P R E S E N T S Minimize Your Risk Minimize Your Risk Maximize Your Earnings Maximize Your Earnings Understanding and Recognizing the Top 10 Property Conditions* that most often lead to disputes *According to the NAR Legal Scan
P R E S E N T S
Minimize Your Risk Minimize Your Risk Maximize Your EarningsMaximize Your Earnings
Understanding and Recognizing the Top 10 Property Conditions* that most often lead to disputes
*According to the NAR Legal Scan
…and a great class!
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What is theNAR Legal Scan and
Legal Pulse?
Legal Scan Published every two years by National Association of Realtors (last edition 2013)
Replaced by Legal Pulse – published quarterly
What is the NAR Legal Pulse?
The Legal Pulse is a quarterly newsletter that analyzes trends in the previous quarter that impact real estate professionals
The newsletter tracks both cases and statutes
The Legal Pulse tracks when real estate professionals are being held liable
It also identifies emerging issues and trends, helping to reveal where additional training is needed
Caveat EmptorThe doctrine of “Buyer Beware” is gone….
Replaced by Agent Beware!Replaced by Agent Beware!Realtors are held to a higher standard
“What do you know about the property” has been replaced by “What should you know about the property!”
Find the full report…
NAR websiteLaw, ethics, policy tabhttp://www.realtor.org/publications/legal-pulse
Here are the highlights for 2Q…
Legal Pulse 2Q Highlights
Property Condition Disclosure
PCD is/will be an ongoing source of disputes
PCD ranked as the number 2 most important issue of concern
Disputes are likely to increase over next two years
Significant need for training
Short Sales, “As Is”, Foreclosures…oh, my!
Complex transactionsAdverse Property Conditions – common denominatorSignificant need for training
Case StudyAre there
limitations in an “As Is”
transaction?
The Case….The property is sold “As Is”Property Disclosure Report states there is
hardwood flooring beneath carpetingBuyer moves into houseBuyer discovers there is water damaged
plywood, not hardwood, beneath carpeting Buyer sues seller for negligent
misrepresentation
The Seller Claims…Caveat Emptor
The house was sold “As Is” – it’s the buyers responsibility to inspect the premises
The buyer should have pulled back carpet and investigated drainage issues
“As Is” means “As Is” (so leave me alone)
The Trial…The Buyer chose NOT to have a home inspection
The Buyer relied on the representations in the Property Disclosures
Evidence reveals the Seller was aware of water damage and plywood subfloor
Buyer acknowledges it was an “As Is” purchase
Questions… Did the Buyer adequately inspect the premises? If you were the Buyer’s Agent, what advice would
you give him/her? If you were representing the Seller, what advice
would you give? What would you do if the Seller asked you to
complete the Disclosure Documents for him? Does “As Is” get the Seller off the hook?
The Verdict…The Court held that an “As Is” disclaimer in a
Purchase and Sale Agreement would negate a negligent misrepresentation claim against a seller only if the buyer had knowledge of the alleged defect
The buyer was totally unaware of the plywood subfloor and water damage and relied on the representations in the Disclosure Documents
The seller was ordered to reimburse buyer for cost of hardwood floor and repair of entire properties drainage system
FACT:FACT:80% of claims against brokers E&O insurance
are due to property related conditions
Effective disclosure helps you earn more and keep more commissions
Today’s AgendaToday’s Agenda
• Help you develop an awareness of what to look for (without turning you into home inspectors)
• Highlight warning signs of possible defects• Overview of Top 10 Property Conditions that
most often result in disputes
• Common sense rules of disclosure
Let’s test your “observation skills”
Why is this information important?
