Can You Sue An Inspector After A Report Filled With Errors Kills A Deal?

Dear Dave,
We have our home under contract and the buyers ordered a home inspection.  The home inspection report contains four substantial errors in the areas of heating, cooling, plumbing and sewer system.  The inspector misidentified a sprinkler valve as a sewer service cap and reported a possible "active sewer leak" in that area which is nowhere near the sewer line.  The inspector may have scared the buyers out of this purchase through these errors, time will tell.  I was surprised to find that home inspectors are not licensed through the state of Colorado which seems ridiculous considering one unlicensed man's opinion can derail a deal for the seller's agent, buyer’s agent, sellers and buyers.  Do inspectors typically buy Errors &Omissions insurance and what has your experience been with sellers suing the inspector after a report filled with errors  kills a deal?

Thanks,
Shawn,  Loma

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Shawn,

Ugh…I hate this for you!   I hate it when things like this happen to unsuspecting and undeserving people.  The picture you are painting here is certainly an ugly one, however a painting that I have seen far too often on varying levels.  First, I am sorry about your circumstances and I truly do feel for you and your family.  It is likely that your first question was “how is this possible?” and after that answer settled in, feelings of total frustration, disbelief and outrage!  Let me start by saying that inspectors are people too and mistakes are just part of being human!  That being said, it certainly does not excuse them or make them any more forgivable when the errors appear to be as egregious as these might have been.

Home inspectors are not licensed by the state and are not governed by the state or required to have any amount of standardized or required training.  Colorado is one of 20 states that has not adopted ANY licensing requirements.  I must admit that most of the local home inspectors do a great job, but I believe they often lose sight of what they are really doing and why they are really there.  Believe me, I feel your pain… I personally believe that where home inspectors get themselves in trouble is the same with all of us…… they speak before they stop and think something through.   Often times they provide an answer or draw a conclusion without really knowing and that is where big problems can start. 

There is a life lesson in this and that is that if you don’t know something, don’t say something that may or may not be true.  Explain that you don’t know, but will find out!  Sometimes you run across things that you don’t know or are not sure of, and instead of blurting out an answer, you should dig a little deeper to gain full understanding before speaking or drawing a conclusion. We all know that it’s hard to take back words or correct an incorrect report.  When it gets to that point, many times the damage has been done.  An even bigger issue involved here is trust!

Home buyers trust their home inspectors and trust is a very powerful thing!  When you said that the inspector may have scared the buyers off, unfortunately I am confident the home inspector is clueless about his unknown super power…. Trust.  Listen, when a home inspector says it, it MUST be true, at least in the eyes of the buyer.  Many times, especially in young home buyers, what an inspector says is treated like the gospel.  I believe most home inspectors do not have any idea how much home buyer’s trust what they say and when it is wrong, it can have cataclysmic consequences on a home purchase and everybody suffers.   

I do not believe most, if any, home inspectors carry E & O insurance and, in fact, I believe it is a common practice that the maximum amount of liability for most home inspection contracts is the price of the home inspection.  That means that if you paid $400 for the home inspection, the home inspector’s maximum liability would be $400! Lastly, I do not have any experience with sellers suing a home inspector for a faulty report, although I have had many who wanted to.    Unfortunately, sometimes mistakes are made and from time to time it can have a significant negative impact that can cause a deal to crumble.

Shawn, I am sorry about your situation and I am hopeful things will work out.  Remember, things really do work out for a reason, even if you don’t know the reason.  Control what you can control and trust that the rest is meant to be! : )  I know, easier said than done! 

Dave Kimbrough

The Kimbrough Team

Did We Sell Our House Too Cheap?

Dave,

We listed our home for sale about three weeks ago and it sold in the first week for what we were asking. I was elated, but my husband keeps saying “we sold it too cheap.” I keep telling him it was just the right buyer, but he says it was underpriced. If our home sold in the first week, does that mean that it was underpriced? Just curious of how you view this, as I am sure you have run across this very situation. 

Jackie, Grand Junction

P.S. I am happy we sold it quickly, even if we could have gotten a little more.

