Low interest rates and even lower inventory has created a strong real estate sellers’ market. Sellers listing their properties for sale are receiving multiple offers ̶ and frequently over the asking price. Also, despite the risk to the buyers, real estate licensees are frequently writing non-contingent offers. Many sellers are refusing to incur any costs that previously they would have paid, and the cost of a home warranty is one of them. Two traps for real estate licensees:
- Sellers are using their leverage to counter the cost of the home warranty out of an offer.
- Or, buyer’s agents are writing the initial offer without providing for a home warranty.
Despite the bargaining power that sellers currently have, including a home warranty in a transaction still offers protection to both sellers and buyers – and to real estate licensees. When you purchase a home warranty for your buyer or seller, that value could greatly exceed the nominal cost of a home warranty. As an example, to make the offer more attractive, the buyers waived a home inspection, and the buyer’s agent did not suggest a home warranty plan. After moving in, the buyers had issues with the HVAC system and had over $14,000 in repairs.
- They successfully sued their agent, in part, for not advising them on a home warranty plan.
Most licensees and sellers don’t realize that a non-contingent offer creates a unique risk to the seller:
A buyer who purchases a property through a non-contingent purchase agreement, and discovers defects after close of escrow, could argue that he or she was told that the only way his or her offer would be considered was for it to be non-contingent.
The disgruntled buyer could further argue that the seller, listing agent, and buyer’s agent conspired with one another to force the buyer to submit a non-contingent offer ̶ because they knew the buyer would not pay as much for the property, if the buyer was able to do inspections which would have revealed the defects discovered after closing.
With a home warranty in place, the seller has some evidence that he or she provided some protection to the buyer. Also, if a buyer can have a problem (that was discovered after closing) remedied through the home warranty company, it may be enough to dissuade the buyer from filing a lawsuit.
In another recent E&O claim, a home inspector didn’t point out any concerns with the home’s 20+ year old HVAC system. When it failed weeks after closing, the buyers learned that they didn’t have a home warranty plan and their agent didn’t advise them to get one. Additionally, their agent didn’t advise to get a secondary inspection from a licensed HVAC technician due to the age of the unit. The buyers were successful in making a claim against their own agent for a new $8,000 HVAC system.
As the buyer’s agent, arranging for a home warranty provides some evidence that you as the real estate licensee took steps to fulfill your fiduciary duty to a non-contingent buyer.
A buyer’s agent who explains the risk of a non-contingent offer to a buyer in writing and makes sure that a home warranty is in place, even if the cost comes out of the buyer’s-side commission, can argue that even though the market dictated the making of a non-contingent offer, the buyer’s agent still did everything possible to provide the buyer some protection.
Be sure you have real estate errors and omissions insurance to protect your business.
About the Author
Mark Carlson Attorney
Carlson Law Group
Mr. Carlson formed Carlson Law Group, Inc. in January 2005. He currently represents scores of real estate professionals in a wide range of matters. Mr. Carlson also represents individuals in the purchase, sale and lease of residential, commercial and industrial properties. Additionally, he has assisted several clients in building permit, zoning and other land use matters. Mr. Carlson’s practice focuses mainly on litigated matters, and he has handled over a dozen jury trials to verdict as well as several court trials. His trial experience includes two trials that each lasted over five weeks. Throughout his career, Mr. Carlson has strived to provide superior legal services while at the same time containing costs for his clients.