Happy, well informed clients, mean more referrals (and no disputes)
More referrals = more earnings
Minimize your risk by having a greater awareness and understanding of adverse conditions
FACTS…According to the 2014
National Association of Realtors
Profile of Buyers and Sellers
FACT:55% of New Buyers rely upon their Agent to point out unnoticed features/faults with the property
50% of Repeat Buyers rely upon their Agent to point out unnoticed features/faults with the property
(This ranks as #2 benefit)
#1 benefit is to help buyer understand the process
Source: NAR Profile of Buyers and Sellers
FACT:90% of homes sold in the
Northeast used an Agent or Broker
YOU ROCK!!Source: NAR Profile of Buyers and Sellers
Buyer Demographic Changes
Profile of Home Buyers and Sellers
2010 Profile
2011 Profile
2012 Profile
2013 Profile
2014 Profile
Median Age
39 45 42 42 44
Gross HH Income
$72,200 $80,900 $78,600 $83,300 $84,500
Household Composition
58% married couples, 20% single females, 12% single males, 8% unmarried couples
64% married couples, 18% single females, 10% single males, 7% unmarried couples
65% married couples, 16% single females, 9% single males, 8% unmarried couples
66% married couples, 16% single females, 9% single males, 7% unmarried couples
65% married couples, 16% single females, 9% single males, 8% unmarried couples
Children in Home
35% 36% 41% 40% 35%
Own a 2nd Home
14% 19% 19% 19% 21%
First-time Buyer Share Remains Under Historical Norm
Profile of Home Buyers and Sellers
30%36%
50%
33%
%
10%
20%
30%
40%
50%
60%19
8119
8519
8719
8919
9119
9319
9519
9719
9920
0120
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
13
Agent Use By Buyers & Sellers Remains High
88% of buyers (nationally) purchased their home through a real estate agent or broker Most want help finding right home Benefited from help understanding the process High importance on honesty and integrity
88% of sellers were assisted by an agent Help market home Sell w/in specific timeframe Help price home competitively Reputation and honesty and integrity important
2014 Profile of Home Buyers and Sellers
Agent Assisted Sales High
Profile of Home Buyers and Sellers
Satisfaction
Process: 89% of buyers are satisfied with the buying process 88% of sellers are satisfied with the selling process
With the agent: 88% of buyers would use agent or recommend to
others 83% of sellers would use agent again or
recommend to others
2014 Profile of Home Buyers and Sellers
In Summary:Protect Yourself And Your Client By Understanding Their Expectations
and Having a Greater AWARENESSAWARENESS Of Adverse
Conditions
Lovely House
Nice Landscaping Job
Great Grading
Do You See the Problem?
Interior View
Termites, Mold, Damage
Top 10 Property Conditions1. Structural Defects
2. Flooring/Walls
3. Water, Mold, Water Intrusion
4. Sewer/Septic
5. Insects/Vermin
6. Plumbing
7. Roof
8. Environmental Issues – Radon, Asbestos, Lead, UST
9. HVAC
10. Electrical
Structural Defects/Walls & Floors #1 & #2
Walls/Floors
Deck Framing & Support Systems
Structural Defects
Some defects are obvious….
Structural Defects
….and some are not!
Structural Defects
A closer look
Structural Defects
Do you see any problems?
Structural Defects
What’s The Defect Here?
Warning Signs of Structural IssuesSloping or sagging
floorsOverly snug fit to floors
and windowsCracked tile floorExcessive concrete
cracking and separation
Alterations without permits
Sagging beamsFunky
supports/columnsStair riser/tread sizeCrushed sills/joistsSuspicious homeowner
repairs
Structural Issues are the #1 cause of disputes in the Real
Estate TransactionDevelop an awareness of what to look forScrutinize seller disclosures – ask questionsDefer to professionals – have a home inspection
QUESTIONS??
Mold/Water Intrusion#2
Moisture & food source create mold
Leaking roofs, plumbing problems, humidifiers, damp/wet basements, improperly vented appliances and fans, etc
Combine with a food source such as wood, wallboard, or wallpaper to cause the growth of mold
Spores are released and inhaled
Mold & Water Intrusion
What’s the problem?
Crawlspaces
Floor
Attic
Subfloor
Mold & Water Intrusion
Is this a problem?
Damage to Systems
Mold & Water Intrusion
Nice exterior !Any cause for concern?
It’s Just A Small Window Leak…
How Bad Could It Be?
Mold & Water Intrusion
Warning Signs of Water IntrusionPoor gradingInadequate ventilation
in crawlspace or atticCracks in foundationEfflorescenceRoof stains in atticMissing roof shingles
Stains on ceilingsNewly painted
foundation/floorsWater stains
baseboard/furniture legs
MoldSump pump Downspout not
extendedWindow rot
Mold and Water Intrusion are the #2 cause of disputes in the Real Estate
TransactionDevelop an awareness of what to look forUse all of your sensesScrutinize seller disclosures – ask questionsDefer to professionals – have a home inspection
Q U E S T I O N S ???
