The local news investigators recently did a story on foreclosed homes that banks are putting on the market in the Twin Cities area. The story had an ominous tone. The reporter visited a home with a hidden camera in tow posing as a potential buyer. Questions were asked about the condition of the home and regarding disclosures available. This particular home did have evidence of a mold problem, dark spots on a sheet rocked wall. A few days later, the reporter returned to the home and the area with the mold had been repainted.
The angle of the story in the voice over was that in Minnesota there is a “loophole” where banks and other financial entities would not have to fill out a disclosure form that is required to be completed by all other home owners in the state. The reporter indicated that a new buyer would not be aware of the painted-over mold. She had a home inspector with her as an expert who said that it was his opinion that the law is flawed; financial institutions should be required to provide potential buyers with a report from an independent licensed inspector.
Though interesting to watch, there were many inaccuracies in this investigation. True, the state of Minnesota does not require financial institutions to provide a disclosure. But I don’t think this is a “loophole”. When the reporter first visited the home posing as a potential buyer, she was shown the home by the listing agent. The listing agent is working for the seller. Since the news reporter was trying to make a point about disclosure, it may have been cut out where the agent recommends that the buyer get an independent inspection. When under contract as a listing agent, the agent is working for the seller not a buyer but still must disclose any known information about the property. Although on the return trip, the wall was bleached and repainted, that does not mean that the agent wasn’t informing potential buyers of the situation.
Buyers considering foreclosed properties must go into these homes with their eyes wide open! The best advice is for buyers to sign a buyer’s representation agreement with an agent prior to visiting any listings. Your agent will advise an independent inspector on all properties, not just foreclosed homes, because the average homeowner may not be aware of all defects in their own property. Most listing agents on foreclosed homes will recommend an independent inspector as well. The reporter did say that the agent had done nothing wrong so they did not show his face. This makes me wonder if the agent had been explaining why inspections are necessary.
Most foreclosed homes have notices posted in the MLS and at the home to “Get an Inspection”. This inspector when hired by the buyer walks through the entire home with the buyer in a systematic two-three hour process explaining the defects and potential problems and repairs of the home. The buyer has an in-depth understanding of the property they are buying. If the state had required that financial institutions provide inspections, many buyers might forego having an independent inspection.
The current real estate market includes many foreclosed, bank owned homes. These properties can be a great investment resource or “fixer-upper” first home. But buyers must be smart. Smart buyers with have their own representation and hire their own independent inspectors. On a purchase this big, you owe it to yourself not to take someone’s word for the property’s condition.
Copyright 2007 Teri Eckholm