Vol 1:3 Self Defence Required: It's Still a Caveat Emptor World

Caveat Emptor is Latin for “Let the buyer beware.”

Before buyer agency became a thing in the late 90s, all real estate agents had legal obligations to sellers only.

Even when they were working for the buyer.

In the strictest interpretation of the law at the time, when a buyer made an offer at one price but told their agent they would go higher, that agent was legally obliged to disclose that tasty morsel of information to the listing agent.

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You didn’t have to have integrity to realize that as a business model, revealing the secrets of your buyer to the listing agent or homeowner was a recipe for no repeat business, so my experience was that most agents kept their buyers’ confidence and were made criminals by the law.

The law has caught up with business smarts and integrity since then, at least in the sense that both buyers and sellers are now owed fiduciary duties by their agents, including the duty of confidentiality. On paper, real estate has become a level playing field but in reality, that’s just not the case, for at least two reasons.

Reason Number 1 Caveat emptor still lives. In its current sense, the phrase means that the seller need not disclose any property defect that is observable upon inspection.

And there are still plenty of agents in the industry who believe that serving their listing clients means letting each potential buyer discover for themselves – or not – whatever that defect might be.

Take knob and tube wiring, for example.

Five of my buying clients this spring ended up having to get a mortgage plus improvement product in order to have the knob and tube wiring that we discovered in their dream home removed immediately upon possession.

Four of the five listing agents hadn’t investigated the property they were representing thoroughly enough to realize that there was knob and tube wiring in the house and the 5th knew but didn’t let on until our home inspector discovered it by looking in the attic.

What’s the big deal?

One of the interesting things about knob and tube wiring is that although it is not a disclosable item on the Property Disclosure Statement that homeowners routinely fill out, if the wiring in your new home is comprised of more than 20% knob and tube, there is no insurance product for it. (The fact that the current owner has insurance means nothing other than the knob and tube is grandfathered into the policy – once there is a new owner, there will be new ground rules.)

No insurance means no mortgage. If you cannot show proof of insurance when you meet with your real estate lawyer just before possession, you will not get the keys to the castle.

I’d say that’s a big deal.

Reason Number 2 Once you take possession of your new home, you may have a contract that says thus and so, but if there has been no monetary holdback (and no homeowner agrees to that, by the way), you have very little leverage with the former owner other than their conscience and small claims court.

Twice this spring, clients of mine took possession of their new homes only to find something amiss that was covered by the contract. Neither turned out to be sinister, thank goodness, but in both cases, it was the listing agent that stepped up to the plate and provided some form of redress, and only after me doing my best imitation of a friendly stalker.

Can new owners take former owners to small claims court? Absolutely. But you know the drill – how much are you willing to pay in terms of money, time and energy to get what you are owed?

So, what’s the answer? Short term, the answer is to go into your house hunt prepared and with eyes wide open.

How? Here are the basics:

Learn to spot the red flags. I teach all of my buying clients a home inspection protocol that helps them look past what is aesthetically pleasing and tally the true potential costs of an particular property,
Know in advance what “defects” you are willing and able, financially, to take on as well as what the requirements of your lending institution are with respect to a mortgage plus improvements, and
Never forgo a home inspection. In this market, that might mean that you have to be willing to pay for a home inspection before you write an offer - if you know that you will be competing with other buyers for a property, you have to assume that a home inspection condition will be the kiss of death, so to be truly competitive, you have to have a plan for how you will do your due diligence before you write.

You're Invited to a Home Buying Seminar If you or someone you know are interested in learning more about how to buy with confidence in a caveat emptor world, I invite you and them to join me in the 90-minute seminar I will be hosting on this very topic.

When: Monday, November 13, 2017

Where: in the boardroom at the Royal LePage Dynamic Real Estate office located at 1450 Corydon Avenue. I have invited mortgage broker Laurie Kotak from Castle Mortgage to speak to the subject of pre-qualification, new stress test qualifying practices, mortgage plus improvements and to answer all of your mortgage related questions.

: Admission is free but seating is limited so I would appreciate an RSVP – call, text or email Wendy Peters at (204) 979-0640 or wendy@wendyrealtor.ca.