Are you Ready??Let’s Play..Cosmetic Cosmetic ororConcernConcernMAKE
RS
Here’s how it works:
Name the DefectDetermine the significance – bear in mind cost to
remediate/repair and impact upon structure and other components
Is the defect Cosmetic? Costs less than $500 and has no impact upon structure
Is the defect a Concern? Costly repair, implicates other components/structure
Name that Defect!!
Is it Cosmetic orIs it a Concern??
Name that Defect!!
Is it Cosmetic orIs it a Concern??
Name that Defect!!
Is it Cosmetic orIs it a Concern??
Name that Defect!!
Is it Cosmetic orIs it a Concern??
Name that Defect!!
Is it Cosmetic orIs it a Concern??
Name that Defect!!
Is it Cosmetic orIs it a Concern??
Name that Defect!!
Is it Cosmetic orIs it a Concern??
Name that Defect!!
Is it Cosmetic orIs it a Concern??
Name that Defect!!
Is it Cosmetic orIs it a Concern??
Name that Defect!!
Is it Cosmetic orIs it a Concern??
Septic/Sewer#4
Sewer & Septic
Where does the water go?
Where does this water go?
Sewer & Septic
Backwash?
Sewer & Septic
Laundry & water discharge?
Warning Signs of Septic/Sewer Issues
Slow sink drainsToilet flush fills, then drainsOdor in yard – septic breakoutInternal odorsWashing machine (grey water) drained to outside
Insects/Vermin#5
Bats & Birds Nesting in Attic
Carpenter Bee Stains, Holes, & Damage
Powder Post Beetle Damage
Termite Mud Tubes & Damage in Wood
Welcome to thePeople’s Court
Part 1 – The People’s Court
B R E A KB R E A K
15 MINUTE15 MINUTE
2014 – 2016 (3) Credit Continuing Education Courses
Don’t Let Water Intrusion Sink Your Deal! Smart Energy Updates for Existing Homes Innovation in Sustainable Housing – Green Building Best PracticesThis Old Connecticut House Minimize Your Risk, Maximize Your Earnings Environmental Issues – Evolution to Resolution What to Expect When We’re Inspecting! Mold to Sold! Residential Building Practices
The Verdict
Warning Signs of Insect Damage Termites:
Mud tubes Damaged wood Soft spots or blisters
on drywall
Carpenter Ants: Frass Smooth channels along
wood grain Damaged wood
Powder Post Beetles Frass Small circular/oval holes Meandering holes
through wood
Carpenter Bees Staining Bees hover around
eaves, deck, fence Round holes
Plumbing#6
Plumbing
Anythingunusual?
Some Things Are Readily Apparent
Some Not So Obvious
Missing or Uncommon Traps
Exterior Vent Pipe
Settled Slab
Check Valve
Plumbing
The latest in designer plumbing!
Warning Signs of Plumbing Issues
Loose and missing grout and tiles
Loose toilet
Safety glass at tub or shower enclosures
Water odors (sulfate)
Aged piping
Leaking drain traps
Reduced water pressure
Roof#7
Worn roof with tar Tilo Hurricane Shingles
Aged Roofing Materials
10 Year Old Roof
Roof Framing
See any hint of a problem?
Roof transition Exposed Flashing
Roof Flashing
Roof Accessories (Think Bling!)
Aged Low Pitch Roofing
Rubber Roofing Products
Defective Asphalt Shingles
Wood Roofing Products
Slate Roofing
Warning Signs of Roof Issues
Age of RoofRusted FlashingMissing, cupped or curled shinglesStained ceilingsCracked or missing tilesBuckets in the attic
Winter 2014 – ICE DAMS!!!!
Your Opinion Matters….
Before the end of class, please take a moment to complete our evaluation form…
Environmental Issues
Radon (in air and water)AsbestosLeadUnderground Storage Tanks
#8
What is Radon?
