New home diligence

new home diligence
New home sales (infographic from nar.realtor)

It’s understandable that new homes are alluring.  After all, newly built homes are modern and efficient.  And there is the idea that new homes require minimal maintenance for the first year of ownership.  But new homes are not flawless.

Last week’s Florida’s Attorney General home builder settlement is the latest reminder that new home buyers need to exercise due diligence.  The multi-million-dollar settlement with PulteGroup, Inc came after a two-year investigation.  A simultaneous complaint alleges that the home builder violated the Florida Deceptive and Unfair Trade Practices Act by: failing to disclose to certain home buyers in Florida that the homes were being constructed in violation of applicable building codes; unfairly denying certain homeowners’ repair claims for various reasons: unfairly denying certain Florida homeowners’ repair claims without performing an adequate inspection of the home; and unfairly withholding a customer’s deposit in certain instances.  The details of the settlement can be found in the Florida AG’s December 28th news release (myfloridalegal.com). 

This settlement comes two years after the Florida AG entered into a settlement with KB Home in 2016 for similar alleged complaints. 

Home builder complaints are more common than you think.  In fact, Home builder complaints occur throughout the country alleging violations that may include (but not limited to): code violations, improper warranty denials, and improper handling of deposits. 

Maryland’s Attorney General fined NVR Inc in 2012 because it was alleged that required warranty protections were omitted from their subsidiary new home contracts.  A number of other home builders were fined that year for failing to register with the Consumer Protection Division’s Home Builder Registration Unit.  And in 2016, the Maryland AG filed charges against a Rockville home builder for alleged violations of the Home Builder Registration Act, the Maryland Express and Implied Warranties Act, and the Consumer Protection Act.  And more recently, the Maryland AG filed charges in September against a Baltimore County home builder for allegedly “failing to comply with Maryland’s Home Builder Registration Act, Consumer Protection Act, and the Custom Home Protection Act.”

Unfortunately, many home buyers let their diligence lapse when buying a new home.  New home builder reps are friendly, helpful and often appear to be on your side, so it’s understandable how a home buyer may misconstrue the builder rep’s loyalties.  However, when buying a new home, you should conduct your due diligence.  You should also consider hiring a Realtor and a licensed home inspector to assist you through the new home buying process.

When buying a Maryland new home, you should know that the state regulates home builders.  Before considering a home builder, make sure that the home builder is registered with the Consumer Protection Division’s Home Builder Registration Unit.  Before entering into a contract with the home builder, review and understand the contract.  You may want to consult an attorney to make sure that your Maryland new home contract complies with the state requirements. 

You should also keep in mind that Maryland has established a Home Builder Guaranty Fund that is overseen by the Consumer Protection Division. The fund allows consumers to seek recourse “for losses resulting from an act or omission by a registered builder who constructs a new home for a consumer.”  For additional information about due diligence when buying a new home and obtaining the handbook “Buying a New Home, Consumer Rights and Remedies Under Maryland Law,” contact the Maryland Office of Attorney General’s Consumer Protection Division (marylandattorneygeneral.gov/Pages/CPD).

By Dan Krell.
Copyright © 2019.

Original published at https://dankrell.com/blog/2019/01/03/new-home-diligence

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home inspections pointless?

home inspections
Home Inspection Myths (infographic fom visual.ly and apexwaterproofing.com)

I have heard an increasing voice of discontent over home inspections. Not just from home sellers and their agents, but from home buyers too! Home sellers often complain about the incorrect flagging of working components as being defective. Listing agents usually gripe that home inspectors scare buyers and interfere with their sale. But many home buyers are also growing dissatisfied with inspections and the subsequent property reports.

Inspection reports are becoming “matter of fact.”  Even when an inspector flags a component or system, less information is given about it and what to do.  Additionally, there is an increasing trend for recommendations to seek expert advice .  Home inspectors have been known to make mistakes too.  Some are starting to wonder why they should hire an inspector to tell them to hire an expert.  Consumers can just hire experts to inspect the corresponding major systems and components from the start.  Some are asking if home inspections are becoming irrelevant and pointless.

The home inspection, as we know it, began in the 1980’s. As the profession became standardized, it became a necessary part of the home buying process. The inspection used to be a straight forward examination of observable systems and components. But the home inspection has morphed from a once-over by a trained professional to the concept of getting a home perfect through remedying all of the home’s defects.  The fact that home inspections have become a tool for many agents to renegotiate price is another sign the inspection may have jumped the shark.

All things considered, home buyers expect a thorough and exhaustive inspection. They are relying on the inspector to identify concealed and latent defects. They are relying on the inspection and report to help them determine the condition of the home and its systems/components before they move forward with their purchase.

According to Maryland’s home inspector licensing law, the home inspection is intended to “provide a client with objective information regarding the condition of the systems and components of a home at the time of the home inspection;” and provides an opinion of “visible defects and conditions that adversely affect the function or integrity of the items, components, and systems inspected, including those items or components near the end of their serviceable life.” However, there are limitations (COMAR 09.36.07.03).

