Golden Real Estate – Page 46

What Is a ‘Variable Commission’ and Why Should Home Sellers Demand It?

This week’s column is intended to help those who might benefit from a better understanding of how real estate brokers are paid. If you’re already well versed in this, please bear with me while I share some information with those who aren’t as well informed.

Before I explain what a variable commission is, let me explain who pays — and who receives — the commissions in the typical real estate transaction.

Normally, sellers pay the full commission to the listing agent, who then compensates the agent representing the buyer. How commissions are paid and shared is the primary purpose of the Multi-List Service, or “MLS” — to provide a system of “cooperation and compensation.” If you’re a member of an MLS (a must if you want to do more than just word-of-mouth real estate), you commit to putting all your listings on it so that other MLS members can show and sell them. MLS listings disclose how much the “cooperating” broker will be compensated by the listing agent for procuring the buyer.

Real estate firms may not dictate, share or discuss the commission rates that their agents charge sellers. To do so would constitute price fixing, a federal offense under the Sherman Anti-Trust Act of 1890. Brokerages may, however, dictate the amount each agent offers to other agents who sell their listings. At Golden Real Estate, we, like most brokerages, require that our broker associates offer a minimum 2.8% “co-op” commission. Offering less could result, I’ve found, in fewer showings by other MLS members.

There’s some history behind that 2.8% co-op commission. Before the Justice Department forbade the real estate industry from engaging in the fixing of real estate commissions, the Denver Board of Realtors fixed the rate at 7% and pegged the co-op commission at 40% of that, which is 2.8%. Listing commissions began falling due to competition once Realtors could no longer tell sellers there was a “standard” commission, but the co-op commission remained at 2.8% to assure their listings got shown by agents. As a result, it’s not uncommon now for listing agents to receive less at closing than buyers’ agents, even though they absorb all the costs of listing a home — signs, advertising, photos, video tours, showing service, staging consultations, etc.

Perhaps you’ve seen ads offering a “1% listing commission.” Such ads conceal (except in their fine print) the fact that an additional 2.8% is added to compensate the buyer’s agent. As noted above, the listing commission includes what the listing agent will pay the buyer’s agent, so promoting a “1% listing commission” is, quite simply, misleading or deceptive advertising.

That said, let me now explain what a “variable commission” is and why sellers should demand it.

A variable commission is one which is reduced when the listing agent does not have to compensate a buyer’s agent — in other words when the listing agent sells a listing to his own buyer or to an unrepresented buyer, such as an open house visitor. Listing agents like to “double-end” a listing, because doing so can double what they earn on a given transaction.

Sellers certainly want their listing agent to be motivated to sell their own listings, but when that happens, should the agent share his good fortune with the seller? That’s the purpose of the variable commission.

Typically, I list a home for 5.6%, committing half of that (2.8%) to paying a co-op commission, but I reduce my commission to 4.6% when I sell the home myself. That way, I still earn more, but my seller pays less. I want it to be a win/win.

MLS rules requires that each listing disclose the existence of a variable commission, so that brokers representing buyers know what they are up against in the event their buyer must compete with another buyer who doesn’t have his own agent.

Before submitting an offer, buyers’ agents typically ask the listing agent if there are other offers in hand. If the MLS indicates that there is a variable commission, the buyer’s agent will want to know whether any of the offers are from unrepresented buyers and, if so, the amount of the variable commission differential. If the differential (as with my listings) is 1%, then the buyer’s agent knows that his client’s offer has to be 1% higher than an unrepresented buyer’s offer in order to be of equal monetary value to the seller.

Likewise, when meeting with unrepresented buyers, the listing agent can advise them that the variable commission makes their offer worth 1% more if they don’t engage an agent to represent them.

At Golden Real Estate, we have other rewards we can offer the unrepresented buyer, including “totally free moving” — free use of our moving trucks, free moving labor, gas and packing materials — if they choose to work with us instead of hiring a buyer’s agent.

As a matter of principle, I believe that a variable commission should be part of every listing agreement. However, my own research of sold listing on the MLS found that less than 20% of them indicated a variable commission. In other words, more than 80% of sellers signed a listing agreement that allows their agent to keep 100% of their commission if they double-end the sale.

My research has also shown that roughly 7% of all real estate sales are double-ended. Thus about 7% of that 80% missed out on a multi-thousand-dollar discount in their real estate commission that they might have enjoyed by listing with, say, a Golden Real Estate agent.

