Home, Sour Home: How Homebuyers Can Avoid a ‘Lemon’

In life we’re often encouraged to make lemonade out of lemons. We’re taught to look on the bright side and make the best of a bad situation. But what if that bad situation involves the very roof over your head? Are buyers expected to look on the bright side when their house yields one problem after another?

Ken Crotts, a real estate agent with over 35 years of experience in Seattle, is passionate about helping buyers avoid bad home purchases. In fact, his agency has adopted a “Love It or Leave it” policy: If buyers are unsatisfied with their home within the first six months, the agency will waive all listing costs to help them sell it and find a better option.

Of course, no one ever wants their homebuying process to end up like that. So with Crotts’ help, we’ll look at some of the ways buyers can avoid a problematic “lemon” home and explore next steps for buyers who find themselves with more of a home-sour-home than a home-sweet-home.

What are lemon laws?

Lemon laws refer to defective automobiles, commonly referred to as “lemons.” If you’ve purchased a car that continues to fail certain quality standards (meaning, it ends up in the shop a lot!), then there are federal and state laws that provide some recourse for the buyer against the manufacturer.

Lemon laws put the responsibility on car makers to produce and sell a reliable product.

Is there a lemon law for houses?

The short answer here is, no — there aren’t comprehensive lemon laws when it comes to real estate. But there are protections in place that are designed to prevent the sale of a “lemon” house equivalent.

Seller disclosures

In many states, seller disclosure forms are required to complete a real estate transaction. Each state has different requirements, but basically the seller is required to tell the buyer of any known problems with the house. This might include roof damage, foundation problems, systems issues, appliance malfunctions, and more. Though note that the specific information sellers are required to disclose can vary by state.

The key word here is “known,” though. The seller isn’t usually required to investigate every inch of their house for problems –– that’s the inspector’s job (see below). The seller must report issues that they’re aware of, but a seller legitimately may not be aware of all issues with their property.

Crotts says, “Sellers have to disclose what they know about the property, but they don’t have to necessarily take action to go find out more. So the information you’re getting on a seller’s disclosure may or may not be complete.”

He uses the example of a homeowner who may be asked about attic insulation. If they’ve never been up in their attic, they may not know anything about the insulation, and they’re also not obligated to go up and look at it.

Inspections

Home inspections are the best way for a buyer to prevent getting a “lemon” house. An inspector will spend around three to four hours looking at all components and details of the house, from the basement to the chimney.

Basic home inspections don’t cover everything, though. A home inspector is only required to look on the surface in most cases. Issues beneath the flooring or behind the drywall won’t be uncovered by a regular inspection, but inspectors will alert buyers of any questionable, tell-tale signs that may need to be further investigated by a specialist.

In a fast-paced seller’s market, sometimes buyers will forgo an inspection contingency in order to make their offer more attractive to the seller. This isn’t recommended. But if you find that it’s necessary for your situation, you may want to consider a pre-inspection –– hiring an inspector to do a limited inspection prior to making an offer. Ask your agent about your options in this case.

Home warranties

Home warranties help protect a buyer against certain home malfunctions for a specified period of time. For instance, if your air conditioning unit breaks down within the coverage period, the warranty company will pay for repair or replacement. Sometimes there is a deductible or service fee involved.

Many new construction homes come with a home warranty from the builder. For existing homes, some sellers may purchase a home warranty from a third party in order to offer additional peace of mind to the buyer.

Crotts says that some buyers (specifically those opting to waive inspection contingencies) may choose to purchase home warranties for themselves. A home warranty is not equivalent to an inspection, but it does offer a little more security if certain things go wrong. Check your specific warranty coverage carefully, though!

It’s important to note that these protections –– disclosures, inspections, and warranties –– are not the same as lemon laws for cars. In real estate, the responsibility of determining whether or not a house is in decent, livable condition falls to both the seller and the buyer. That’s why due diligence on the part of a homebuyer is vital.

What other options can help prevent you from buying the equivalent of a lemon house?

Beyond these main protections, there are a few more things a buyer can do to safeguard themselves against “lemons” prior to their home purchase.

Verify your inspector’s licensing

Always choose a licensed professional to ensure proper training standards have been met. If your inspector isn’t licensed, you might as well just have your uncle who “knows about houses” take a look at the property. (That strategy is not advisable, by the way!)

Attend the inspection

Take the opportunity to join your inspector during the process. Ask all questions as they come up, so that you understand the realities of what you’re walking into.

Follow up with additional inspections

Post-inspection, ask your agent if you need any specialty inspections. These might include pest, mold, foundation, roof, systems, or pool inspections.

Consider a contractor assessment

Buying a house that needs work isn’t necessarily a bad thing, as long as you’re prepared for the expense. If the disclosure or inspection indicates the need for repairs, have a contractor give you an estimate of the costs so you can budget accordingly.

Research the builder and development

Have other homes in the same neighborhood or built by the same company had problems? Ask your real estate agent to do some digging about the builder’s reputation.

Research the house

Look at public records, including sales history (which may give you a hint if it’s ever been “flipped”), police blotters (which could have information about a fire), FEMA flood background (which may give an indication of water damage), and so on. Your agent can help point you in the right direction.

Get a CLUE

Literally. Ask the seller to provide you with a CLUE (comprehensive loss underwriting exchange) report, which shows any insurance claims on the home. Make sure that any claims were repaired to code.

What happens if you think you have bought a lemon?

Homebuyers have a few courses of action when it comes to problematic houses. If you’re dissatisfied with the condition of your home post-purchase, consider the following steps.

Go back to your seller’s disclosure

Check the disclosure for any indication of problems. If you suspect that the seller may have withheld information, they might be liable for the cost of any repairs.

“Talk to your agent,” Crotts says.

“You may find out additional information as to whether or not you should be talking to an attorney, or if it’s something that can be worked out on a more congenial basis with the seller.”

Some states do have an option for you to go to mediation or even to sue to get your money back, but only if you can prove that the seller knew there was something wrong with the house and didn’t tell you about it. Often that burden of proof is challenging to meet.

Crotts tells of a seller who filed an insurance claim for hail damage but didn’t disclose that damage to the buyers. In that case, the buyers had all the proof they needed to win the case.

Remember that a legal process may be more expensive than it’s worth. Working out a compromise with the seller may be in your best interest. And if you didn’t get an inspection … well, you’re probably out of luck.

Look closely at your inspection

Examine your inspection report to see if there was any indication of the specific problem you’re experiencing. Did the inspector miss something that’s now causing your issue? If you suspect negligence on the part of your inspector, you may be able to sue them for damages.

Again, you’ll need to prove that the inspector didn’t do what they were specifically contracted to do. To do so, you will likely need to hire an attorney, along with two or three additional inspectors who could back up your claim from a professional perspective.

Consult your homeowner’s insurance policy

Depending on your policy, the repairs or damage on your home may be covered. However, most policies have clauses that exclude pre-existing damage.

If the insurance adjuster determines that the problem with your home predates your purchase date (and therefore their coverage date), then they may deny the claim. Ask your insurance agent for more information regarding your specific situation.

Check for new homebuilder laws in your area

If you’ve purchased a new construction home, some states do have a certain type of home lemon law that holds builders more responsible for their work. While not very common, the states that do have these laws (such as Texas and Florida) usually require builders to repair any safety hazards under federal construction standards violations or refund your purchase in the event that they cannot.

Ideally, homebuying should be a sweet experience. With proper precautions, buyers can hopefully stay out of sour situations and spend more time sipping lemonade on their new –– problem-free –– front porch.

Header Image Source: (Angélica Echeverry / Unsplash)