Buyer beware in hot housing market

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Real estate in Michigan is a “seller’s market” this spring, which is all the more reason for buyers to proceed with caution.

Record low inventories of homes for sale have led to bidding wars between eager buyers. Low inventory and limited selections also are leading buyers to forego their “dream home” and take what is available — especially when life events such as a new child or a work relocation make entering today’s market necessary.

In the rush to secure an available home, prospective buyers still must take time to understand what they are buying — the good and the bad. Under Michigan’s Seller Disclosure Act, residential property sellers are required to provide potential buyers with information on visible and not-so-visible facts about the home.

The law requires sellers to use a specific form and disclose, among others, the following information about the home:

  • Existence and condition of numerous appliances and amenities
  • Evidence of water in the basement or crawl space
  • Condition and age of the roof
  • Condition of the plumbing, electrical and heating systems
  • Any history of insect infestation
  • Environmental contamination
  • Shared fences, roadways, driveways or other common areas with neighbors
  • Encroachments, easements and zoning violations
  • Structural modifications, alterations or repairs made without necessary permits or licensed contractors
  • Settling, flooding, drainage, structural or grading problems
  • Major damage to the property from fire, wind, flooding or landslide
  • Farm or farm operation in the vicinity or proximity to a landfill, airport, shooting range, etc.
  • Outstanding municipal assessments or fees
  • Pending litigation that could affect the property or the seller’s right to transfer the property

Some of these requirements are straightforward. Others, however, are vague, leaving room for interpretation that can lead to disagreements and lawsuits between buyers and sellers. For example, neither the disclosure form nor Michigan law defines what constitutes “evidence” of water in the basement or crawl space. Neither are clear on what to do when water damage has been mitigated by drainage improvements.

Home inspections are an important tool for buyers, but they do not always catch every defect, especially when the seller actively conceals a problem with the property. In some unfortunate instances, the first time a new homeowner learns about the yearly basement flooding or the leaky roof is when the spring rains come. Depending on the closing date, this can be nearly a year after the sale. Other issues may take years to discover.

If a buyer believes the seller did not adequately disclose defects under the Disclosure Act, there are some remedies available. However, the range of options is limited by “as is” clauses in most real estate purchase agreements. These clauses typically state the buyer has had the opportunity to inspect the property, perform any requested testing and research the title and is purchasing the home “as is” with full knowledge of any defects or deficiencies. Although this can shield a seller from a great deal of liability, it is not the end of the road for an aggrieved buyer.

If the seller acted in a fraudulent manner, the “as is” clause of the purchase agreement may not protect them under Michigan law. In general, to prove fraud, the buyer must be able to show the seller knew about the defect, misrepresented or failed to mention the defect when required, knew the buyer was relying on these statements and the misrepresentation damaged the buyer as a result.

Even in today’s tight housing market, buyers should still take the steps that will help prevent disappointment and expense after the closing. It is crucial to engage a reputable inspector who can investigate any items the buyer has specific concerns about after viewing the property. Buyers also should scrutinize the seller’s disclosure statement and ask the seller questions about any issues that appear on the form.

If a buyer discovers a defect after the sale, it is important to act quickly. Fraud can be difficult to prove in court, and the longer a buyer “lives with” a problem the less likely a court is to determine it is a serious misrepresentation by the seller.

Adam Bruski is an attorney in the law firm Warner Norcross + Judd LLP who concentrates his practice in real estate transactions and litigation. He can be reached at abruski@wnj.com.

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