Many homes are sold before they are made active on the MLS. Some, but not all, are put on the MLS after closing, showing zero days on market. I mentioned above that 7% of MLS sales overall are double-ended, but that percentage jumps to roughly 31% for MLS sales with zero days on market. Of those, 70% did not indicate a variable commission. Many of those sellers, one can surmise, not only did not get as high a price for their home as they might have if it had been put on the MLS as an active listing, but also lost out on a discounted commission.

It should be noted that while the MLS considers a variable commission worthy of having its own data field, the standard listing contract lacks any place to specify a variable commission. If the contract had a section to enter that information, more sellers might ask about it before signing. Instead, unless your agent offers it proactively, as we do, you may not think to ask about including it as an additional provision.

Is a Recession Coming? And, If So, How Would It Impact Real Estate Market?

We Realtors have noticed a general slowing of the real estate market over these summer months, so I’m a little surprised that the statistics don’t reflect any significant slowing. The chart below is an example.

Even while the economy as a whole has shown signs of an impending recession through traditional leading indicators, and while showings are down and we’ve seen more price reductions recently, homes continue to sell, and sold prices are not yet going down significantly.

Median sold prices progressed through the $300,000s starting in May 2015, passing $400,000 in April 2018, fell back into the 300s from September 2018 through February 2019, then peaked at $421,000 this past May. They have stayed around that range since June, falling only to $418,000 in August.

Meanwhile, real estate trade publications and websites have featured numerous articles warning of an impending recession, which is causing buyers to hold off on making offers. Last Thursday, NAR’s chief economist, Lawrence Yun, was quoted as saying, “Super-low mortgage rates have not yet consistently pulled buyers back into the market. Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes.” Yun predicted the low rates to continue through the end of the year, but also predicted that the sale of existing homes will not increase. He predicts home prices will rise by 3% in 2020.

Also last week, realtor.com released a survey of 755 home buyers, 51% of whom said they expect a recession this year or next year, and 56% of whom said that if a recession does occur they would delay their home search until the economy improves.

Three days earlier, realtor.com quoted its senior economist, George Ratiu, as saying, “This is going to be a much shorter recession than the last one. I don’t think the next recession will be a repeat of 2008…. The housing market is in a better position.” The biggest wildcard is probably the President’s back-and-forth on a trade war with China and the rest of the world, and no economist (or presidential advisor) can predict that.

Realtor.com went on to say, “Aspiring buyers hoping that home prices will crash, like they did during the Great Recession, are likely in for a rude awakening. There simply aren’t enough homes being built to satisfy the hordes of buyers. There isn’t likely to be a drop-off in demand anytime soon.”

We agree. Call us!

All-Electric Homes Are Practical Now, and Can Help Mitigate Climate Change

The typical American home is powered electrically but heated by natural gas, propane or other fossil fuels. You and I can generate our own electricity with solar panels, but there’s no way for us to generate natural gas or other fossil fuel energy, so the transition to a “net zero energy” lifestyle necessitates turning away from fossil fuels and going all-electric.

Fortunately, technology has advanced — just in the last decade — to the point where going all-electric is totally practical, affordable, and a way you and I can mitigate climate change

At Golden Real Estate, our office was heated with natural gas until November 2017, when we installed a heat pump “mini-split” system and had our natural gas meter removed. With 20 kilowatts of solar photovoltaic panels, we were able to eliminate our natural gas bill but not increase our electric bill. We continue to pay just $11 per month to be connected to the electric grid (which functions as our “battery” thanks to net metering), but we are generating all the electricity needed to power, heat and cool our office building. We even have enough electricity from the solar panels to power our four electric cars without buying any net electricity from Xcel Energy. We hope other businesses will follow our lead.

Making the switch to all-electric at home is still in our future, because — like you, I suspect — we prefer gas cooking, gas grilling, and having a gas fireplace.

If, however, we can get beyond those preferences, it is possible now to heat our home and domestic hot water using heat pump appliances, and to cook our food with electric or induction cooktops and ovens. Electric grilling is also available, although not as attractive from a taste standpoint to most of us.

All-electric homes was the subject of a talk by architect Peter Ewers at last week’s meeting of the Colorado Renewable Energy Society’s Jeffco chapter. You can view an archived video of Peter’s talk at www.cres-energy.org/video.

Once we have removed gas service from our homes (and gas cars from our garages), we will have also eliminated the risks of explosion and carbon monoxide poisoning, too. Wouldn’t that be great?

