Of every 100 real estate contracts that don’t make it to the closing table in the Land of Enchantment, about 80 suffer at least some of their fatal wounds during the inspection process and the conditions that precede it. The law works a little differently in every state, but in New Mexico, legislation and case law surrounding the issue of sellers disclosing possible defects in the home (“adverse material facts”) is not as well developed as we might like. And given that I write this article for the benefit of buyers, there are approaches a very good broker can take to reduce the risk to the client and frankly, to him or herself. The word that comes to mind is thoroughness.
It’s not that well known among the public but the various forms that real estate brokers use in the conduct of their business play a crucial role in the course of a transaction. And some are more effective, and better-designed, than others. Unfortunately, in New Mexico, the form we use is poorly designed and encourages sellers to not to disclose items that, with a better-designed form, they might happily cough up.
Take a look at the screenshot from the form below.
You don’t need a master’s in psychology to realize that if there’s a handy “ain’t nothin’ wrong with this particular thing,” many people are going to take the easy path and just check the little box. And that’s exactly what happens. In New Mexico residential real estate, this is a significant issue.
What’s the Consequence?
If a seller’s disclosure form comes back from the seller’s broker with nothing on it, it ordinarily creates at least a degree of distrust and suspicion. It should. Because there are flaws in every property, including new construction. And if the ensuing contracting process isn’t handled well, this can create unwanted headaches for the buyer and expose many involved to liability. But rather than focus on what can go wrong (believe me, it’s a lot), let’s focus on how to prevent it.
Do The Digging
If you’ve fallen in love with a property and for whatever reason, the seller writes, in effect “Ain’t nothin’ wrong with this place,” you don’t have to take their word for it. Quite honestly, one should never do that. An old Russian saying comes to mind every time I go through this; in 1985, as Reagan and Gorbachev were negotiating what (if I remember correctly) was the START II treaty, Reagan quipped (in English) “Trust, but verify.” In real estate, I’d remove the bit about trust. Just verify. This is what the inspection process is for, after all. And the general inspection is only a place to start uncovering potential issues. An inspector may write something like “The roof appears to be quite old and has significant wear; I recommend contacting a licensed professional roofer for further diagnosis.” Your broker should almost always do this!
Why? A portion of the benefit of having a contractor take a look at your property and provide an estimate for a new roof or significant stucco work is that no matter how outrageous the quote may be, contractors almost always provide valuable diagnostic information in their estimates. This often includes information about expected remaining life and the likelihood of failure, which can give a buyer a great feel not only for whether they want to move forward or not but if they do, it can give them a pretty clear path forward on how to take care of their home. It’s protective.
Overkill is Best
An anecdote: In a recent transaction in which I was the buyer’s broker, the general inspector was not, let’s say, crazy about the condition of the roof. So over the course of the next two weeks I obtained no fewer than five estimates from contractors, two for repairs and three for replacement. Below is a screenshot from my transaction file. Added to this were estimates to replace the garage door, to repair the stucco, and (as is standard around here) a chimney and fireplace inspection with estimates to bring that up to par. No stone left unturned.
Under New Mexico law, if a buyer learns of a certain fact or condition of a property through one of several means, it has the same legal effect as if the seller had disclosed it. So if I were to climb on the roof with a roofer and learn that there are six different trouble spots and it’s documented in a report, that’s legally pretty much the same thing as if the seller had told you in the disclosure. If the seller mentioned nothing about the stucco showing signs of water damage but the stucco contractor said “Those waffle marks are bad news” and noted this in his estimate for repair, the legal effect is almost identical. Case law surrounding the disclosure issue may not be that ample in New Mexico, but it does not mean that there’s no avenue for a prudent buyer. There is. It’s common sense.
Investigate, Investigate, Investigate
Simply put, the key is to do a hell of a lot more work than the other guy.
Whether a seller fails to disclose adverse material facts out of mere oversight, by deliberate choice, or in an effort to deceive, a prudent and professional broker can put his client in a position in which none of that has much effect upon his course of action, because he or she will have been fully informed – even over-informed — no matter what a seller’s actions.
That’s the position you want to be in.
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