Inspections give no homeowner guarantees

Dear Bruce: My daughter bought a home six years ago and is now trying to sell it. There was a home inspection done before the purchase and it passed. Now she is finding out there are dozens of problems. Basement walls are bowing and walls are cracking. She put in some support beams and was sold a French drain, even though there was no water in the basement. I think she was taken. The house still hasn’t passed inspection and has lost three buyers. She wants to get a proper inspection before losing another buyer. This house was not built correctly in the first place. The other buyers hid the problems and the inspector didn’t see it. Someone should be held responsible for this mess. – C.W., Michigan

Dear C.W.: I certainly agree that it’s a mess, but where the responsibility lies is another matter. You can forget about going after the original builder or the city inspectors that approved it. Whether you can prove that the former owner deliberately disguised these defects is another matter. We also have to determine what the value of the problem is. If it’s substantial, it may be that the other party is worth going after, assuming that you can find them and they have assets. In the absence of either, we have a serious problem. Your daughter did the appropriate thing in having an inspection, but inspections are no absolute guarantee particularly when the problems turn up so many years later.

Dear Bruce: I am planning to spend between $200,000 and $250,000 on building my home using a general contractor. I planned to live in the house for two years to be eligible for the capital gains exemption and then cash out. I believe the house will sell for close to $350,000. I’m doing a lot of work myself and am doing a lot of trading work with other contractors. Is there some way I can do this without waiting the full two years? – J.T., via e-mail

Dear J.T.: There may well be. That’s a question for your accountant with your total tax picture in mind. The $250,000 exemption is limited to each individual involved in the sale of their primary residence. Walk very softly. A mistake could be very costly.

Dear Bruce: My wife and I are getting ready to close on our first home that we had built. Our Realtor told us that we do not need to hire an outside inspector to inspect the home, since it is newly constructed and the city inspector has to inspect it anyway. Should we still have an outside person do an inspection? Also, as this is our first house, we know nothing about house insurance. Are there certain things we should be looking for in a policy? How do we go about selecting an insurance company? – J.T., Fond du Lac, Wis.

Dear J.T.: What your real estate agent has told you, in my opinion, is a huge amount of bologna. It is true that the city will have to inspect the building. However, I wouldn’t want to bet my fortune that the city inspector knew precisely what he or she was doing. There is almost no likelihood that if an error was made you’d have redress against such an inspector. As you’re investing tens, if not hundreds of thousands of dollars, it would seem to me that a few hundred bucks on a home inspection would be well spent. As to insurance, make sure you have a decent agency. You’ll be looking for a homeowner’s policy and I would get the home insured for the replacement value, not actual cash value policy on the home and its contents. A used sofa isn’t worth much, but if it burns you will have to replace it with a new one. Replacement value would allow for that. One of the most important parts of the policy will be the liability portion. Once you own your home, it would be very advisable to have the company issue an umbrella policy extending your liability to at least $1 million or $2 million – more, if you can afford it. The extra cost is without question valuable and not greatly expensive. Good luck with the new chateau.

Dear Bruce: I read your column in which you wrote that a contractor should not need to charge 50 percent or so in advance of doing the work. You think such a contractor would be “under capitalized.” Sounds good, but, unfortunately, around here that’s the custom and it would be very difficult, if not impossible, to find a contractor that did not operate this way. – J.P., Urbana, Ill.

Dear J.P.: That column generated a ton of mail, primarily disagreeing with me. I’ve been accused of being un-American, anti-capitalistic, etc. However, despite all the criticism, my point of view has not changed. I don’t want someone working with my money. When I do work for others, I am capitalized well enough to put the money out. If there’s a question that the person contracting the work may default, then I have no problem placing a deposit with my attorney to be held in an escrow account. That way, the contractor cannot take a hike with my funds. In every business enterprise there’s always a chance of being hustled. I view my job in this column is to keep my readers from going down that bad street.

Bruce Williams is a national radio talk show host and syndicated columnist.

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