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Jackie,

I have run across this many times over the years and this is one of the real estate questions that is almost always debatable. There is no doubt that every time we sell something quickly that I ask myself the question, “Did we price it too cheap?” I am here to tell you that sometimes the answer is yes, sometimes the answer is no and sometimes the answer is impossible to know. I can absolutely tell you that just because it sold quickly, does NOT necessarily mean that you sold it too cheap. 

There are times that we have sold a property within the first few days with multiple offers and in that case the answer would be, more than likely, yes. If something sells that quickly, with multiple offers then you probably could have gotten more money for it, because there are multiple people vying for the same product. The good news is that most of the time in multiple offer situations, we are able to get more than the asking price. It usually works out to be about the same as it would have brought if priced higher originally. I really do believe that most of the time you are correct, it is just the right buyer and not because it was underpriced.  

I don’t think a day goes by that I don’t tell one of my customers, “There’s a butt for every saddle, we just have to find the right butt!” A little talked about fact, which I might point out is underappreciated, is that there is always a school of buyers in the market and they are circling, just like fish in a pond. When new bait is thrown in, they all swim over to check it out and either take it or wait for something better. In our current market, there are more buyers than one would think. They are circling and waiting for just the right bait. When they see it, they will strike, but only if the price is right. Today’s buyers are not dumb, anything but. They are very smart and well educated on the market. When a property of interest comes up but is not priced appropriately, it will sit.  

I say it all the time, houses are like any other good to be sold. At a certain price all homes will sell and sell quickly, but the tricky part is establishing the market value for each one when no two are the same. That makes establishing a top of market value much more difficult than one might think. It is much easier to establish a market value for a particular item when there are thousands to be sold and they are all identical. In that case, it is simply the law of supply and demand, but when EVERY item is different with its own characteristics, good and bad, it becomes much more difficult. Even the same house in the same neighborhood has a different lot, view, finishes, condition etc. As you can see every house is different.

Honestly, sometimes I get it just right, sometimes I set the price too high and sometimes too low, but every time it is based on comparable sales in the area and my professional assessment of the unique values the property offers and I am sure your agent did the same. It really is as much art as it is science and you do not get them all right. If your home had not sold in the first week and been 60 days and no offer, your husband would have said it was priced too high. My best advice would be to be thankful it is sold, remind him that he agreed to the sales price and be thankful you can avoid the countless showings and constant cleaning! The bottom line is, it is sold and that is a good thing. 

Dave Kimbrough
The Kimbrough Team

How Do We Create An Outdoor Space With Great Resale Value?

Dear Dave,

My wife and I have been in our new home for about a year now. We are considering putting in a hot tub.

We have a couple of different options to locate the hot tub and wanted your advice. One idea would be to put the hot tub on the small patio that is off our master bedroom. However, that would be the only access and we aren’t sure that is a good idea. The other option is to put it on our patio off the dining room - which would definitely be a more central location, but not as secluded.

Do you think it makes a difference for future resale potential? And if so, what do you think is best? Thanks for your feedback!

Joe and Sydney, Grand Junction

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Joe and Sydney,

Making improvements on your outdoor living space is always a smart move! For resale it is hard to beat the bang for your buck of outdoor home improvements.  Outdoor living spaces are very in vogue and there is little that lights the fire of a home buyer like a really well done outdoor living area. One thing to keep in mind is that hot tubs are a bit like pools, people either really like them or they really don’t and there generally is not much in between. If you simply add a hot tub to an existing deck or patio your financial return will likely be quite underwhelming, however creating a truly amazing outdoor space will add real money and end up being a real selling point when and if you ever decide to sell. All that being said, there are a couple of things you can do to maximize the space and the improvement.

First, concentrate on making the space not just a hot tub space. Make the effort and spend the time to create a space that provides not only a home for your hot tub, but a space that creates an atmosphere and ambiance of a true outdoor living area. Marry your hot tub with a multi-purpose area that serves as an entertaining or sitting area and see the impact soar. I am not sure it matters if you situate the hot tub off the master bedroom or off the dining area if you really create something wonderful. Both locations will have their appeal, if you go off the master you probably want something a bit more intimate and private and if you decide to locate off the dining area you want to shoot for making it conducive to entertaining. 

