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60% of Sellers Do Not Disclose Major Problems

by | Sep 20, 2022

A recent survey by Cinch Home Services found that 60% of sellers knowingly did not disclose significant issues with their home to their buyers. Additionally, 77% of sellers said they were encouraged by their real estate agent to mislead in the disclosure process.

This fascinating study of 476 home sellers notes that selective memory and exaggeration are always a concern with surveys. For example, it is not clear exactly how these agents encouraged sellers to hide material facts; was this explicitly said, implied, or was it a general feeling the seller had?

Whether or not the agent actively or passively advised against disclosure, this study indirectly highlights how quickly an agent can be blamed in the event of a lawsuit. It is essential that an agent never even remotely hint or suggest that a seller omit material facts. If a seller is privately considering hiding information, remember that even offhand comments by an agent may be construed as a suggestion to illegally mislead.

How to Identify Problem Properties

This study also reinforces the importance of inspections for a buyer agent, and of paying attention to hidden clues about property condition. If a buyer is displeased with their purchase, this makes them significantly less likely to recommend your services as a buyer agent. So how can you tell if a property is going to have problems?

Criticisms are safer. When you investigate a property for your client, remember that making assurances that a property is in good condition can easily get you in trouble for misrepresenting your expertise. Thus, it’s much safer to make criticisms than specific, positive assurances. For example, if you don’t find any obvious issues with a building’s plumbing, you likely should not disclose this to your client, as they could easily assume you have expertise in plumbing that you do not have. This should only inform your own general optimism about the property. However, if you do find cause to investigate the plumbing further, suggest that the client have an inspection performed.

Here are some ways to identify problem properties:

Get to know your county records. These records can show permitted maintenance and improvements, and can be far more revealing than seller disclosures. For example, if a building is 90 years old, but there is no record of the plumbing ever having been updated, this could become a major expense for the buyer. On the other hand, if you find evidence of regular repairs and updates over the years, this could be a good sign.

Is the building reinforced? If the building is made of unreinforced masonry, it could be structurally unsound, especially if located in an earthquake zone. Make sure the building has steel reinforcement, or at least a wood frame if it’s an average-sized house. An unreinforced building has no significant frame holding it together. This is another area of investigation that county records can help with.

Get to know climate-related concerns in the area. If the building is in a coastal zone, are there signs of rust from salty air that may damage the building? The Surfside Condominiums that tragically collapsed in Florida recently had major rust-related structural damage. If the climate is rainy, get to know the signs of mold. If the area is low-elevation, get to know the flood plain area maps. If the property is located near a stream, investigate if there has been flooding or ground instability relating to the property or to properties nearby.

Always read HOA minutes. In a condominium complex, it’s much more difficult for groups of owners to conceal their concerns about their building in a meeting than it is for one owner of a single family home to hide their concerns.

Always check historical sales records. If the property sold for significantly less than asking in the last few years, or if the property was pending a number of times without selling, this could indicate inspections that found major problems.

Are a lot of units in a condominium for sale at below market value? This is an obvious clue, and an easy one to check out. Generally, this indicates a significant special assessment or major structural problem that forces many owners to consider selling.

Always remember that, no matter how exciting it can be to find a property with seemingly few problems, it is not a good idea to give the buyer specific assurances about property condition. Criticisms and suggestions to consult experts are much safer and more beneficial to the buyer. If you are excited about a property, it is much better to simply say generally that it seems like a good fit for the buyer’s needs.

You may want to become a home inspector, or add home inspection skills to your real estate practice.

If so, please check out our home inspector courses here: https://inspectiongoacademy.com/online-ed/

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