• September 2012

When Buying a House in Today’s Market: Buyer Beware

By Shep Saltzman, Principal Broker
and Barbara Balsamo, Broker
Realty Investment Company

Our mission is to educate house-buyers on what to know before they sign a contract on the house of their dreams. Did you know that the regional real-estate contract used in Northern Virginia, Southern Maryland, and Washington, DC, has changed?

The previous contract language guaranteed that all mechanical systems (plumbing, electrical, heating, and air conditioning) would be in working order at the time of settlement. That protective language was recently removed from the new contract, resulting in very limited protective language for the buyer regarding property condition. Buyers now purchase property in “as is” condition.

Exactly what does that mean for the buyer?

It is now the buyer’s responsibility to identify any defects or damage, and to make specific requests for repair or replacement. The best way to determine the “as is” condition of the property and identify needed repairs and/or replacements is to get a home inspection and any other necessary inspections.

  • The deadline for doing a home inspection is established in the “Home Inspection Contingency Addendum” and is typically completed seven to 15 days after a contract has been accepted.
  • After the home inspection is completed, the buyer’s agent should present their requests to the seller’s agent.
  • The seller can accept, decline, or counter-offer. If the buyer and seller do not come to an agreement regarding repairs, the contract will become null and void.
  • If the buyer fails to request a repair or replacement of a defect prior to the end of the home-inspection deadline, the buyer forfeits rights to make further requests of the seller.
  • Granted, most homeowners are honest people with good intentions. However, most do not know the condition of the systems and appliances in the home. With the decline in equity that many sellers have, some simply do not have the funds to pay for the cost of repairs.
  • Also, some sellers are “underwater,” which means that they owe more to the bank than they will receive at settlement when the house is sold.

What you need to know about the new contract:

  • 1. There is an additional buyer responsibility to make sure (at the final walk-through inspection) that no new damage has occurred and that repairs that the seller agreed to do (from the home inspection) were completed satisfactorily.
  • 2. Any damage that occurs to the property after the contract is accepted and prior to settlement is still the seller’s responsibility. In the event that damage has occurred to the property while it is under contract (such as from storms, tornadoes, and lightening), the home-inspection report provides excellent documentation to clarify the condition.
  • 3. One of the most common needed repairs is damage to walls and floors that occurs during the seller’s move. It is the seller’s responsibility to repair this damage.
    In the past, “latent defects” (those issues that only the seller could know about and might not be discovered at the time of the home inspection) were considered the seller’s responsibility and the broker’s responsibility if, indeed, the listing or selling broker knew about it.
  • 4. In the current contract, discovery of latent defects is the buyer’s responsibility. An example would be sub-par work performed by the homeowner that results in code violations.
  • 5. There are potential insurance issues that can result from latent defects if you or your family member is injured. Examples include things such as potential injury resulting from a collapsed deck, or a fire caused by faulty electrical wiring.

Here’s what you need to do before you take ownership:

  • Be prepared. Never buy a property without a home inspection, a radon test, and a termite inspection. We recommend that our clients, rather than the sellers, hire the inspector for termites.
  • Get help from an expert. To avoid the pitfalls of buying a property with hidden problems, hire an experienced broker who represents you. Once you have a property under contract, hire a qualified experienced home inspector (and other inspectors as needed for radon, termite, well, and septic) to determine any additional potential issues that a home inspector would not properly inspect. Experienced brokers can refer you to inspectors they know and trust.
  • Ask questions. Attend every inspection, ask questions, take pictures and notes. This a great opportunity to learn about your new home, and how to take care of it. Request that your broker attend, as well, so that he or she can help you understand any issues that may arise. Together you and your broker can determine any specific requests you want to make of the seller following the inspections.
  • Write addendums. We recommend to our clients that they write specific addendums outlining the required repairs and replacements, and how they are to be executed. Do this in a respectful and diplomatic manner, of course, and keep a copy of the inspection reports furnished to the seller.
  • Double-check the septic system. If the property has a well or septic system, be sure to get the most thorough inspection and tests available. Have a licensed septic contractor pump out the tank, and inspect the drain fields and distribution box.
  • Calculate the real costs of upgrades. Once you know the condition of the home, you may need help calculating the costs to update or repair some of the property’s components. Good examples include the cost to replace old but working windows, carpet with hardwood, countertops, old appliances, painting, etc. An experienced broker usually knows contractors who can quickly provide ballpark costs. Even if you are not going to ask the seller to make repairs or upgrades, you need to have a plan for the costs of any improvements you want to make.

Here is a short list of hidden problems that are easily missed by inexperienced buyers: Asbestos • “Chinese drywall” (defective drywall manufactured in China) • Fireplaces that need to be rebuilt • Foundation problems • Homeowners or condo association violations • Inability to obtain normal financing • Inability to obtain hazard insurance at reasonable rates • Insufficient electrical service • Leaky roofs • Mistaken information regarding schools • Mold • Noise from roads or airports • Parking problems • Planned development that would change the traffic and noise • Polybutylene plumbing • Proximity to powerlines • Proximity to toxic danger • Radon • Sexual offenders living nearby • Slow drainage • Special assessments from homeowners or condo associations • Stuck valves to main water supply • Termites • Title defects • Wet basements

The Bottom Line

Your home inspector has minimal responsibility—but they usually identify most problems. Nonetheless, there are issues that cannot be observed during an inspection.

And remember: It is better to spend money on inspections and withdraw your contract if necessary, than to purchase a property with unknown, hidden problems.

Stay Tuned

Barbara Balsamo and Shep Saltzman’s next article in the October issue of Be Inkandescent magazine will be on the do’s and don’ts of listing your house for sale in today’s market. Don’t miss it!

About Shep Saltzman and Barbara Balsamo

Shep Saltzman has been working in the real estate industry since 1985. He began his career at the Mortgage Investment Corporation, where he became a partner and worked until 1999 when the firm merged with Access National Bank (now Access National Mortgage). He also worked as an real estate agent with RE/MAX before becoming a loan officer and consultant with 12th Street Mortgage, which specializes in conventional, FHA, and VA residential loans.

In 1993, Saltzman and his wife, Barbara Balsamo, founded the Realty Investment Company. He is the principal broker, and the couple specializes in representing buyers and sellers of residential real estate throughout Northern Virginia. For more information visit www.realtyinvestmentcompany.com.