORS (703) 470-4545 - Alexandria, VA
Susan & Mindy Team...Honesty. Integrity. Results.

Underpromise and overdeliver...usually works the best in almost every situation.  I'm glad it worked out in this case! Great story.

Apr 29, 2011 04:17 PM #39
Rainer
274,285
Coral Gundlach
Compass - Arlington, VA
Real Lives. Not Just Real Estate.

Great story.  I'd say it all depends on what you are calling a "defect"  can it be fixed?   Have they attempted to fix it and it's still a problem?  It sounds like a nasty basement from the way you wrote it.   And again, that all depends.  Is it a waterproofing problem?  Mold?  I'd say anything like that and you must disclose, it's the law. If it's just a less than desirable feature, then still make it clear there's some work to be done and it's priced accordingly.

May 01, 2011 02:14 AM #40
Rainmaker
2,190,677
Elizabeth Weintraub Sacramento Realtor Top 1%
RE/MAX Gold - Sacramento, CA
Put 40 years of experience to work for you

I love this discussion. I just took over a listing that another agent had for a year with no offers. I put in the marketing comments that the home, if you wanted to know the truth, was kind of a dump, but with a little TLC, it could truly shine. You know what kind of agent writes something like that and gets the seller to go along with it? An agent who is going to sell that house.

May 02, 2011 08:25 AM #41
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Jennifer Allan-Hagedorn

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