Practitioners can protect themselves against potential liability by learning how to pick out visible defects in new and older homes.
What Is a Red Flag?
Real estate brokers and sales associates have always been responsible for faithfully representing the condition of a property without concealing any known defects. The courts and legislatures of various states, notably California, have given brokers and sales associates the additional duty of inspecting a property for any visible defects (red flags) that may affect its value or desirability and disclosing them to prospective buyers. This is a growing trend, and real estate professionals nationwide may one day be required to inspect properties for red flags.
A red flag is a visible sign or indication of a defect in a structure or property. Certain visual signs in themselves are not clear indications of defects, but if observed in multiple numbers, especially in the same approximate location, they probably point to the existence of a red flag condition.
Some defects can be remedied by a few minutes’ work or a few dollars spent, while others can lead to major property devaluation. Particular attention should be paid to red flags affecting the basic structural elements of a house: foundations, floors, walls, roofs, detached garages or other buildings, swimming pools and spas, irrigation systems, tennis courts, water wells, and septic systems.
Brokers and sales associates who understand their state’s disclosure laws and learn to comply with them stand a much better chance of avoiding claims.
Research and Planning
Most brokers and sales associates are quite familiar with title reports, which usually include information on easements, property line distances, directions, etc. City or county engineering departments usually keep copies of the original and any subsequent building or construction permits issued. In addition, copies of soil reports, engineering calculations, geologic reports, and other documents also are kept in city or county files.
When researching a property, always obtain all documents possible from the seller and review the title report or preliminary title report. If there is an indication of an illegal or nonconforming addition, research city or county files for building permits. Any discrepancy or omission of information that comes to your attention during the research should be well-documented for disclosure purposes.
What to Look For
A properly conducted red-flags inspection consists of three parts:
– The exterior of the building and the surrounding grounds.
– The interior of the building and accessory structures, including retaining walls, detached garages, storage sheds, pools, and tennis courts.
– Environmental or safety hazards.
Begin by inspecting the outside of the building and the surrounding grounds. Stop at the curb and take a panoramic look at the house and surrounding property with a critical eye. Note the slope of the land and general appearance of the house. Are the roof’s lines straight, and is the roof covering (wood shingles, tile, composition shingles, etc.) in good shape? Check for cracks in sidewalks, driveways, foundations, exterior walls, and the chimney. Be alert for drainage problems (pooling of water), unstable soils (soils being washed away), and unsafe conditions. Then take a close-up view of the surrounding property, including hazardous trees and vegetation.
Also make note of a pond or lake in close proximity to a house, or housing subdivision. A pond or lake will make the property look better to a prospective buyer and indicate a natural water level in the area.
Go inside and inspect the interior of the house. Look for problems with floors, doors, windows, walls, stairways, and built-in systems such as the stove, furnace, fireplaces, and storage areas.
Inspect any accessory structures such as a detached garage, storage shed, pool, sauna, tennis court, or guest house. Don’t forget to inspect the accessory structures with as much care as the rest of the property, and always inspect for any possible environmental or safety hazards that may be present.
Because most property defects develop over a period of years, the age of the structure should be kept in mind during the inspection process. The broker or sales associate must evaluate the information obtained during the inspection relative to the age of the structure. Older structures (10 years or older) will show much more evidence of problems if they exist, especially if maintenance has been neglected.
Very young structures (brand-new to three years old) pose a special problem. Not enough time has passed for the ongoing effects of a defect, if one exists, to cause visible damage. Therefore, serious problems may be undetectable while a house is still young. If symptoms of distress are seen in a new house, it is possibly a sign of a severe and fast-moving defect.
Rule of thumb: Red flags are much more worrisome if found in a new house, and a lack of red flags is much more impressive in an old house.
No matter what the underlying cause of distress, the visual symptoms — or red flags — are generally the same. The exact source of damage, however, should be confirmed or determined by an expert.
This excerpt is from Red Flags: Property Inspection Guide, 2nd Edition
Note from the publisher: This textbook is currently used across the country in continuing education classes for real estate agents and mortgage bankers. Please note that this book can be purchased through RECampus for professional development purposes; however, it cannot be purchased through RECampus for continuing education credit.
BY JAMES C. PRENDERGAST WITH LYNN P. CUSHWA, CONSULTING EDITOR
Source: REALTOR® Magazine Online