By Sam DeBord
Government entities often attempt to place additional restrictions or costs on the transaction or transfer of real estate. While there are often good intentions involved in the creation of these “point of sale” mandates, most proposals for new or increased transactional hurdles have serious negative consequences.
Point of sale mandates are a concern not only for real estate industry professionals, but also prospective and current home owners in a community. Barriers to the transfer of real property slow down the marketplace and often reduce home owners’ equity through transactional costs. Point of sale mandates can also create overall market depreciation by increasing failed transactions.
©cohdra, 2007. Morguefile
There is a wide range of point of sale restrictions on real estate transfers across the country. Some are minor in nature, while others are significant. Any restriction adding costs, inspections, or bureaucracy to a real estate transaction is a drag on the industry and on home owners, but the effects of some mandates are much more severe than others.
Some point of sale mandates are intended to improve the community. Sausalito, Calif., has a mandate that requires owners to inspect their sewer laterals (which connect to the street sewer lines) and repair them before selling the home. While a buyer can (and often should) have a sewer scope inspection independently, the city has created a broad mandate that is sometimes unnecessary for certain property types, ages, and situations.
Municipalities in some areas, including Seattle, require inspection of on-site sewage systems or septic tanks to ensure they meet state regulation standards for operation. This point of sale mandate, much like the sewer lateral mandate, is intended to protect the groundwater and the health of the local community, but it only applies to those home owners who are selling.
This often causes an uneven distribution of responsibility and cost. Consumers can already get their own septic inspection independently when they buy a home. The governing authority may truly believe that all sewer lines or septic systems need to be inspected regularly to promote healthy groundwater. If so, they should propose a policy for all residents’ systems to be inspected on a regular basis and let the community decide if they agree.
Full Home Inspections
Some of the most concerning mandates include some form of government-managed home inspection at the point of sale. These can create fines, repair requirements, and even loss of occupancy rights if they are not adhered to by the home owners.
In Marin County, Calif., home owners are subjected to resale inspections before they can close escrow on a sale. These inspections can call for remediation or charges for items which are not in line with current code or permitting. This often leads to current building standards being applied retroactively to work that was previously done without a permit but according to the building code as it was written at the time.
In Austin, Texas, an energy performance audit is required to be performed and delivered to the buyer before a closing. These pricey inspections must be paid for by the seller. They rate the home’s windows, insulation, ducting, HVAC equipment, and even appliances for energy efficiency and make suggestions to buyers for improvements. They can generate significant repair requests from buyers that can scuttle sales agreements.
In Berkeley, Calif., resale inspections are focused on energy improvements as well. Toilets, shower heads, faucets, water heaters, water lines, duct work, chimneys, insulation, and weather stripping are all required to meet city standards. The cost to the home owners can reach thousands of dollars in many cases.
Point Of Sale Mandates Taken To The Extreme
The Cleveland area has some of the most heavy-handed point of sale mandates that exist in the country. In at least 20 of the metro’s suburban cities, inspections must be done before selling, and in some cities even before the home owner enters into contract to sell their home. If the inspection finds code violations, they must be repaired by the home owners even if they decide not to sell.
The onerous nature of these inspections is exemplified by the city of Maple Heights’ mandate. When home owners receive their point of sale inspection report, if there are code violations, they are granted a 90-day temporary permit to occupy. The city has taken the authority to revoke the home owners’ occupancy rights if they don’t fix the violations within that time frame. Even if the sellers never received an offer from a buyer, they are required to make the repairs to the home at their own expense.
Home owners may have to fix basement floors, electrical wiring and outlets, lighting, hot water tanks, window screens, gutters, fences, or even a concrete slab with three or more cracks. There are more than 40 categories of potential violations which a city-approved inspector can call out for repairs. If sellers can’t finish the repairs before closing, they must put the money for the repairs into an escrow account managed by the city to ensure they will be done. The occupancy permit for the home is dependent upon it.
Sensible Policy For Point Of Sale
Home buyers certainly want their homes to be safe, but they need to be able to make their own decisions about asking sellers for repairs or doing repair work themselves. Some neighborhoods are full of homes built in the 1920s or earlier. These homes have many features that would be considered outdated to an inspector and inefficient by new energy standards, but are often perfectly acceptable to the buyers.
Forcing a person who has lived in a home for 50 years to upgrade all of its systems before selling to a buyer who would have been happy with its previous condition is inefficient and an overreach of authority. It creates a significant financial detriment to the participants in the transaction and to real estate values as a whole in that community.
Our focus through REALTOR® policy has been to continue to educate the public on important safety and energy concerns about their homes. We educate home buyers about energy efficiency options and costs. We implore our buyers to have home inspections and, where appropriate, specialized inspections for sewer lines, septic systems, etc. We’ve taken on the primary role in advising home buyers and sellers about the dangers of lead paint, mold, and other hazards.
We don’t need point of sale mandates from government agencies to make these ideas into costly blanket inspection requirements for all home owners. Buyers and sellers already have the opportunity to research relevant information about their homes, and make their own decisions as to what kinds of features are valuable and necessary to them.
Point of sale mandates, at their very core, are not an effective way to make policy. They put an inordinate weight on the small part of a community that happens to be selling a home that year, while others who stay in their homes for decades don’t share in the cost. We need to continue to educate our clients, as well as our politicians, that empowering home buyers and sellers to learn more about the safety and efficiency of their homes is a far better way to promote those values than adding roadblocks to the sale of their homes.
Sam DeBord is a director for Washington REALTORS® and Seattle King County REALTORS®, and managing broker with Coldwell Banker Danforth. Connect with his team, Seattle Homes Group, at SeattleHome.com and SeattleCondo.com.