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Unethical practices that affect buyers:   1  ●  3  ●  4   ●  5   ●  6   ●   7  ●  8   ●  9  ●  10 
Unethical practices that affect sellers:   1  ●  2  ●  3   ●  5   ●  6   ●   7  ●  8   ●  9 
 

After your offer's accepted, you usually have a period of time in which to inspect the property and read all the disclosures, have the home appraised, and get a loan approved.  These contingency periods often allow you to walk away from the contract--or renegotiate it--if you discover unexpected problems after the offer is made. 

Most agents will help you renegotiate a contract if the inspections turn up serious problems.  But many agents are less helpful when dealing with smaller problems. 

Suppose, for example, that your home inspector discovers that the chimney is unsafe, and a contractor estimates that it will cost $5,000 to fix the problem.  If this problem wasn't disclosed to the buyer before the offer was made, she has the option of asking the seller either to fix the problem or credit her with $5,000.  Making this request reopens negotiations, though, and gives the sellers several options:  they can agree to the repair, they can reject it but allow the contract to continue, or they can cancel the contract.  Agents hate it when their contracts are cancelled, so some have devised ways to discourage buyers from rocking the boat.  Here are some of them:

Perpetuating the "as-is clause" myth

Many buyers--often at the urging of their agents--agree to buy properties "as-is."  There's nothing wrong with this--an "as-is" clause doesn't prevent you as a buyer from conducting your own inspections, and it even allows you to renegotiate or back out of a contract if you uncover a serious, undisclosed problem. 

Indeed, adding an as-is clause is often a cost-effective way to strengthen an offer, since the clause makes it more difficult for you to back out over problems that have already been disclosed.  It also limits your ability to sue over problems after escrow has closed.

But many agents tell their clients--and, I think, sincerely believe--that an "as-is clause" prevents them from asking for repairs or credits if they discover undisclosed problems.  This isn't true, but this myth conveniently serves to discourage buyers from putting contracts at risk by asking for credits or repairs.
 

Rigging the purchase contract so that it's harder to back out or renegotiate the price

Buyers' agents usually have lots of good advice about how to strengthen offers.  Adding an as-is clause, or beefing up the deposit, or signing off early on disclosures are all ways to make an offer more competitive without increasing the price.

But these giveaways aren't free.  Suppose, for example, that you sign a contract and, two weeks later, a similar property comes on the market for $50,000 below what you're offering.  Since deposits are usually forfeited if the buyer backs out at the last minute, a big deposit will make it harder for you to get out of your contract or renegotiate it. 

Many of the offers I see are, I think, too generous with deposits and other concessions.  If you're the only bidder for a property, for example, a large deposit is probably unnecessary. 

But while large deposits don't always help buyers, they do help buyers' agents in that they serve to lock buyers more firmly into contracts.  Here are other ways agents can rig contracts to lock in buyers:

• Agents can ask buyers to sign off on disclosures in order to strengthen their offers.  Some sellers require that buyers do this, but I question whether you as a buyer should do this voluntarily since it limits your ability to back out or renegotiate the price should a problem emerge.

• Agents sometimes don't cap the loan terms when specifying how the property will be financed.  This may prevent you from bailing if interest rates rise.

Recommending less vigilant home and pest inspectors

As a buyer, you want your home and pest inspectors to be as thorough as possible.  That way, you have a better chance of uncovering any potentially expensive problems.  If you find a serious, yet previously undisclosed problem, you can also use it to reopen negotiations in order to get a better deal.

Agents, though, hate finicky inspectors who spook clients and kill deals, so the ones they recommend might not be the best for you. 

How to protect yourself

• Monitor your agent's recommendations on inspectors.  Ask your agent to show you copies of actual reports from home and pest inspectors in your area and ask her to explain her recommendations.

• If possible, sign off on disclosures only after your offer's been accepted.  Unless the seller insists, or unless it's customary in your area, don't sign off on disclosures until after your offer's been accepted.  This will make it easier for you to escape a deal if a serious problem comes up.  You'll also be a much more attentive reader of the disclosures if you're in contract to buy the house.

• Limit the earnest money deposit.  If yours is the only offer on a property, limit the deposit to no more than 1% of the purchase price.  If the property is a short sale, keep the deposit below the limit in your state for awards in a small claims court--your seller could go into bankruptcy and tie up your deposit. If the seller insists on a larger deposit, consider offering an increased deposit that is to be paid into escrow only if

• Cap the loan terms in your offer.  Interest rates can go up dramatically between the time you make an offer and the time you apply for a loan.  If a rate hike makes the deal unaffordable for you, you want to be able to walk.