New Report Reveals the True Cost of Selling Your Home to an ‘iBuyer’

Perhaps you’ve heard about the new concept in home selling called iBuyers. Open Door, Zillow Offers and OfferPad are offering this way of selling your home. Basically, these firms use their own cash to buy your home and then re-sell it for a profit.

If you’re a seller who needs to sell quickly and you’re not worried about getting top dollar (or paying less in fees), the iBuyer model is an option that may not otherwise be available to you. You avoid the uncertainty of not knowing how long your home will sit on the market — or whether it will sell at all.

A company called Collateral Analytics has published a study of 4,000 iBuyer transactions in Phoenix which outlines the costs to sellers and the earnings vs. risks for these iBuyer companies. The report’s title is “iBuyers: A new choice for home sellers, but at what cost?” It was released two weeks ago. To read the full report, click on this link.

The last paragraph in the report is a good summary of their findings: “These preliminary empirical results suggest that sellers are paying not just the difference in fees of 2% to 5% more than with traditional agencies, and a generous repair allowance, but another 3% to 5% or more to compensate the iBuyer for liquidity risks and carrying costs. In all, the typical cost to a seller appears to be in the range of 13% to 15% depending on the iBuyer vendor. For some sellers, needing to move or requiring quick extraction of equity, this is certainly worthwhile, but what percentage of the market will want this service remains to be seen.”

In May I got a call from a couple which was under contract with OpenDoor for $548,500, but with a 7% “service charge” and $38,563 for “repairs found in assessment.” This way of doing business annoyed them enough that they terminated with OpenDoor and listed with me at $498,000, selling for $507,000, which netted them more.

Above is one of 3 charts in the report. The analysis is from Phoenix, where OpenDoor began buying homes in 2016, because they didn’t come to Denver until 2018.

I’ve written in the past about companies which will buy your home “as is” for cash without putting it on the MLS. Then they flip the property to a new buyer for a profit — profit that you gave up by doing business with them. The same is also true with iBuyers.

Bottom line: Unless money is no object for you, you’ll do better listing your home with a full-service traditional brokerage like Golden Real Estate. Call any of us at the phone numbers below!

Just Listed: Rare Patio Home Near the Arvada Center

This 2-bedroom patio home at 8242 W. 67th Drive is in the Meadow Ridge patio home community just a few blocks west and one block south of the Arvada Center for the Arts & Humanities. It was just listed for $595,000. There are only 41 patio homes in the community, which was built by Designer Homes LLC, which has a 99 score from BuildZoom. And this is a fabulous home with high-end finishes. Every light fixture, for example, is a work of art, not the typical tract home builder light fixture. Be sure to look for them! Even the garage is beautifully painted and super clean! If you’re like me, you’ll also appreciate the full unfinished basement. Overall, I was super impressed, and I know you will be, too! True patio homes like this with zero outside maintenance are hard to find these days. View my narrated video tour at www.ArvadaHome.info, then come to the open house on Saturday, August 24th, 11am to 2pm or call Jim Smith at 303-525-1851 for a private showing.

South Lakewood Condo Just Listed by Andrew Lesko

Rarely do these condos come on the market! This 2-bedroom 1-1/4-bath, 1,015- sq.-ft. condo at 10930 W. Florida Ave #618 is located in West Lochwood. It was just listed for $228,000. The Lochwood Landings condo community is surrounded by 5 lakes, including Kendrick Lake Park & Cottonwood Park and numerous nearby hiking and biking trails. Walk to King Soopers, Starbucks, and many shops and restaurants. This condo is move-in ready, featuring fresh paint and newly installed carpet & flooring throughout. This is a desirable, second level, end unit with a southeast facing, covered balcony. It includes one reserved parking space and ample visitor parking. The most recent sales in the complex have been at or above $250K, making this an exceptional opportunity for a first-time buyer. You can view a narrated video walk-through at www.LakewoodCondo.info. For a private showing, call your agent or Andrew Lesko at 720-710-1000. Open Sunday, August 25th, 11-3.

LED Lighting Has Some Health & Vision Side Effects Worth Considering

In my July 18th column, online at www.JimSmithColumns.com, I wrote about my favorite home improvements, including the adoption of LED lighting, which I prefer to CFL lighting and is far more energy efficient than incandescent lighting. In particular, I wrote glowingly, so to speak, about “daylight” LEDs — the whitest light available, so well-named for how it matches the color of bright sunlight.

In our office, I replaced all our “soft white” LEDs with “daylight” LEDs to match the color of sunlight coming through our four Velux sun tunnels.