Radon is a gas
It is inert (inactive)
It has a life expectancy
Radon Measurement Units
Average indoor radon is 1.3 pCi/L
Average outdoor radon is 0.4 pCi/L
U.S EPA action level is 4.0 pCi/L
Radon in Well Water
Radon in well water can increase levels of radon gas in the home
Radon is released into the air as water flows
Household activities can release large amounts of radon into the home
Radon in water is expressed in picocuries
Average concentration of radon <1,000 pCi/L
Levels in groundwater have been found above 1,000,000 pCi/L
Highest amounts have been found in the Northeast
Private wells tested in Connecticut indicate an average radon level of about 3,000 pCi/L
What Is Asbestos?Mineral fiber used in
over 3,000 products.Requires a special
type of microscope for identification
Used to strengthen, to provide heat insulation and fire resistance
Friable or non-friable.
AsbestosThe mere presence of asbestos in a home or
building is not hazardous
Damaged asbestos may release asbestos fibers and become a health hazard - friable
Asbestos material in good condition is not a health issue, if left alone – non-friable
Lead in PaintLead was used as a pigment and
drying agent
• One half of all homes built from 1940 – 1960 contain heavily leaded paint
• Two thirds of homes built pre-1940 contain leaded paint
• 1978 U.S.CPSC lowered max content to trace amount
Warning Signs of Environmental Issues
Radon – lack of disclosure, mitigation system not functioning
Asbestos – wrapped pipes, loose insulation, vermiculite, aged floor, 6 x 6 ceiling tile
Lead – 1978 or beforeUST – cut off fuel lines, new gas, evidence of prior
oil tank, propane
HVAC#9
Warning Signs of HVAC Issues
Aged unitsNo maintenance tagsOdors in house or near unitIneffective function – not hot enough, not cold
enough
We’re going to revisit this is our“Just Serviced….” section.
Electrical#10
Panel, Condition & Location Problems
Warning Signs – Electrical Issues
Outdated Service sizePanel issuesExposed romexOpen junction boxesExtensive use of electrical cordsAluminum wiring (primarily used from 1965 – 1974)
Let’s Play…
“Name that Name that Defect!!!” Defect!!!”
Are you ready?
Name that defect!!
Name that defect!!
Name that defect!!
Name that defect!!
Name that defect!!
Name that defect!!
Name that defect!!
Name that defect!!
Name that defect!!
Name that defect!!
Name that defect!!
Name that defect!!
Just Serviced…
Legal Scan- Part II
Other areas of concern….
Seller’s Disclosures…who the heck is the Seller, anyway?
“I’m acting as Power of Attorney for the Seller”“I’m just the Investor”“I’m just the Relocation Company”“I haven’t lived there for years”
Are these valid reasons not to complete the required Property Disclosure Report?
Test your Property Condition Disclosure Statute I.Q.
(CGS 20-327b)
Who is required to complete the Property Disclosure Report?
Is the Report State-created or Federally-created?
How many questions are asked in the document?
Are there any Statutory Exemptions to the requirement of
completing the Property Disclosure Report?
If so, what are they?
There are several exemptions..
Transfer of one or more co-owners solely to one or more of his co-owners
Transfers made to spouse, child, parent, sibling, grandparent or grandchild where no consideration is paid
Transfers pursuant to a court orderTransfers of newly construction residential real
property covered by a one year warrantyTransfers made by executors, administrators,
trustees or conservators
Exemptions…
Transfers made by the Federal Government or any government chartered corporation (such as FHA, FDIC)
Transfers by Deed in lieu of ForeclosureTransfers by the State of Connecticut or any political
subdivision thereofTransfer of property acquired through foreclosure or
deed in lieu of foreclosure
Additional areas of concern….
Misstatement of square footageImported DrywallBoundariesZoningValuationOff-Site Adverse ConditionsStigmatized Property
Best Practices…
Make sure your client understands his/her obligations under the contract
Explain that he/she has a right to bring in specialists to investigate the condition of the property
Do not give advice beyond your area of expertisePoint out potential trouble spots and recommend a
Home InspectionReview Seller’s disclosure and ask for more
information if necessaryDocument everything in writing
Rules of Disclosure
Inquire – ask the seller for informationInspect – look around, what do you seeIdentify – any concerns to your clientRecommend a home inspectionDisclose – make sure your buyer is fully
informedDocument - Put it in writing
Minimize Your Risk
Make sure the Inspection Companies that you recommend have:
Errors & Omissions InsuranceAre fully licensed in Ct and strictly adhere to the
Standard of PracticeStand behind their inspections
Thank you!
Questions???
Thank You!!