Saturday, February 22, 2014

Chit-Chatting Around the Water Cooler

Remember the home inspection story in my last blog about the home owner who lost his lawsuit because he did not speak up when he suspected a problem at the home inspection?  Well, here is another story that could have gone to court, and maybe should have.

I was in the grocery store grabbing some Chobani Greek yogurt at the dairy case when I bumped into my home inspector.  We were standing their chit chatting when we felt the heat from someone moving around us on the perimeter.   We stopped and acknowledged this person, who immediately queried, “Are you the building inspector” he said to my friend.  Okay, we knew what he meant and after making the proper introduction this person proceeded to tell the building inspector his tale.

Remember the home you inspected for me?  I knew right away this was not going to be a happy tale.  Although he did preface what was to follow by saying he loves the house (now) and is perfectly happy with it.  The fireplace chimney had cracks everywhere and it leaked like a sieve.  It had to be torn down and rebuilt to the tune of $25,000. 

I asked this person if he noticed the problem before he bought the house. “Nope”.  Did your buyer agent ask the seller or the seller agent if they knew anything that was or would be a problem? “Nope”.  Did your buyer agent notice anything or say anything? “Nope”.

The buyer actually defended his unfortunate circumstance by explaining to ME that  Massachusetts is a ‘Buyer Beware State' and that unlike his home state seller's in Massachusetts are not required to fill out a Seller’s Description of Property form, and then admitting that no one asked the appropriate questions. 
(Side note:  Sellers on the Cape do fill out Seller's Description of  Property forms) 

At that point my question should have been, if you are so darn happy after hiring someone you expected to represent your best interests, paying for a professional home inspection, and then after you closed on the home discovering a major defect that ended up costing you $25,000, but you are telling us you happy and in love with the house, why did you interrupt our conversation?  This poor guy might have had a case against the inspector or his agent, or the seller agent if he had been an informed buyer with competent assistance.  Granted, I don’t know all the facts but if it were me I sure would be pissed and looking to see if I had recourse.

As a disclosure, I will tell my clients that Home Inspector’s cannot see every single thing there is to see.  Some inspectors will issue the same disclosure as part of their contract. It is important to remember that real estate licensees are not home inspectors, builders or engineers. However, as with the mold and rot case I reported on, where there is smoke there is fire and in cases like the fractured chimney I would bet you there was a lot of smoke.  And besides, if a buyer has concerns they can always bring a contractor or engineer to review the report, do specialized testing and look at the house they are buying.  I always say, the more the merrier and the more eyes the better – except around the water cooler, or at the dairy case.

Monday, February 10, 2014

How Good Is A Home Inspection

I was reading a legal article in one of my trade publications recently discussing ‘Caveat Emptor’ which means Buyer Beware.  Massachusetts is a caveat emptor state.  So what does that mean to you the consumer? By definition it means "The seller of a product cannot be held responsible for its quality unless it is guaranteed in a warranty."

If you have read through the “Why You Need a Home Inspection” part on my website you know how bullish I am about home inspections as a result of a mishap I had in my personal home buying experience.  I always say that I would rather lose a sale because the house did not pass muster than have a client move into an unsound home and have a bad experience. 

However, even with the best home inspector, the one the seller agents call ‘the deal breaker’ the inspector cannot see or find every single chink in the structure’s armor.  He may discover evidence of a problem but how large or small that problem may be should then be determined by an expert in the specific area of the problem.  It will be up to you, the home buyer, to act upon the evidence in a timely manner and request further exploration in order to gather more information.

Discovering a serious problem later on may leave you no recourse with the seller.  The case study that I read started with evidence of ‘rot’ found during a home inspection. The inspector, who also happened to be an engineer, stated in his report that the rot did not pose a structural problem, so the buyer went ahead and bought the home without doing any further investigation or raising the issue with the seller. 

If I were there for that diagnosis I would have been thinking that the engineer said it did not pose a structural problem -- at the present time, or from what he could see.  Have you ever had rust rot on your automobile? What does it do -- it progresses and spreads.  I would have raised a red flag and suggested further investigation or at least the notion that there was possibly more there than meets the eye.

The reason why the seller should have been questioned about their knowledge of the problem is because:
1) We do not use “Seller’s Description of Property” forms so the seller has no opportunity or reason to provide specific information as to their knowledge of the condition of the property.
2) Only if a hidden structural defect that would affect the value or the desirability of the property is disclosed by the seller to the seller’s agent is that seller’s agent morally required to reveal that fact to a buyer. That is a governing rule for REALTORS®.

