Section 7, Unit 1: Property Condition, Disclosures, Inspections, and Warranties
On average, how many years does a home warranty cover structural damage?
10 years
What is a CLUE report?
A report that gives the insurance history of a home. Gives you an idea of what to look out for, if it's costly to insure. May he empty if nothing has happened in the past 7 years.
What is mediation?
A third-party helps homeowner and company resolve the problem by facilitating discussion between them
What is MAAP
Acronym to remember seller disclosure. M aterial A dverse A ctual P hysical
Addendum vs Amendment
Addendum clarifies or adds something tp the disclosure statement. (Floor was patched up, notifies buyers and provides a credit at closing for repair of the floor. All parties sign and transaction continues no issue) Amendment changes something that was previously written. (Roof doesn't leak, but then it is discovered it actually does. Amendment would need to be completed to correct information in the original disclosure statement)
What is the purpose of a home inspection contingency?
Allows buyers to get their earnest money back in the event that they back out of a transaction after reviewing inspection report.
What is arbitration?
Alternative dispose resolution that provides a panel with a controversy. They will listen to both sides and make a decision. "Informal court"
Adverse information
Any information that would reduce a property's value or cause a person not to go through with a transaction.
What information about a property is the licensee required to disclose to potential buyers?
Any material, adverse information that the licensee has actual knowledge of concerning the physical condition of the property
What happens if mediation fails to resolve the dispute?
Arbitration!
Who purchases warranties with new construction?
Are backed by builder, or purchased by the builder from an independent company that assumes responsibility for certain claims. Buyers (or sellers on their buyer's behalf) can purchase additional coverage from a third-party warranty company to accompany the coverage the builder provides
Why isn't a property condition disclosure form enough?
Because unknown defects such as mold hidden within a wall may not be reported!
Who purchases home warranties from resale homes (not new construction)?
Buyers and sellers of the homes. Sometimes licensees will provide a buyer with a home warranty service as a value-added service.
Where can insurers find a property's insurance history.
CLUE Report (Determines the amount of claims, the types of claim, and certain property conditions align with their underwriting rules)
What is the difference between a Caveat Emptor State and a Full Seller Disclosure State
Caveat Emptor states leaves it in the hand of the buyer. Although sellers cannot outright lie or actively conceal a problem, they are not obligated to point out the home's flaws to the owner. They should always be honest. On the other hand a full seller disclosure state demands the seller to put the buyer on notice of the home's defects.
What happens if a CLUE report is blank?
Claims may have been filed more than seven years ago or the property is insured by a company that doesn't participate in CLUE
Seller responsibilities in caveat emptor state and full seller disclosure state
Disclose only what is required by law and not lie when asked about defects or try to actively hide defects
Forms of seller deceit include (intentional or not)...
Failing to provide disclosure statements Lying on the disclosure form Refusing to answer buyers' direct questions regarding the property condition Concealing a defect with the intent to deceive the buyer
Who requires builders to purchase third-party warranties?
Federal Housing Administration (FHA) and Federal Department of Veteran Affairs (VA)
What can you be charged for if you lie on the Property Condition Disclosure Statement?
Fraudulent Misrepresentation
What is the purpose of a CLUE report?
Gives property's insurance history (types of claims, amount of claims) Helps buyers determine whether a property has hidden issues (and whether it may be difficult or expensive to obtain insurance) It contains: Insurance company names and policy numbers Claim information, (dates, loss types, and loss payments)
What happens if a component of the house is defective?
Homeowner may have to work out the issue with the manufacturer.
Does the buyer agent have to give a copy of the inspection report to the buyer agent?
In a full seller disclosure state, no! The buyer will have to disclose what was found, but does not necessarily have to provide the seller with a copy of the report unless contract states otherwise.
Physical information
Information that concerns any problematic physical condition of the property that may not necessarily be apparent Eg. Faulty windows, poor foundation
Material information
Information that is important for the buyer's decision
Actual information
Information that is known to the licensee regarding the physical condition of a property or could be plainly noticed by the licensee, regardless of whether it is disclosed by the owner/seller.
How can buyers deal with Caveat Emptor
Inspection!!
What are a home inspector concerns?
