I show a lot of houses, and over the decades I can’t even count how many homes I’ve shown my buyer clients. That means I interact with a lot of listing brokers, because I’m scheduling showings, discussing features, getting questions answered, emailing and texting with them, and working with those brokers when I submit offers on their listings.
Recently, I almost submitted an offer on a listing for one of my buyers from California. This true story should help you as a buyer understand how important it is to do some basic due diligence before you even make an offer. And this true story is also a lesson for sellers who have no idea how their own listing agent is making a mess of things.
To keep things diplomatic, I won’t mention where this home is located or who the listing broker is, and I’ll vary the information slightly so no one can try to trace this listing in the MLS. Those details are not important in this story. What is important is the critical nature of a buyer doing their due diligence, and secondly how a real estate broker’s behavior can negatively impact buyers and sellers.
The home is a nice two story close to a beach, and probably doesn’t sit more than 10 feet above sea level. There are a number of homes along the beach, and in the rainy season there is quite a bit of water that drains down the steep hillside into the bay.
When the sun is out and you’re enjoying yourself with your buyer’s broker out looking at homes, when you’re standing in front of the home, you feel like you’re experiencing a slice of Heaven. Does it get any better than this? You can imagine retiring here and this home seems like the ideal forever home for you and your spouse.
Listing Brokers still believe in “Caveat Emptor,” which you probably know is latin for “Buyer Beware.” Of course, they would never admit this, but I’m telling you as a buyer’s agent for many years, there’s no question the rule for the listing brokers is buyer beware. Not all, but the vast majority will NOT reveal critical negative information about a listing to the buyer or to the buyer’s broker. You say, “How do you know that Chuck? Can you prove it?,” and my answer would be, “How much time do you have for true stories?” If you think I harp on the critical nature of a buyer finding and retaining an educated, competent, loyal, and professional buyer’s agent, this is why.
My buyer and I enjoyed looking at this gorgeous home, and it was practically love at first site, not only for the home, but for the neighborhood and the path to the beach. The sun was out, and it was about 75 degrees. If there ever was a home and location that tempted a buyer to quickly submit an offer, this was it.
Alas, I’ve been doing this too long to send my clients running down a path to the precipice of the Grand Canyon without thinking it through and doing some fundamental due diligence. More detailed due diligence comes with the contingencies that we include with a written offer, but a few preliminary questions to the listing agent and some Internet digging is essential. The last thing I want to do, and I’ve never done it in 40 years, is send my clients to their death, or to phrase that more strategically, to a future in which they are doomed to inevitably experience a nightmare scenario at some point.
As my client and I stood there looking at the Bay barely 300 feet away at high tide and perhaps only 10 feet above sea level, and as we noticed what is apparently a drainage creek running down the steep slope behind the home to the Bay, we looked at each other and said, “Hmm. Does this property ever flood, or is it at risk for flooding from storms, or could the water come over the top of that low dyke on the beach at high tide in a storm, or is there a legitimate tsunami threat right here on the beach?”
Ask The Right Questions!
“The answers you get are only as good as the questions you ask. The greatest danger is not the questions you ask, but the questions you don’t ask.” Chuck Marunde, J.D. (1995)
As we were about to leave after spending about an hour on site, a couple walking past the house stopped to chat with my buyer for a few minutes. They enjoyed a friendly conversation, and the neighbor told my buyer that he was a retired engineer who designed a water drainage system with pumps that he operated, because about 5 years earlier the street flooded where we were standing. He said the street no longer flooded because of the drainage system in place. We had no reason to question the man’s integrity. He was very pleasant and quite knowledgeable on this matter. He said something that only an engineer would say, “When I see a problem, I ask, ‘How can we engineer around this problem,'” or words to that effect. It was obvious from what he shared that if the pumps weren’t operating when it was pouring rain, the street would flood again and again.
My client and I debriefed and he asked me to contact the listing agent to find out more about the history of flooding, and also to find out how much the seller’s flood insurance premium is.
Meanwhile, I reviewed the Form 17 Seller Disclosure Statement, which acknowledged that a few years back the garage had flooded, and the reason given was that a drainage screen was plugged up. Where did the water come from? Apparently from above the house during hard rain when a lot of water is draining down the hill and around or across this property.
When I heard back from the listing broker, she had a terse response, “The sellers do not have flood insurance. The house has never flooded nor has the water from the inlet ever come close to the house.” That was it. No explanation, no information about why they didn’t have flood insurance in a high risk zone like this, and no reassurance with any historical information or other documentation. Actually, here’s how our texting went:
Listing Broker: “The sellers do not have flood insurance. The house has never flooded nor has the water from the inlet ever come close to house. I suppose the buyers can ask their insurer.”
Me: “Thnx. My buyers are uncomfortable with the lack of information in what is obviously an area that can and does flood. The engineer neighbor told us the streets flood, and he operates the pumps. The sellers admitted in the form 17 the garage flooded. The house is barely above sea level, and they had to build a big dyke on the beach side to keep water out, and let’s not forget about the threat of tsunamis. Maybe the sellers don’t have flood insurance because it’s very expensive. This lack of information will scare away discerning intelligent buyers, like mine. I do wish you all the best. God bless.”