According to COMAR, a home inspection is “not technically exhaustive,” and it may not identify a concealed condition or a latent defect. Among the list of items that the home inspector is not required to ascertain, includes the condition of systems that are not accessible, and the remaining life of any system or component.

Furthermore, an article that appeared in RealtorMag last year suggests that home inspectors are generalists and don’t know everything about a home (4 Things Home Inspectors Don’t Often Check; realtormag.realtor.org; July 05, 2017). Inspectors often defer to experts on foundations, fireplaces, chimneys, well/septic systems, and roofs. This is done because those components are not easily inspected and also requires specialized knowledge that is usually outside the scope of the inspection and/or beyond the expertise of the inspector.

However, in today’s real estate environment, home buyers are wanting and expecting more from the professionals they hire as well as the homes they buy. Buyers anticipate their home inspection with high expectations about the inspector’s opinion and conclusions. So, it’s not a surprise that many home buyers are voicing displeasure with their inspectors. Some complain that the inspector missed items and/or did not inspect a component.  Additional complaints are about the inspection reports, that some feel are lacking in detailed information.

Have home inspections become irrelevant? Or is it just a case of the home inspectors having to educate the public what they do?

Home inspections are essential for most home buyers. But home buyers need to understand that inspectors are not the authoritative voice on all home systems and components. Instead, home inspectors bridge the knowledge gap between what the home buyer knows and what they should know about a home, especially the home they are buying.

Original published at https://dankrell.com/blog/2018/05/07/home-inspections-becoming-irrelevant/

By Dan Krell
Copyright © 2018.

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Protected by Copyscape Web Plagiarism DetectorDisclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Real estate BS detector

real estate BS detector
Become a real estate BS detector (infographic from visual.ly)

DARPA issued a recent request for information seeking ideas about how to create automated capabilities to assign “Confidence Levels” to scientific studies, claims, hypotheses, conclusions, models, and/or theories.  In other words, the Defense Advanced Research Projects Agency wants to create a BS detector.  First reported by Adam Rogers for WIRED (Darpa Wants to Build a BS Detector for Science; wired.com; July 30, 2017), DARPA doesn’t look at it as rooting out “BS” but rather establishing the what, why, and how scientists know stuff. Imagine how this could be applied as a real estate BS detector!

The Defense Advanced Research Projects Agency’s stated mission on their website is “to make pivotal investments in breakthrough technologies for national security.”  So, chances are that if they are able to devise a real working BS detector, you won’t know about it.

When it comes to real estate, people sometimes bend the truth.  Additionally, real estate agents are known for “puffery” and are generally not trusted because of the salesy techniques they employ.  But having a real estate BS detector would be huge breakthrough!  Imagine being able to weed through the BS and nonsense that many real estate agents spout when they are clearly trying to sell.  Wouldn’t it be wonderful to check your real estate BS detector, when an agent is pontificating about a house or themselves, to know if the agent is wasting your time?  Unfortunately, the real estate BS detector is not a real device.  However, there are strategies to help you detect real estate BS.

“Luke, trust your feelings.”  Ok, there’s no such thing as a Jedi, but empirical research has demonstrated that intuition can be used to weed out lies.  Many say they rely on their gut instincts to protect themselves.  But the truth is that many ignore or don’t trust their intuition because the rational mind takes over and dominates.  Increasing your intuition could help you detect the real estate BS and prepare for (and maybe prevent) regretful situations.  Becoming more aware about your “gut feeling” can increase your intuition.

Being cynical can also help detect real estate BS.  Don’t be rude of course, but questioning what others say helps you clarify and understand them at a higher level.  It can also reveal untruths.  Question all claims and over-the-top statements.  For example, if you’re dealing with a real estate agent, ask for support to any assertion they make about themselves or their services.  Ask to speak to their references.  Also, ask for additional information that support their opinions on the housing market and deciding on a price to sell or buy a home.

Do your due diligence to discover real estate BS.  After asking questions, take what others say or do during the real estate transaction at face value and take it upon yourself to verify it.  It can save you a headache down the road.  It’s easy to verify many aspects of the real estate transaction, because many local jurisdictions have their databases online.  However, making a call or two to a helpful government employee is straightforward and can provide bonus information.  Verify licenses of real estate agents, loan officers, and even home contractors.  Verify permits of home improvements.  Verify the local schools and the home’s zoning.

Finally, don’t feel pressured to do anything.  The BS artist will make it seem as if you have to act immediately.  But if you are not comfortable with the situation or are not yet ready, take a pause.

Original published at https://dankrell.com/blog/2017/08/06/real-estate-bs-detector/

Copyright© Dan Krell
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Home inspection surprises

The American Society of Home Inspectors (ASHI) often conducts surveys to measure home buyer satisfaction. Although most home buyers are typically satisfied with their home inspections, you should be prepared for home inspection surprises after you move into your new home.

A 2012 ASHI survey conducted by Harris Interactive indicated that home buyer confidence was boosted in eighty-eight percent of respondents who had a home inspection before buying. A 2011 ASHI survey revealed that about seventy-two percent of homeowner respondents indicated that their home inspection helped them avoid potential problems with their home.