Inspections focus on structure, operating systems, and major elements that make up the home. This includes presence of pests, moisture intrusion, leaks, roof buckling, proper installation of chimney flashing
What happens when there is an inaccuracy in the original disclosure statement that comes to light before the sale?
It should be reported! Addendum or amendment.
Should you overshare or holdback information in the Property Condition Disclosure Statement
It's always safer to disclose to protect yourself from future legal action.
What are some benefits of Property Condition Disclosure Statements for the seller?
Legal benefits! By disclosing known material defects, sellers are protected from liability and potential legal action. If items have been disclosed, it is the buyers responsibility once the transaction is over. It can also give the buyer peace of mind knowing that the seller is being upfront about defects and provides transparency. Could ease the transaction.
Types of defects that should be disclosed?
Material Facts! Facts that are important to a person in deciding to purchase a home. Eg: •Non-permitted construction• Electrical wiring that's not up to code• Leaky windows, doors, and pipes• Mold and any weather-related damage• Lead-based paint• Termite, rodent, and insect issues• Hazardous issues and other dangerous elements• Appliance, HVAC, and electrical malfunctions• Property line or zoning disputes• Noise or construction issues within the surrounding area • Unusual odors• Liens and any property disputes
What is one of the leading reasons Real Estate Licensees face legal issues?
Misrepresentation of a property's condition
Must inspection findings always be disclosed?
No
Can a buyer request a CLUE report for a property they are interested in?
No, but they can ask the seller to get one for review
Is the seller required to repair issues reported on the inspection?
No, but they do have the choice to do it. Other options include negotiate reduction in price, or just deal with it
Are sellers required to provide previous inspection reports to new potential buyers?
Nope!
Seller agent responsibility in Caveat Emptor State and Full Seller Disclosure State
Notify seller of their duty to disclose those items that must be disclosed; let them know they cannot lie or hide defects Notify seller of their duty to disclose all known material defects
Buyer agent responsibilities in caveat emptor state and full seller disclosure state
Obtain seller disclosure form and provide it to buyer. Counsel the buyer that this is not enough and encourage buyer to obtain a home inspection. Follow up on red flags. "
What does a property condition disclosure statement do?
Offers a representation of the home's current condition to the best of their knowledge. It does not guarantee the home's condition.
How often can homeowners obtain a CLUE report?
Once a year! and its free.
Pros and cons of being present during home inspection (buyer agent)
Pros: You understand what the inspector finds Cons: Not required, may open up liability If attend, let the buyer interact directly with the inspector
What will a home warranty generally cover?
Repairs and replacements of most major home appliances and system components, such as HVAC, due to failure. Builder's warranty will typical cover materials as well as workmanship!
Buyer responsibilities in caveat emptor state and full seller disclosure state
Review the seller disclosures, investigate and ask questions, obtain a home inspection '' + follow up and investigate red flags
What should potential buyers do when they receive inspection report
Review, decide course of action.
What is another unusual way of remedying seller disclosure?
Seller has the option of providing disclosure or giving the buyer a standard (nominal) credit
What is something buyers should be aware of in a caveat emptor state
Sellers do not have to disclose something if you do not directly ask. eg. when you have a leaky roof, they only have to tell you if you ask
What can the buyer do if the seller disclosure doesn't include an issue that is discovered prior to closing?
The buyer can ask the seller to make necessary repairs or provide a credit.
What can the buyer do if there is an issue that indicated seller deceit on the disclosure?
The buyer can sue the seller for brach of contract or fraud.
What can the buyer do if the seller didn't provide a required disclosure in the proper time frame?
The buyer can terminate the agreement and get a refund of earnest money deposited
What are some benefits of Property Condition Disclosure Statements for the buyer?
The quality of the home may improve. Sellers feel more inclined to make repairs of known defects that they would not have otherwise made, because they know they have to disclose the defects. Adds transparency to the home-buying process.
Why do the FHA and VA require builders to purchase third-party warranties?
To protect buyers of new homes that are financed using FHA or VA loans.
What is the purpose of a home warranty?
To protect the buyer in the event that certain defects or adverse actions occur
What is the purpose of a home inspection?
To provide the buyer with an accurate description of the home's true condition!
Does the buyer agent need to have their clients permission to share the inspection report?
Yes!
What does caveat emptor mean?
let the buyer beware
