It's Buyer Beware!

It's Buyer Beware!
By Greg Perry, Eastside realtor

We've had considerable discussion in office meetings about the Washington State Supreme Court decision that says Buyers will no longer have a claim for negligent misrepresentation in post-closing property condition disputes.  The Court applied the "Economic loss rule" in the context of a real estate transaction which limits a Seller's loss to the confines of the contract.  The mantra once again is "Buyer beware".  The SC decision essentially puts the onus on Buyer's due diligence to protect themselves.

This does not protect a Seller who fraudulently fails to disclose known issues, but does protect the Seller for unintentional lack of disclosure.  The issue the court decided on was a septic system that failed after soon closing to the tune of $30,000.  The Buyer argued the Seller should have known and thought their post closing loss should be compensated for by the seller.  The court's view was that because  there was not intentional misrepresentation, and there was no warranty of any kind in the contract, the seller was not responsible for the the loss.

Clearly this implies that Buyers must do their due diligence. Buyers must work closer than ever with their agents to uncover the property defects and warts.  After the sale closes, the Buyer must live with it.

We'll have plenty of training and discussion on this issue and changes in the state's Form 17 disclosure statement.  As it unfolds, we'll let you know! 

Comments

[Stacey M.]

It's unfortunate for the buyer in this case. But, as you said, any buyer needs to be diligent in examining a property that may have potential problems. In my area the heat and humidity are are perfect conditions for termites and mold and are the greatest concerns. Any buyer looking to buy a home, regardless of how old or new, needs to under stand what they are looking for and it is the job of the agents to point out these relevant issues. A home warranty is a low cost option that should always be suggested by the agent as a part of the contract.

[Greg Perry]

Yes, the "economic rule" says that a party to a contract may not sue the other for negligent performance of the contract. Any claim must be for breach of the agreement and based on the terms of the contract. If parties to a contract want to establish standards for the quality of performance, they must include those standards in the contract itself.

I'm sure we'll have plenty of training sessions on how to establish specific warranties in our contracts covering issues like septics. That being said, these warranties likely will be market driven. In hot market they may be extremely difficult to negoiate.

[Richard]

I’ve taken a quick look at your postings, which are very interesting. Lots of material and ideas! Congrats on being so focused!
http://www.taxforeclosurecurrentevents.com/