Listing Broker: “Well you’re information is incorrect. The ‘engineer’ neighbor is new. And the disclosure was about the rainfall that fell in June of this year that made headlines. We got over an inch in a half hour. It was in the driveway not the street and not in the house. But if they have concerns about sea level of course don’t buy the house but do NoT tell me that my clients or myself are not staying the truth. And of course best to you.”
Me: “I didn’t say anything about you not telling the truth.”
[My untexted thought was good grief! What happened to courteous, transparent, and professional?]
Having been an attorney for 20 years, I recognized the technical nature of her response that “The house has never flooded nor has the water from the inlet ever come close to the house.” Neither my buyer nor I ever suggested or even thought that the house had actually flooded inside, nor did we suggest that the water from the inlet had ever come up to the front porch. Those were not our questions. In my legal career I learned to discern when someone is playing coy and not directly answering a question so as not to get caught. It’s subtle, but they often change the subject slightly while making it appear they are addressing your concerns. Exaggeration and deception are just other ways to lie.
How a person answers a question can also be self-incriminating, too.
Not to make light of this scenario, but I imagined a police detective asking a simple question to a person on a street corner in Los Angeles, “How long have you been on this corner,” and the individual responds with something like, “I have no idea who stole the $327.42 at the Circle K on the next block an hour ago.”
My buyer had told me they wanted to make an offer once we were able to dismiss any big concerns about the risks of flooding, but after the listing broker’s lackadaisical dismissal of our concerns, both my buyer and I felt she was essentially saying, “Walk on by folks, there’s nothing to see here.” The problem with her approach is that my buyers are not stupid or naive. They cannot be lulled into making an offer like a mouse nibbling at the peanut butter on the trigger of a trap. Buyers are smart these days, and they know how to do their research.
What Did My Buyer Say?
“We’re not comfortable with the lack of information regarding the risk of flooding, so we’re backing off on making an offer on this one.”
Is there any question the listing broker botched this one terribly? I think not. The sad thing is her seller client has no idea how she made a mess of this, and is this how she treats all potential buyers?
Now let me share how I would handle this kind of listed property if I were the listing broker. There’s room for different approaches here, but I think honesty and full disclosure should govern professional behavior on this matter.
Knowing that flooding from both directions above and below this home would be a serious concern for any discerning and intelligent buyer, I would put together information I could give prospective buyers that would honestly and thoroughly respond to their concerns. That information might turn out to be a little package of reports from agencies or even from neighbors who had their own studies done when they purchased their homes, and maybe some insurance information that the HOA or one of the neighbors had, or that the listing broker (or the seller) got directly from a local insurance agent. I would put together all the information I could find and include a cover letter which did not hide the ball, but openly shared the risks evidenced by documentation and by the experience in the neighborhood. Let’s face it, honesty is always the best approach. It certainly is for anyone who wants to avoid a lawsuit someday. There’s a reason attorneys are so busy.
The last issue I want to emphasize here is that a buyer has the responsibility to protect themselves. That means first and foremost, doing serious research to find a buyer’s agent who actually has the knowledge and experience to give you the guidance you need as well as watch your backside. I realize I’m tooting my own horn here, but seriously, do you want to hire G.I. Jane to represent you in purchasing a home with your hard earned money that took a lifetime to save?
Who’s Job Is It To Hold Realtors Accountable?
The job of keeping real estate brokers honest and professional is not found within the industry. The entire industry, including the laws and regulations, the processes available for filing complaints, and even the judicial system are all bent in favor of brokers and against consumers. Even the industry’s local and national associations have become massive lobby systems for members that protect the brokers more than their victims. The politicians protect brokers, too. In Washington State, as in many states, we have this in the state law:
“Any real estate licensee involved in a real property transaction is not liable for any error, inaccuracy, or omission in the real property transfer disclosure statement if the licensee had no actual knowledge of the error, inaccuracy, or omission. Unless the licensee has actual knowledge of an error, inaccuracy, or omission in a real property transfer disclosure statement, the licensee shall not be liable for such error, inaccuracy, or omission if the disclosure was based on information provided by public agencies, or by other persons providing information within the scope of their professional license or expertise, including, but not limited to, a report or opinion delivered by a land surveyor, title company, title insurance company, structural inspector, pest inspector, licensed engineer, or contractor.” [RCW 64.06.050]
Translation: The language sounds good, but good luck trying to prove a broker knew in his head what he did not reveal that he was obligated to under this law. This law was written under the powerful lobby and influence of the real estate industry’s lawyers. I have a lot of trial experience, and I can tell you you’ll never prove mental knowledge or intent in someone else’s head in a trial. As long as sellers keep hiring incompetent or dishonest listing brokers, and as long as buyers keep hiring incompetent or dishonest buyer’s brokers, the profession will continue as it always has, and in the long run it is consumers (buyers and sellers) who will pay the price.
And with respect to listing brokers, sellers too have a responsibility to retain the kind of listing broker who doesn’t shoot from the hip and who will do a great job, not just a mediocre job, providing buyers and their agents with all the information they will need to make educated decisions. If you’re a buyer shopping for a home, or if you’re a homeowner wanting to list and sell your home, remember the rule:
“The answers you get are only as good as the questions you ask. The greatest danger is not the questions you ask, but the questions you don’t ask.”
Last Updated on August 18, 2022 by Chuck Marunde