On another note, make sure to add the extra element of lighting to your area. Lighting is far too often overlooked as a very inexpensive item that provides high impact and is essential when trying to create a mood and ambiance. If you go the extra mile and enhance your landscaping to accentuate the new hot tub/entertaining area you will be well on your way to creating a space that many hot tub lovers and even those who are not will covet!

Dave Kimbrough

The Kimbrough Team

RE/MAX 4000, Inc. 

Is Xeriscaping A Good Idea For Re-sale?

Dave,

Our landscaping needs a complete overhaul! We were in the middle of drawing up plans to revamp our front and back yard when I ran across some ideas for xeriscaping online. I can’t believe I didn’t think of it in the first place! We would love the low maintenance aspect of it since my wife and I travel a lot. The only thing is we’re thinking of downsizing in a few years. Before we take the leap and jump all in on the idea, what’s your opinion on the style and furthermore if it will turn away buyers once we go to sell.

Love your column!

Cynthia & Bob, Grand Junction

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Cynthia and Bob,

I think it’s a great idea!  Xeriscaping is quite popular and can be very attractive, especially in our “high desert” climate that easily lends itself to that style.  The one hesitation I might have revolves around what type of home you have?  If your home/neighborhood lend itself to families with younger children then I might lean toward xeriscaping in the front yard and having some grass/yard in the back.   I totally get the low/no maintenance attraction, but people with younger kids tend to want a grass back yard for them to have a play area and gravel does not make the most inviting play area for younger kids!  If you take these things into account I do not believe you will have any issues when it comes time to sell, in fact it might be a selling point to many buyers who crave the low/no maintenance yard as peoples time only becomes more valuable as we all get stretched even more thin!   Again, great idea and enjoy your new landscaping! 

Dave Kimbrough

The Kimbrough Team

What Is The Deal With Sellers Paying For The Buyers Closing Costs?

Dave,

We just listed our home for sale and our agent informed us that buyers in our price range are going to ask US to pay THEIR closing costs.... I was floored.  I have never asked anyone to pay my closing costs when I have purchased any of our homes and certainly do not have much interest in paying them on a buyers behalf.  I am going to have my own costs to pay, without paying theirs too.  We do not feel like we should pay someone to purchase our home.  The whole thing just does not make sense to us  and when we asked her why?, she just said, “it is the way it works now days.”  I agreed and just moved on, but it still does not sit well with us.  Could you please give us a better explanation of why we will be required to pay the buyers closing costs? 

Les and Joanna, Grand Junction

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Les and Joanna,

I can assure you, you are not the only sellers I have heard this from, “if they cant afford to pay their own closing costs, they certainly cant afford to buy my home”.  Seller paid closing costs, must be somewhat of a newer trend, as it is my sellers who are generally over the age of 50 that have a real disdain for seller paid closing costs, they are fundamentally opposed to it.  I really believe most of the time it is not the costs involved, it is the lack of understanding and the generational gap of a time when you just did not ask for help. Remember, you are not required to pay the closing costs, but let me see if I can make a case for why you should! 

There are a few reasons why this has become quite the trend in home buying.  First, the lenders will generally allow a seller to pay up to 3.5% of the homes purchase price towards the buyers closing costs.  If the seller agrees to participate by paying the buyers closing costs, this lessens the buyers “cash burden” at close and thus allows them to purchase the property with less money out of their own pocket.  This leads us to our second reason this practice has become so vogue, many buyers in today’s market are “cash poor”. 

Lets face it, as a society we largely live hand to mouth and save very little, although our saving habits have become somewhat better since the fiscal crisis of the past several years.    Statisticbrain.com reports (numbers verified 12-26-2013) the average American family has a savings account balance of $3,800 and 25% of American families have no savings at all and 40% of families have no plan or savings for retirement!  I think it is safe to say that we are a “cash poor” society and the more cash it takes to purchase a home the fewer buyers there will be who will be able to buy.  It really is quite simple, you are paying their closing costs to lessen their cash requirements at close and thus increasing the size of the overall buyer pool.  By saving the up front cash expense of closing costs, the buyer may also be wanting to make some improvements or updates to the home after closing and keeping some cash in reserve will allow them to do just that.   Keep in mind that it is by no means, “every buyer” who “needs” the closing costs paid on their behalf.  Many buyers choose to have their closing costs paid by the seller, as this allows them to “roll” their closing costs into their loan.  By rolling their closing costs into their loan, a loan that they likely have at around 4%, it requires them to take less cash out of other investments that may be performing at a higher rate of return than the 4% they are borrowing at. 

