The single largest purchase that most people make in their lifetimes is a home, and the importance of the buying process is reflected in endless safeguards. Buyers hire attorneys to help them avoid scams and rip-offs, not to mention the “bait and switch.” Buyer’s brokerage has helped level the playing field, so that real estate agents can truly work for buyers. Sellers are required to disclose known deficiencies through the State of Illinois’ Seller Disclosure Form. And home inspectors can catch the problems that might have slipped through the cracks.
All of the pieces are in place for seller disclosure, adequate contract review, buyer representation and visual confirmation of known or latent deficiencies. So why are there so many complaints and lawsuits from home buyers?
In real estate as in most matters, every safeguard has its loopholes and between the black and white rules lays a whole lot of gray.
The Illinois Seller Disclosure Form required by statute does not insist that sellers become contractors or home inspectors. As an instructor at the North west Board of Realtors explained in a class I took some years ago, sellers and agents are required to disclose only deficiencies of “actual knowledge.” The instructor’s example was that if water from the roof wasn’t hitting him on the head, he had no actual knowledge of the leak.
A seller also is relieved of responsibility once a contractor in an allied field decides that something has been “repaired.” One time I actually had a painting contractor contradict my inspection note regarding a compromised roof. The seller argued that we both worked off “contracting standards,” therefore the painter’s opinion was just as valid as mine. My clients were able to negotiate on the roof but it required additional expense and documentation.
Home buyers can face similar obstacles with the people they turn to most for advice, real estate agents. Most real estate agents just want the deal to go through. No deal means no commission. No one blames them for wanting to make a buck, but all of the cards should be on the table. Many buyers don’t even realize (because many agents conveniently forget to tell them) that unless you have a buyer’s broker, the real estate agent who has been showing you places and offering advice always works for and has a fiduciary duty to the seller.
The concept of buyer’s agency, which is relatively new in Illinois, is meant to protect buyers by giving them their own agents. A buyer’s broker has a fiduciary obligation to the buyer, but in my experience, many buyer’s agents also work for the deal first and foremost. After all, they generally get paid when a home closes, so why slow things down? Some buyers’ agents will work on an hourly basis for their clients and eliminate this possible conflict of interest.
Real estate attorneys face a similar conflict. The market is competitive and the cheaper guys find themselves with more work for less money if problems arise during a closing. Many of these attorneys get the majority of their closing work directly from the real estate agents invo lved in the transaction. If they start raising red flags, they might be removed from brokers’ lists and see their workload drop.
Independent, hourly-based attorneys like the ones used in commercial real estate transactions are a much better deal for your money. They may cost a little more but if your home inspector comes up with two pages of deficiencies they will be comfortable negotiating, saving you money while encouraging the thoroughness of the home inspector in the marketplace.
Home inspectors are no failsafe in this department either. According to the most recent American Society of Home Inspectors survey, 60 percent or more of all loft, condominium and building inspections come from referrals by the real estate agents who stand to make a profit when the transaction closes. As with attorneys, home inspectors may be less likely to bring up problems that will wreck a deal if it means no more referrals from a particular broker.
The State of Illinois has so far done nothing to regulate the cozy relationship between the real estate community and home inspectors. The current licensing bill goes into effect Jan. 1, 2003, but I still have not received so much as a notice from the state regarding licensing.
Why do home buyers complain given all the professionals who are looking out for them? Because there are good reasons for their complaints. It’s time real estate professionals started listening.
Thomas Corbett is president of Tomacor, Inc. a professional property consulting company specializing in commercial and residential property inspections and expert witness work.