A reader of that column alerted me to some recent research which showed “daylight” LEDs to be harmful to vision, exacerbating macular degeneration, and disruptive of our circadian rhythm (important for good sleep) specifically because it simulates full natural sunlight.

I urge you to Google “daylight LEDs and health,” as I did, and you’ll find that one of the top links is for a June 2016 American Medical Association policy statement (adopted unanimously at their annual meeting) warning about health and safety problems associated with white LED lighting, so common now in the lighting of American streets.

It was right after learning of this research that I bought a new HP laptop computer and noticed that it offers a “nightlight” setting which automatically changes the screen lighting from white to yellow LED light at sunset. It made me wonder why I was so late to learn about this issue!

The reader who alerted me to this topic suffers from early stage macular degeneration. He said he has replaced all the LED lights in his home with incandescent bulbs. I’m satisfied that changing back to the lower “color temperature” LEDs will be enough. I have noticed that some LED fixtures (like the ones I installed in our conference room) have a switch allowing you to choose between “soft white,” “warm white” and “daylight” temperature settings.

What Requires a Permit, & Does Unpermitted Work Affect Your Ability to Sell?

My July 25th column described how a seller got into a legal dispute from not having disclosed an unpermitted basement finish done decades earlier. That story raised a question common among homeowners — what work requires a permit, and does failure to obtain a permit make it harder to sell a home?

Incorporated cities like Denver, Arvada, Lakewood and Golden issue the permits within their jurisdiction, but residents of unincorporated areas must get permits from their county’s planning and zoning office.

Each jurisdiction has slightly different requirements. For example, Golden lets you install a backyard fence up to 7’ without a permit (unless on a corner lot or in an historic district), but Jeffco requires a permit for any fence over 42 inches tall. Denver is more generous, exempting “posthole-dug fences” up to 8 feet high.

When it comes to structures, whether habitable or not, the requirements are fairly consistent. There is an International Residential Code (IRC) which is updated regularly, and most jurisdictions adopt the updated code with only minor adjustments.

I found only one jurisdiction, Golden, which provides a simple one-page PDF listing what does and does not require a permit. Click here for a link to that PDF. If you are in another city or unincorporated area, you can still expect that document to reflect what your jurisdiction might require of you.

Basically, any modifications to the walls, windows, roof, plumbing or electrical system of a home requires a permit, and it’s a good idea to obtain one, even though you can sell a home which had unpermitted work done, so long as you disclose that fact to your buyer.

Call or visit your jurisdiction’s planning department to find out what permits are and are not required for your home. You’ll find that most jurisdictions don’t require a permit for replacing cabinets, countertops, light fixtures, ceiling fans or plumbing fixtures in existing locations, or for roof or siding repairs/replacement (10% or less).

Denver exempts oil derricks, which I found to be a strange inclusion in its list of exemptions.

As mentioned in my earlier column, the standard Seller’s Property Disclosure form provided in the course of a real estate transaction asks the seller to disclose any work done without the required permit in the previous 12 months. If so, the seller should check “Yes” and use the space provided on the form to describe what was done.

If, however, the seller had work done more than 12 months prior to completing that disclosure form, I recommend that he or she use the comments column to describe the work done without a permit and when it was done.

Typically, this disclosure form is provided to the buyer prior to hiring a professional inspector to conduct a thorough inspection of all the home’s components. That way, the disclosure can be given to the inspector, which would cause him or her to pay special attention to the area of unpermitted work to determine if the work was done “to code” and without defects that the buyer might then ask the seller to fix.

By disclosing all unpermitted work in that document, the seller can forestall any claim after closing such as I described in my July 25th column. Listing agents should ask that question about older unpermitted work and handle it in this manner. I certainly will from now on!

If you’re in an HOA, you probably will need to get approval for repainting the outside of your house, concrete repairs, landscaping changes or even the location and color of exterior radon mitigation equipment — things that don’t typically require a city or county permit.

The reasons that permits are required make sense. Consider, for example, replacing a water heater or furnace. If they are gas appliances, today’s code requires that outside combustion air be provided so that the appliances don’t deplete the oxygen in your home, and gas-fired devices emit deadly carbon monoxide, so it’s important that they be installed correctly. It is only by getting a permit that you ensure the work is inspected by the city or county, which is a good thing, especially when it comes to health and safety.