As you can see, there are several reasons “why” buyers will ask you to pay their closing costs and you can be assured that if you refuse, many buyers will move on to another property, especially in the under $300k price range.  I always advise my sellers to pay the closing costs and negotiate from a bottom line sales price (their net), rather than getting caught up in who is paying what closing costs.  Just ask your real estate agent to give you a net sheet so you can see what your walk away number will be and negotiate off your net amount, as this is the only number you should really be concerned about.  I hope this helped. 

Dave Kimbrough

The Kimbrough Team

RE/MAX 4000, Inc. 

Is It A Good Idea To Build A House With A Basement?

Dear Dave,

We are making plans to build a home in the next year. As you know, there are so many decisions to make as we go into this process. As we are considering builders and building plans, we are trying to make a decision on whether or not to have a walk-out basement in our new home.

Do you consider a basement to be a good use of building costs? Do you think it is a good idea to have a basement or not? We have options for what type of basement to have, just want to know what your opinion is on this. 

Thanks for the help!

Don & Linda, Grand Junction

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Don and Linda,

Trust me, there are more decisions to make than you can possibly imagine!  The commitment to building is high, but so are the rewards.  I have been through the process many times and often times the number of decisions to be made can prove to be overwhelming, even for the most prepared.  Of all the decisions, to have a basement or not to have a basement may prove one of the easiest!

From a cost perspective, I believe it is hard to find a more cost effective place to add living space than a basement.  A basement can prove to be a valuable asset for anyone who needs to inexpensively expand their living or storage space, but can also provide a wonderful and inexpensive option for a woodworking shop or hobby area.  Basements are very popular features to most home buyers (something to consider for resale down the road), however don’t expect to get the same value from your inexpensive downstairs living space as you do from main floor or even second story finished living area.

 It is a VERY common mistake to assume that living areas below grade are valued at the same price as their above ground counterpart. Unfortunately, that is NOT how it works. Generally speaking, you can assume that the added value of basement square footage is no more than 50% of the above grade value.  This means that if you have 2000 square feet above grade that is valued at $175 per square foot, your below grade value is likely in the $75-$85 per square foot range (even if it is of the walk out basement variety)….. NOT $175 up and $175 down.  Most people think all levels are valued the same, but when it comes to establishing value - below grade living space is just not as valuable as the space above ground level.

To answer your final question, I personally believe basements are a valuable addition to most any home and will be attractive to the majority of future home buyers.  It’s a great way to pump up your living space, while remaining budget sensitive.   I say, “go for it!”

Dave Kimbrough

The Kimbrough Team

Help, All Of The Houses We Want Go Under Contract Before We Get A Chance To See Them!!

Dave,

We are currently looking for a new house here in the Grand Valley. Our budget is around $225,000 and it seems like every time we find a house we want to see, it’s under contract before we can even schedule a showing! What’s the deal with houses in our price range moving so fast? Do you have any advice on what we can do to find something we like before it goes under contract?

Thank you so much for your help!!

Mackenzie & John, Grand Junction

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Mackenzie & John,

Wow! Your observations are absolutely correct!  The segment of the market that you are searching in is moving at a very brisk pace and the competition can be fierce!  I had a property that I put on the market this week and had 3 offers on the first day and the winning bid was significantly over our asking price.   I sure did not see that coming!  However, situations like this are happening with more and more regularity so as a buyer, you must be ready and willing to put your best foot forward right out of the gate.  Don’t be afraid to compete!

There ARE some simple things that you can do to help move your offer up in the pecking order when the offers are presented to the seller!

1.      Be willing to offer more than asking price!  I have seen many an offer lost over $500 or $1000.  If you really want the property and there are multiple offers, go 1-2% over asking price and watch your chances soar!  If the home is $225k, offer $229k and my bet is you get it.

2.      Offer more earnest money than what the seller is requesting.  Earnest money is often times an overlooked negotiating tool that absolutely DOES mean something to a seller and can tip the scales if the offer prices are similar.

