California law is clear about defects or problems. By following some simple steps before the home goes on the market Sellers will save time, effort, and possible costs after the closing.
California Real Estate Law
Sellers in California must disclose all material facts about a property to a prospective buyer. The Transfer Disclosure Document (TDS) was designed to describe, as accurately as possible, the property's condition. Part B of the document specifically asks the Seller "Are you (Seller) aware of any significant defects/malfunctions in any of the following?" If the Seller fails to check any box on the list to avoid disclosing a known problem, the Seller becomes potentially liable after closing.
Avoiding potential problems after closing is best handled by being truthful and detailed before closing. Painting over an active mold infestation or making a poor repair to a roof leak instead of calling in a suitably licensed contractor, for example, is not only a mistake, but could result in court action.
Be honest, provide a copy of your own pre-closing home inspection from when you bought the property, and encourage your buyer to carry out their own inspections. Your Realtor or real estate attorney will know how to formalize this request, or have the Buyer specifically, and in writing, refuse to have inspections.
Buyer Options After Closing
If the Buyer decides that there was an undisclosed material defect, they have options:
- Do nothing.
- Contact their Realtor to contact the Seller's Realtor and see if an amicable arrangement can be made.
- Contact the Seller directly, in writing, make a formal complaint, and seek compensation.
- Have an attorney contact the Seller. An attorney would, previously, contact the Realtors, home inspectors, and licensed contractors to gather "evidence" before contacting the Seller. The attorney's letter may suggest a simple settlement, arbitration, or a threat of court action.
The Buyer must be able to prove Seller intent to conceal material facts, as opposed to being unaware of it. Most fix and flip sales are on properties the Seller has not lived in, and probably relied on other professionals to inspect. It is likely, therefore, that the Seller did everything properly, and is unaware of anything an inspector missed or a contractor failed to do properly.
Seller Options After Closing
If the Buyer has a case, the Seller may decide to handle the problem by:
- Apologizing and offering either compensation or having the defect corrected. Settling a valid dispute amicably is more likely to avoid a court agreeing to punitive damages as well as compensatory costs.
- Paying for the remedy and offering a Home Warranty policy by way of avoiding any future claim.
- Getting the Buyer to claim for damage, etc. through their homeowner insurance policy.
- Agreeing that the claim is valid, and serious enough for the Buyer to rescind the contract, and for the Seller to take it back, after paying appropriate compensation as determined by a court.
It always pays to be honest and professional. Some Buyers are not honest, so it pays a Seller to do everything by the book in case someone makes an unfair claim. Most fix and flips go smoothly, and most use loans. To learn more about how we can help, please click here to contact us.