FSBO Horror and Failure to Disclose Property Defects

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I keep getting search result hits for the string "fsbo horror." It's an amalgamation because I haven't done any postings on this specific subject.



Both buyers and sellers have problems relating to For Sale By Owner issues.



For sellers, the largest issue seems to be properly disclosing all relevant items to satisfy the liability issue. There are resources available, but the question is whether the you took proper advantage of them and made all the legally required disclosures on any issue with the property there may be. If you have an agent that fails to do this, you can sue them. If you are doing it yourself, the only one responsible is you. You are claiming to be capable of doing just as good a job as the professional, and if you didn't do it right, the buyer is going to come after you.



Now I'm going to leave the marketing and pricing questions out of the equation, because with a For Sale By Owner most folks should understand that in return for not paying a professional to help you, you've got to do it yourself. What many For Sale By Owner folks seem to fail to understand, however, is that if you haven't met legal requirements, the real nightmare may be just beginning when the property sells.



Let's say it was something fairly innocuous, like seeping water from a slow leak you didn't know about. A couple years pass, and now there's mold or settling. Perhaps the foundation cracks as a result of settling. Bills are thousands to hundreds of thousands of dollars. Your buyer goes back and finds that your water usage went up by fifteen percent in the six months before the sale. He sues, saying that even though you didn't know, you should have known based upon this evidence. Court cases are decided based upon evidence like this every day. A good lawyer paints you as maliciously selling the property as a result of this. Liability: Steep, to say the least.



Now, let's look at it from a buyer's prospective. You have a choice of two identical properties. In one, a seller is acting for themselves, in the other, they have an agent. The price may be a little cheaper on the for sale by owner one, or it may not. One of the reasons people do for sale by owner is they are greedy. But when I'm looking at a for sale by owner, the question that crosses my mind is "Are they rationally greedy, or are they just greedy?" Are they going to disclose everything wrong or that may be an issue with the property? At least here in California, the agent has pretty strong motivation to disclose if something is wrong that they know about. If they don't, they can lose their license, and even if they don't, they have potentially unlimited personal liability. If they did disclose, they're probably off the hook, and even if they aren't, their insurance will pay for the lawyers, the courts, and any liability. If there's one thing all long term agents get religion about, no matter their denomination, it's asking all of the disclosure questions.



This is not the case for many owners selling their own property. Some are every bit as good and conscientious as any agent. A good proportion, however, are intentionally concealing something about the property. What's going to happen when it comes to light? If there's an agent, there's a license number, a brokerage who was responsible for them, and insurance. The latter two are deep pockets targets for your suit, and you can find them. Once that owner gets the check, you can find them unless they're dead, but they may not have any money. Even if they do have money, it may be locked up and inaccessible via Homestead or any number of other potential reasons.



One of the reasons that I, as a buyer's agent, am always leery of a for sale by owner property is that I have to figure that first off, there's a larger than normal chance that this property has something wrong that's not properly disclosed. When that happens, my client is going to be unhappy. When my client is unhappy, they are going to sue. The first target is the seller, but if they're gone or broke, who does my erstwhile client come after? Me. So I have to figure that not only is there a larger chance of there being something wrong, I have to figure there is a larger chance of me being held responsible for something I took every step I legally could to avoid. For Sale By Owner properties usually have to be priced significantly under the market in order to persuade me that not only am I doing the right thing by my clients in trying to sell them this property, where my clients have to pay my buyer's agent fee out of their pockets rather than out of the selling agent's commission, but also that the heightened risk of future problems is worth more than the price differential to my clients. Unless the answer is a strong solid "yes" that I can document in court if I have to, I'm going to pass it by in favor of the agent-listed property next door or down the street.



Caveat Emptor (and Vendor).

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This page contains a single entry by Dan Melson published on May 21, 2007 10:00 AM.

Being Realistic Saves Money on your Mortgage was the previous entry in this blog.

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