Although the surveys suggest a majority of home buyers are usually satisfied with their home inspections, there are some that are not.  It’s not unusual to read or hear about a home inspection that is not perfect.  And sometimes the home inspection goes awry from the start.  An agent once told me a story about a home inspector who flooded a condo because he wanted to check the fill rate of tub by closing the drain; he walked away and forgot about the quickly filling tub.  Years ago, I witnessed how a home inspector almost caused a fire by turning on an oven – if the inspector first checked inside before turning the oven on, he would have noticed that is where the homeowner stored pans separated by paper towels.

There’s a lot going on during a home inspection to distract the inspector from their duties.  And no one said home inspectors are supposed to super human or perfect; but there is an expectation that they are thorough.  Not so much because they are paid professionals; but rather, they’re relied on for information about one of the highest cost purchases of a lifetime – your home.

When you first meet with your home inspector, they will tell you they are not perfect.  However, they are supposed to follow “standards of practice.”  Years before home inspectors were licensed, ASHI developed standards of practice as a means of establishing expectations placed on inspectors.  Many of those standards have since been incorporated into state home inspector licensing laws.

Maryland’s home inspector licensing law (COMAR Title 9 Subtitle 36 Chapter 7) states that the inspector identify the scope of the inspection, and visually inspect “readily accessible areas” to determine it the items, components and systems are operating as intended, or are deficient.  Further, to be in accord with the standards of practice, a home inspection: “Is intended to provide…objective information regarding the condition of the systems and components of a home at the time of the home inspection; Acts to identify visible defects and conditions that, in the judgment of the home inspector, adversely affect the function or integrity of the items, components, and systems inspected, including those items or components near the end of their serviceable life; May not be construed as compliance inspection…; Is not intended to be construed as a guarantee, warranty, or any form of insurance; Is not an express or implied warranty or a guarantee of the adequacy, performance, or useful life of any item, component, or system in, on, or about the inspected property…”

Given the limitations of the home inspection, home buyers are sometimes confronted with surprises about the condition of items that were not readily seen during the inspection, such as: the roof, chimney, foundation, and HVAC.  However, you can limit subsequential issues by having a licensed contractor further examine those areas during the inspection period.

By Dan Krell
Copyright © 2016

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home marketing may be limited due to agents’ personal wealth strategy

From stagingworkstoronto.ca

If you ask a real estate agent about their home sale strategy, you may get a sanctimonious presentation of the best way to sell a house. However, if you question why they advocate specific procedures over others, chances are they will answer “experience.” Even in the face of an abundance of research, many continue to hold on to old and outdated beliefs about how to sell a house. Furthermore, consider that a real estate agent’s strategy to sell your home may not necessarily benefit your bottom line.

The latest study by Allen, Cadena, Rutherford & Rutherford (2015. Effects of real estate brokers’ marketing strategies: Public open houses, broker open houses, MLS virtual tours, and MLS photographs. The Journal of Real Estate Research, 37(3), 343-369) is the most recent extension of home sale strategy research. The study reinforces the outcomes of some strategies, while shedding light on others; and asks a compelling question about agent motives.

The study looked at home sale price, time on market, and the likelihood of a sale in relation to: broker open houses, public open houses, MLS photos, and MLS virtual tours. The results indicated that all four tactics positively influence home sale price. Additionally, conducting public open houses and having MLS photos have a positive influence on time on market. However, there is little evidence that having more than six MLS photos increases that positive effect. Surprisingly, MLS virtual tours and conducting broker open houses have a negative influence on time on market. The authors conclude that as a package all four strategies may be worthwhile to consider when home sale price is the goal, even though the time on market may be slightly extended.

However, if your goal is a successful home sale, you may consider another strategy. The study concluded that the probability of your home sale success increases when you have broker open houses, MLS virtual tours, and eight or more MLS photographs. The study found that public open houses actually decrease the probability of a successful home sale.

In light of these findings about home sale price and success of sale, the authors rhetorically ask: “Why do all sellers/brokers not use these marketing strategies in every transaction effort?” They propose that, “Perhaps the answer is that brokers follow a wealth maximization strategy that may result in an agency problem with sellers.”

It should come as no surprise that there are agents who have a “wealth maximization strategy” for themselves, and place their own needs before their client’s. However, the authors’ suggestion about agent motives could be problematic with respect to the National Association of Realtors® Code of Ethics (realtor.org). For example, Standard of Practice 11-2 indicates that, “The obligations of the Code of Ethics… shall be interpreted and applied in accordance with the standards of competence and practice which clients and the public reasonably require to protect their rights and interests considering the complexity of the transaction, the availability of expert assistance, and, where the Realtor® is an agent or subagent, the obligations of a fiduciary.”

If you’re selling your home, one takeaway you might have from this study is that you should exercise due diligence when choosing your listing agent. Consider discussing the sales strategy, and getting it in writing.   Additionally, protect yourself by ensuring that your listing agreement can be terminated without penalty and within a reasonable amount of time.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.