What to Do When Your New Home Is a Lemon

When it comes to buying an old property, homeowners must prepare for unexpected repairs, potential structural problems, non-working appliances and other issues associated with poor construction. And while many states have seller disclosure laws to ensure buyers don’t end up with unpleasant surprises after the closing, prospective homeowners shouldn’t count on them to alert them to all potential damage and necessary replacements.

[See: 9 Details That Signal a Home Is a Good Buy.]

Patricia Kantor, a member of the legal firm Mintz in New York City, says sellers in her state can opt out of the seller disclosure form by paying $500. Even in states with rigorous seller disclosure laws, like California, it’s easy for sellers to feign ignorance about problems discovered after a sale. “The seller thinks, ‘Who’s going to find out?'” says Alisa Cunningham, an agent with the real estate firm Douglas Elliman in Los Angeles.

If you discover problems after a sale or think a seller withheld information on a disclosure form, you have recourse through the court system, but it can be expensive to hire an attorney and build a legal case. Instead, see if options such as mediation or arbitration can reduce costs.

Better yet, follow the pro tips below to avoid buying a lemon in the first place.

Look for new construction protections. Buying a house from a builder isn’t the same as buying an existing home. “They are totally different beasts,” explains Vincent Averaimo, a managing partner of Milford Law in Milford, Connecticut.

Builders often include a one-year warranty with their work, and some states even require them by law. New York, for example, requires builders to guarantee that a new home will be free of material defects for six years. Plumbing, electrical and heating systems are covered for two years. Other states, like Georgia, require builders to provide a warranty, but don’t spell out its specific terms.

In states with builder warranty statutes, there may be a process by which a complaint is handled. They may go through a state department, arbitration or the court system.

Remember: There are limited options for existing homes. It’s a different situation with existing homes. If you believe the seller lied on their disclosure form, you can take legal action against them. However, these can be difficult cases since there may be no physical evidence that defects were deliberately concealed. “You have to be able to prove it,” Cunningham says. “And that’s the challenge.”

Since a lawsuit can sometimes be more expensive than the needed repairs, Kantor says it’s not advisable in many situations. Instead, buyers can try to work with sellers to reach a settlement outside of the court system. “Sometimes, a good broker can help mediate,” Kantor says.

[Read: How to Tactfully Back Out of a Real Estate Deal.]

Other times, litigation is not allowed if the real estate contract includes an arbitration clause. These may require buyers to go through a binding arbitration process to settle disputes.

Krista Mashore, a realtor in Brentwood, California, says buyers in some states can offset the costs of mediation and arbitration by buying real estate risk management services. Offered through qualified brokers and agents in California, Nevada, Arizona and Hawaii, this protection can cover the cost of arbitration and mediation and potentially reduce litigation fees.

Getting your home inspected is a must. In addition to the cost, another drawback of litigation is that it may be difficult to locate a seller after the closing. Considering these two obstacles, it may be easier for homebuyers to identify potential problems prior to a sale rather than litigate them later on.

The best way to identify a potential issue is to use an experienced inspector to review the property. “You don’t need them to turn the faucets on and off,” Kantor says. “You can do that yourself.” Instead, an inspector will complete a thorough review of the interior and exterior of a home to pinpoint potential problems such as water damage, foundation cracks and improper wiring.

A general home inspection can cost $200 to $500, depending on the size of the property. Cunningham also recommends having separate inspections of common problem areas such as sewer lines and chimneys. These may run $250 each.

“It’s easy to spend $1,200 on inspections and that seems huge,” Cunningham says. “But it’s such a small amount of money for peace of mind.” She says homebuyers will never regret inspecting a home.

Uncover problems with other resources. While professional inspections are essential, homebuyers have other tools at their disposal. “The buyers should also request a CLUE report,” Mashore says. A Comprehensive Loss Underwriting Exchange report shows whether there have been any insurance claims on the property. A CLUE report can be a valuable tool for buyers, but only a homeowner can request a copy from the data company LexisNexis. As a result, buyers can obtain it only through the seller.

Buyers should also educate themselves on where potential issues are likely to be found in a house. Sewer lines, plumbing and chimneys are all areas associated with expensive repairs.

What’s more, “the basement is a breeding ground for problems,” Averaimo says. Asbestos tiles, mold and water damage are all common issues found there. Averaimo adds that buyers should be on the lookout for underground oil tanks. If a capped-off pipe is coming into the basement, there’s a good chance a tank is on the property somewhere. If it hasn’t been properly abandoned or removed, it could turn into a costly problem for a new homeowner.

Keep in mind, home warranties are not a cure-all. In many parts of the country, such as California and Connecticut, existing home sales may come with a warranty. Cunningham says it’s standard practice to build a home warranty into a real estate contract in California. The cost is typically covered by sellers and can run from $400 to $800, depending on the level of coverage. The most common warranty used by Cunningham for her clients costs $515 for one year of protection that covers appliances as well as heating, air conditioning and other major systems.

However, don’t expect a home warranty to replace broken systems. In most cases, warranties will include repairs; often, there is a service charge of $65 to $100 for these to be completed. If a replacement is needed, expect to get a base model. For more expensive problems, such as an irreparable furnace, you may get a credit that will only partially pay for a new system. Plans vary, so make sure to check the fine print.

[See: 12 Home Improvement Shortcuts That Are a Bad Idea.]

Cunningham, who has personal experience with warranty claims, says that while they are imperfect, home warranties can be beneficial. This is especially true for those who have moved to a new area and don’t yet have trusted service providers nearby. “It’s great to call the home warranty company and have them handle it,” Cunningham says.

“I don’t think it’s a bad idea for the cost that’s involved and what you can get out of them,” Averaimo says. Homebuyers should remain aware, though, that buying a warranty is not a replacement for having proper inspections and due diligence done prior to a purchase.

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What to Do When Your New Home Is a Lemon originally appeared on usnews.com



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