Continuing on with what ended up being a law suit, the new owners of the house where the rot was discovered started noticing “a damp smell, the presence of potato bugs, and the ceiling tiles separating.”  The new owner had “the home re-inspected and this time the inspector found serious mold, rot and pest damage. The extent of the damage hadn’t been easily discovered the first time they had the house inspected, because new siding, trim and insulation had been installed”.

Here is where the story reaches its tipping point.  “With the new inspection report in hand, the couple determined with the help of a contractor that it would cost more to repair the property than to rebuild”.  Any of us would be fighting mad to get this kind of news. Right?  Of course, the logical next step would be to go to Court and that is exactly what these folks did.  “They sued charging the sellers with fraudulent concealment and negligent misrepresentation”.

Although the court found in their favor on the first go around, they lost an appeal because even though the court found in their favor based upon “egregious nondisclosure and concealment” by the sellers, the case was dismissed based upon Caveat Emptor.  In this case the buyer was made aware of a problem but did not follow up in a timely manner. 

I believe the most important part of a home purchase is doing your homework and that includes a thorough home inspection with solid answers for any questionable problems uncovered, speaking with town officials about the current and future neighborhood plans and even going so far as to interview the neighbors who would be more than happy to spill their guts with everything they know about your home owner, the neighbors next door or the overall community. It’s up to you to get out, walk the streets and knock on doors. Caveat Emptor.

Monday, February 03, 2014

The Flood Insurance Crisis and Martha's Vineyard

It's not just Martha's Vineyard that is in crisis over the changes taking place and their resulting affect on home and business owners, it's all of Cape Cod and up along the North Shore. Okay, to be exact it is practically the whole country that is in crisis.

It was a the Biggert-Waters Flood Insurance Reform Act of 2012 that floated in on the tail of some transportation bill and was not properly vetted that started this mess. 

It was when I went to a FEMA sponsored presentation last summer that I knew we were in real trouble. I walked into the Martha's Vineyard High School one sweltering July afternoon and there in a large room were tables with maps strewn around in heaps and about four or five representatives standing around apparently telling jokes and biding their time before they could leave and go back home.  There were quite a few people from local insurance companies there but only three of us from the real estate profession and one of them was there because I invited him to come along.  My take away from that so-called presentation and Q&A was that no one knew what the heck was going on. 

Among my colleagues it seemed like no one else was concerned, and when I spoke about my concerns the response was always something like, "Oh, don't be so negative -- I don't want to hear about it".   Well, they are hearing about it now and everyone wants to know what is going on -- not that anyone still really knows. 

As a Realtor®, my organization has been lobbying to make changes and we supported a bill promoted by a small group of Senators and known as the Menendez-Isakson Homeowner Flood Insurance Affordability Act.  Last Friday I tuned into CSPAN and waited anxiously as the Bill was about to be voted on in the Senate.  The supporters of the Bill were hoping to get at least 60 votes.  At a little after 5:30pm the voting began and when it was over 86 voted for it and 13 voted against.  It passed the first hurtle which would put off any flood insurance rate increases, primarily to a select group of people, and require more study and engineering before a formal plan could be implemented. 

Menendez-Isakson does basically three things that are important because it does not change all aspects of Biggert-Waters.  

1) All homes and businesses that are currently “grandfathered” are protected. These are properties that were built to code and later remapped into a higher risk area. 

2) All properties that purchased a new policy after July 6, 2012, before they were legally required to purchase insurance. 

3) All properties sold after July 6, 2012.  New homeowners and business owners will receive the same treatment as the previous owner unless they trigger another provision in Biggert-Waters such as Severe Repetitive Loss, non-primary residence, substantial damage, etc. 

This last part is where the bad news lies for Martha's Vineyard; non-primary second home residences are not protected from the changes outlined in Biggert-Waters. 

However, as our Congressman Bill Keating said in a recent interview on WCAI, “Many of these people will just walk away from their homes, and leave the lenders with an inventory at a time when they’re just trying to clear that inventory from the 2009 mortgage collapse.”I heard this from an off-Island broker months ago after she interviewed her insurance agent on the Cape. 

So as you can see this is a very serious problem and it is not going away. Scientists have predicted that sea level will continue to rise and that by the end of this century it will stand somewhere between two to seven feet higher than it is today.  For the meantime what is going away are buyers, people who wanted to live on the water but are now thinking Martha's Vineyard is much too fragile an environment. Many of them have decided to look elsewhere. 

One of the changes that I have observed since I was a boy is that beach houses are no longer simple camps that you sweep out; they are grand luxurious homes and anyone who was paying attention to the drama on Chappy last summer knows exactly what I am talking about.  The ocean has always been in control and living on the edge will always have its risks.