Sellers: Contingencies Protect You, too

An offer with no contingencies? Might sound like a dream come true to a home seller. But sellers, beware: That dream could just as easily be a nightmare. Contingencies, though sometimes costly and time consuming, actually work to protect you, the seller, as much as they do the buyer.

Inspections protect buyer and seller

Inspection contingencies at first glance seem created to ensure the buyer gets the full picture on the house, and the best deal, since problematic issues discovered during inspection may allow ask for repairs, credit money at closing to fix them, or even lower the price of the home.

But this inspection process also protects sellers, for if a buyer finds a defect in the home post-sale, and can prove that defect existed prior to the home sale, you may find yourself facing a lawsuit.

The Law

NOLO’s Legal Encyclopedia explains it neatly: “Nearly every U.S. state has laws requiring sellers to advise buyers of certain defects in the property, typically by filling out a standard disclosure form before the sale is completed.”  And this onus doen’t go away, even if the seller buys your house “as is.”

“The standard form usually asks the seller to state whether the property has certain features (like appliances, a roof, a foundation, systems for electricity, water, and heating, and more) and then rate or describe their condition. Some states' disclosure laws are more comprehensive than others, and if a feature isn't on the list, the seller may not be required to speak up…..But if there's clearly a place where the seller should have stated a problem but denied it….. for example, if the seller patched over or hid problem areas, or if the neighbors have told you about the seller's efforts to deal with a problem, the evidence is on your side."

In some states, the seller’s real estate agent may also be liable to such a lawsuit.

Notable Case

Lingsch v. Savage is a precendent setting case from the early 1960’s. Records from the Lectric Law Library show the buyer, Lingsch, bought property from a seller who was represented by Savage, who was a real estate broker. “Both the seller and Savage knew of substantial problems with the property requiring repair, but did not tell the buyer about them.”

This property was sold “as is,” and the contract included a clause stating that “no representations, guarantees or warranties of any kind were made except what was expressly included in the purchase agreement.” Yet when major defects were discovered after closing, Lingsch was still able to sue the seller and his broker.

The court reasoned that fraud included the non-disclosure of material facts by a person under an obligation to disclose them. Furthermore, the agent's representations led the buyer to believe that the absence of disclosure of a particular problem meant that problem was not present….The inclusion of an "as-is" provision does not prevent the contract from being invalidated by fraudulent non- disclosure. Such a provision means that the buyer takes subject to any defect observable to him by reasonable diligence.

So, Back to that Inspection Period

Good inspections reveal issues to both the buyer and the seller. So, they help grant you, the seller, some legal protection against later lawsuits accusing you of hiding something you might not have been fully aware of. They also help ensure the remaining aspects of closing go through smoothly, and that your house sells rather than falling out of escrow, and then forcing you to re-list the house to your great disadvantage. You can see how much easier it would be to simply deal with these issues before, rather than after, closing.

Essentially, some of those contingencies buyers want to waive in today’s crazy market should probably stay where they are- in the contract that protects both parties.

Additional Resources