3.      Be flexible with the closing and possession date.  This will show the seller that you are willing to work with them and make the transition fit their needs. 

4.      Be willing to cover your own or at least part of your own closing costs.  Over 80% of the offers we see contain seller paid closing costs.  Eliminating these closing costs indicates to a seller that you are a stronger buyer.   After 15 years and thousands of contracts negotiated, it is a fact that most sellers don’t like paying the buyers closing costs.

5.      Do not ask for personal property or things that the seller is not offering as inclusions with the property.  If they have not included the nice new looking refrigerator, don’t ask for it.  If you find their lawn furniture comfy don’t try to throw it in, go buy your own.  I have yet to find a seller who looks upon request for personal property with a favorable eye. 

6.      Be willing to waive your inspection contingency!  If you do this, it will be clear to the seller that you are making a serious offer and have serious intent to purchase the home.  This is a last resort move, however, it is a doozy if you have confidence that the property is in good condition.

These are several techniques to help you up your game in this increasingly more competitive real estate market.  Notice that none of these are high dollar techniques or anything really fancy, but I promise they will make a difference and if you combine 2 or 3 of these in the same offer you will probably have an unbeatable combination.  Remember sometimes it takes a little courage, faith and risk to get what you want so don’t let fear or hesitation hold you back from making things happen.  When you craft your offer with your agent, look at it through the eyes of a seller, be willing to think outside of the box and create a win/win for both parties and I bet you have a new home in no time at all.  I’ll bet the next time you submit an offer, it will be FUN!  Good luck.

Dave Kimbrough

The Kimbrough Team 

Can You Explain What Exactly Title Work Is?

Dear Dave,

            We are in the process of selling our home and will be purchasing a new one.  Right after we listed our property for sale, we received title work from our agent on our home.  Can you explain what exactly title work is?  We were told that we need to review it, but what should we be looking for on the property we are selling?  When we purchase, what should we look for on the title work for the new property – anything different we should look for or the same stuff?  Thank you for your help.

Dennis, Grand Junction

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Dennis,

This really is a great question and a part of the buy/sell process that is far too often glossed over.  It is glossed over, because most of the time people and agents do not know how to answer your question thoroughly and with command of the specifics of what you are looking for.  I am very lucky to work closely with Bob Reece, President of Advanced Title, who is one of the very best real estate experts I know and knows title work inside and out!  I have relayed you question to Bob, to ensure you get the best possible explanation!

"Title work" is really the title commitment and the documents that are referenced in the title commitment such as protective covenants. The commitment outlines the current status of title interests in the property such as the name of the owner(s), any lender and other interests such as easements holders, and the commitment gives sellers and buyers the opportunity to review the title to the property before the closing occurs. The seller should compare the deed with which they acquired ownership to the property with their name(s) as it appears on the title commitment to make sure it is the same. A similar comparison for the legal description is essential. The third area of the commitment are the Exceptions to Coverage that lists various protective covenants, easements, agreements, reservations, etc. that affect the property. These items should compare favorably to the exceptions that appeared in the title policy that was issued when the seller originally acquired the property. And, by example, any easements granted by the seller should also appear as an Exception to Coverage on the title commitment. Any discrepancies found by the seller should be disclosed to his real estate agent as soon as possible and prior to closing so a buyer becomes fully aware of the matters that affect the property being purchased.

A buyer would be wise to review a title commitment in similar fashion; to make sure their names properly appear on the title commitment as found under the real estate contract and on any lender application; that the legal description matches the one found on the seller's acquisition deed; and to review the documents referenced as Exceptions to Coverage to make sure they understand any obligations, restrictions to usage or third-party rights that affect the property about to be purchased.

As Bob intimates, your title review is a very important part of the process, as it lays out virtually everything you need to know about your property and the property you are going to purchase.  Your rights and the rights of others should be spelled out in your title work and thus leave few things, hopefully, to chance.  It is always sound advice to ask questions about ANYTHING you do not understand.

I hope this helps and remember if there are any discrepancies make sure to bring them to the attention of your agent or the title company that has provided the title information so they can be addressed and remedied if need be.  Best of luck selling and buying!

Dave Kimbrough

The Kimbrough Team