In those cases, you’re probably hiring a contractor to do the work, and the contractor should be licensed with the city or county where the work is being done and should obtain the permit for you. If you are a do-it-yourselfer, you can get the permit as a homeowner, but the city or county may have you take a written test to show that you’re competent at the work being done — and it will be inspected. (I remember taking such a test when applying for an electrical permit in Denver — I failed the test…)

Permitting fees and requirements cause some homeowners to do work without getting a permit and hope they’re not caught. If the city or county catches you mid-project without a permit — something that happened to me in Denver in the 1990’s — expect them to issue a stop-work order and to double the permit fee.

At least in Golden (speaking again from experience), you can turn yourself in and get a post-facto permit without paying a penalty, but you’ll need to show that the work was done to code and have it inspected.

Property taxes are based on a market valuation of your home by the county assessor, and getting a permit for your finished basement, new deck or detached garage, etc. could result in a higher valuation and therefore higher property taxes for your home, but that’s not a good reason to avoid going through the permitting process. How much will your taxes go up? Let’s say your basement finish cost $50,000. It’s unlikely your home’s value will increase by the full amount of any renovation, but even if it did, the assessment rate is now 7.15%, which means your assessed valuation would only increase by $3,575. If your mill levy rate is, say, 100 mills, that means your annual property taxes would increase by only $357. But it won’t. And if you were to spend the same $50,000 on a kitchen or bathroom remodel, it might not increase the assessor’s valuation of your home at all, even though it was permitted, because it didn’t add any finished square footage to your home.

What the assessor values your home at is not based on what you paid for it, and neither is it based on what you spend to improve it. Your home’s valuation is based on the sale of comparable homes to determine what your home might have sold for on June 30th of the most recent even numbered year. Thus, even if you purchased your home on June 30, 2018 (the valuation date), the assessor won’t use what you paid for your home as the value of your home.

Theoretically, the county assessor’s office could monitor MLS listings and compare the description of your home with what their records show. But I have never heard of anyone’s assessor records being changed based solely on an MLS listing of their house.

If you have any questions that this column did not answer, please feel free to call me or any of our agents at the phone numbers below. I’m always happy to hear from my readers, and all of us are happy to answer your real estate questions.

Jim Smith, Broker/Owner, 303-525-1851

Broker Associates:

Carol Milan — 720-982-4941
Norm Kowitz — 303-229-3891
Andrew Lesko — 720-710-1000
David Dlugasch — 303-908-4835
Chuck Brown — 303-885-7855
Kristi Brunel — 303-525-2520
Carrie Lovingier — 303-907-1278
Jim Swanson — 303-929-2727

Amazon’s Deal With Real Estate Megafirm Realogy Could Be a Game Changer

Maybe you’ve heard about the recent deal between Amazon and Realogy in which they give buyers $1,000 to $5,000 in smart-home products if you let them assign you an agent.

Unless you’re in real estate, you probably never heard of Realogy. They’re a holding company which owns multiple real estate franchisers that you have heard of — Century 21, Coldwell Banker, Better Homes & Gardens Real Estate, Sotheby’s International Realty and ERA Real Estate.

Denver is one of 15 markets where Amazon’s “Turnkey” program is being rolled out, with the intention of making it nationwide.

Putting on my journalist hat, I pretended to be a home buyer and went to Amazon’s website for this program. I filled in my name, my non-Realtor email address, and cell number, and within a minute received a screening call from a man at Realogy affiliate OJO Labs, who asked me where I was looking (Golden & Arvada), price range ($500,000), and whether I owned and would be selling my current home. (I said yes.) Note: Since many or most buyers have homes to sell, this program is effective at generating seller leads, too.

Then he explained (because I asked) that he was sending a text message to all the participating agents in my market and the first agent who responded to the text would be my agent. I would not be able to select the agent.

Before he connected me to that agent, I asked her name and Googled it. She’s with a brokerage in Longmont, 45 miles by car from Golden. Of course, she didn’t tell me that herself, hoping I’d hire her to buy a home and probably to sell my current home. She also overstated her experience, which I was able to check online.

After saying I wouldn’t work with her, I received a call from a second agent. This one was from a Denver office of the same brokerage and knew me, so my pretense ended with her, but I was able to interview her about the program.

She confirmed that the program is run through Realogy’s relocation business called Cartus and that the participating agents are the ones who already get relocation leads. This program will be a windfall for those agents because the leads could result in both a listing and a purchase, whereas relocation leads are only for a either a listing or a purchase. It will be a windfall for Cartus, too, since, like all relocation companies, they take 30% or more of the agent’s commission. Amazon must be getting a big fee, too, which ultimately comes from the commission paid by sellers to the participating agents.

