Three Errors Real Estate Agents Make

I find that real estate agents frequently make three errors that cost them time and money. These errors also create liability problems for themselves, their clients and their brokers.

Error One: Ignoring contractual restrictions on who the buyer can use for inspections.

The standard TREC sales contract does not allow the buyer to hire or retain anyone he or she wants to inspect the house. While it is true that the buyer gets to select the inspector, there is a very important restriction on who a buyer can select to inspect a house.

The inspector must be licensed by TREC or be otherwise permitted by law to make such inspections. The phrase otherwise permitted by law is key here. TREC inspectors are licensed to make real estate inspections. Licensed Texas Professional Engineers and Licensed Texas Architects are permitted by law to make inspections of buildings. In fact, licensed engineers and architects made inspections of buildings, including houses, for decades before Texas began to issue licenses for home inspectors. The important point here is that the buyer is not allowed by contract to hire non-licensed people to inspect real estate. Foundation repair contractors are not licensed and therefore are not allowed by the sales contract to make an inspection for a buyer.

I know from experience that there are agents who take exception to my interpretation. For those people, I ask only you reread the relevant clause. It is clearly intended to restrict the pool of potential candidates a home buyer can select from. If that was not the intent, then the authors would have simply written: Buyer may retain the inspector of their choice. The fact is that they did not write that.

When a buyer brings in an unlicensed foundation contractor without the permission of the owner, he or she is in violation of the sales contract. No real estate agent should be a party to that.

Error Two: Ignoring obvious red flag issues

By this, what I am referring to is ignoring the presence of red flags that a home inspector is likely to notice and that may be a basis for recommending a Professional Engineer to evaluate the performance of the foundation. The red flags are listed in the TREC SOP for inspectors:

Binding, out-of-square, non-latching doors 

Framing or frieze board separations

Sloping floors

Window, wall, floor, or ceiling cracks or separations

Rotating, buckling, cracking or deflecting masonry cladding

I am not suggesting that you thoroughly inspect homes for which you take a listing. What I am suggesting is that, when you list a home and then walk through the home with the owner to suggest changes to the home that may make it easier to sell, you should be alert to any of the above red flags.

The truth is that not one of these red flags mean that the foundation should be repaired, but each one that the home inspector notices is one more reason he has for rendering an adverse opinion regarding the performance of the foundation and for recommending that the buyer retain an engineer. At best, this can delay the transaction and, at worst, kill it. It can also make it more difficult to sell the house to the next prospective buyer because the home inspection report may have to be disclosed. Once the deal falls apart, other agents may just assume that the foundation or some other structural issue is the reason.

The best approach, in my opinion, is to convince the owner to be proactive and do two things

1. Retain an engineer to write a report stating that the red flags either do or do not warrant foundation repair.

If the red flags do not warrant foundation repair, the red flags should be corrected to make the house more marketable. Normally this means cosmetic repairs only. In the large majority of homes, there will be no need for foundation repair.

If there is a serious problem, you and your homeowner need to know early, not a few days before the sale is scheduled to close. If there is no structural need for repair, your homeowner needs to know so he or she can make repairs to the red flag issues. You and the homeowner need to have the engineering report so it can be disclosed to any prospective buyer so no buyer can argue that the owner covered up everything by making cosmetic repairs.

Getting an engineer involved early can make for a smoother, quicker transaction with less unnecessary drama.

Error Three: Ignoring the previous repair history of the house

If a house has been underpinned in the past, it is a prime candidate for a TREC inspector or an appraiser to flag the foundation for an engineering report. If a house has been underpinned more than once, it is even more likely to need a foundation report.

Always be aware that you will not necessarily know whether a foundation has been underpinned or not. Usually, the only telltale sign will be a concrete patch mark where concrete was removed, such as at a patio or driveway.

If there is evidence of previous repairs, you need to start asking some questions. If possible, find out who did the work, if they still in business, when it was done, is there a written warranty, is the warranty transferable, can it be transferred to a new owner, and what is involved to make the transfer happen.

The best advice I can give you is to not take anything for granted. Assume nothing and verify what you are told.

Who did the work? Normally there is a sales proposal or contract that will specify the company that made the repair.

Are they still in business? Foundation repair is a very easy business to get into and out of. Unless you recognize and know the name, we recommend you or your buyer/seller call them and verify that they are still in business.

When was the work done? The more time that has passed without any serious problems, the better. Only time will tell how well the repair will work. Homeowners have been known to have a foundation repaired by the cheapest contractor they can find and then put the house up for sale. When that is done, not enough time has passed for a fair test of the repair.

Is the house being flipped? In many cases, the foundation repair contractor is a no-name contractor who offers a minimal warranty for a cheaper price. In our opinion, flipped houses should always be looked at by an engineer retained by the buyer.

Is there a written warranty? Make sure your buyer understands the warranty. Most buyers and owners do not understand that the warranties do not address their real concerns: brick veneer cracks, drywall cracks, door issues and sloping floors.

Is the warranty transferable? No all foundation repair warranties are transferable even if the warranty says it is transferable. You may think to yourself: how can that possibly be? Simple. Consider this scenario: Owner 1 pays for a foundation repair that comes with a transferable warranty. The next owner, Owner 2, fails to transfer the warranty when he or she buys the home. Owner 3 now goes to the contractor to transfer the transferable warranty and finds out that the transferable warranty is no longer transferable. The time to discover this is before the closing.

Can the warranty actually be transferred to your buyer? Surprisingly, the answer might be no. For instance, it is not unusual for investors to contract with a repair contractor who offers a transferable warranty that can be transferred only once. Another situation that might arise is that, after the foundation repair work was done, a structural repair or modification was done to the house. This usually voids the warranty altogether. A pool built after foundation repair work is a prime candidate for voiding a warranty.

Have structural changes voided the warranty: There are many 10-year third party warranties, such as you find with new homes, that are voided due to a pool being built after the house was complete. Many foundation repair companies will not honor a warranty of structural changes have been made to the house. Even changes to the landscaping can void a warranty.

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