As I told Aldo Svaldi of the Denver Post when he interviewed me, this is a really smart move for Amazon and a great deal for Realogy, and I suppose companies like Golden Real Estate could lose market share, even though we do offer other advantages to using us, including free use of our own moving trucks, boxes and packing materials. And when a buyer also lists his or her home with us, we also provide free labor, saving our clients thousands of dollars.

In Real Estate, Truth Matters, Unlike in Politics and the Legal Profession

I was brought up to respect the truth by always telling the truth and expecting others to tell the truth. My father drummed this into me, as did the private schools that I attended. My boarding school, Choate, had an honor code (and still does) that required students to handwrite on every test or paper submitted, “I pledge this paper on my honor,” which we knew was shorthand for the following longer statement, “I pledge upon my honor as a gentleman that I have neither given nor received help on this paper.” (The phrasing has changed a little since the school went coed, but I’m told by the school that it’s still used and is, in fact, framed on the wall in every classroom and academic space: “On my honor, I have neither given nor received unauthorized aid.” In language classes, it’s posted in the language being taught – even in Latin!)

To this day, it upsets me when someone knowingly lies, and it pains me that some of America’s leaders, who serve as role models, have made lying in the face of clear evidence acceptable instead of condemned, as it should be.

So, I’m glad that I ended up in the real estate profession, where truth is important and is still honored. The National Association of Realtors, to which we agents are required to belong if we join any major and most minor brokerages, has a Code of Ethics to which we swear allegiance upon induction as members. In the preamble to the Code, the word “integrity” appears twice, including in this paragraph:

“The term REALTOR® has come to connote competency, fairness, and high integrity resulting from adherence to a lofty ideal of moral conduct in business relations. No inducement of profit and no instruction from clients ever can justify departure from this ideal.”

The Code of Ethics even commands Realtors to take action when they find another Realtor violating the Code. I myself have filed (and won) an ethics complaint against another Realtor who advertised that he was selling “4 homes every week,” violating the article which says members shall not misrepresent their level of success. That agent was ordered to stop making that claim in his advertising.

With the bidding wars of recent years, buyer clients have understandably wondered whether other agents were telling the truth when claiming multiple above-listing-price offers on a listing. I am pleased to tell them, and to state here, that I don’t recall ever being lied to by another Realtor, although I do worry on occasion when the agent on the other side of a transaction is a non-Realtor. Agents who are not NAR members don’t have a code of ethics to which they subscribe, which is why NAR advertising has often urged consumers to “make sure your agent is a Realtor.”

State laws regarding real estate do impose requirements of an ethical nature that aren’t imposed on other professions such as car sales. When you buy a used car (or anything else), it’s usually without any disclosure of past or current defects, but state law, like the Realtor Code of Ethics, requires that sellers of existing homes disclose all known past or current defects, and we can be disciplined even to the extent of losing our real estate license if we, as listing agents, fail to disclose a defect, past or present, of which we are aware.

Since every brokerage is also responsible for the actions of its agents (another term for the managing broker is “responsible broker”), every brokerage should instruct its broker associates to refuse to list any property where the owner is unwilling to fully disclose all problems or defects with the home. I’m happy to report that I have never had a seller who didn’t recognize and accept his or her obligation to disclose known defects.

One of the standard forms for every listing is the “Seller’s Property Disclosure” (SPD). The document itself is voluntary, but (1) I’ve never had a seller who refused to complete it, and (2) failure to complete it does not relieve the seller and his/her listing agent of their responsibility to disclose all known defects or problems.

The SPD is very thorough in the questions it asks, but one shortcoming is when it asks about unpermitted renovations. It only asks the seller to disclose renovations done without a permit in the last 12 months. This creates a loophole which can be exploited by an unscrupulous buyer after closing.

Consider the following scenario: the seller does not disclose a basement that was finished decades earlier because it was done professionally — and the SPD didn’t ask about it. A few weeks after closing there’s a plumbing leak in the renovation. The buyer hires a lawyer who takes the seller into mediation (required by the contract), where the lawyer asserts that the seller told a neighbor, “There’s a plumbing problem, but we’ll let the buyer take care of it.” The lawyer had requested separate rooms for the mediation, so there is no way to confront the buyer or lawyer on what the seller knows is a totally bogus assertion. The seller would have to reject mediation and go to trial, at great expense, to make the buyer produce the false claim from a neighbor. So the seller agrees to settle for a 5-figure amount, plus his already high legal fees.

To me, this is legal bullying, but such tactics are sadly a tool that some lawyers are willing to utilize.