Some observers suggest that real estate is one of the most highly regulated industries in the country. In addition to agency, contract and other laws and regulations specific to the business, many public policies regulate the real estate industry in some fashion.
When you consider state licensing laws, federal and state antitrust laws, consumer laws, the Real Estate Settlement Procedures Act (RESPA), the Foreign Investment in Real Property Tax Act (FIRPTA), federal, state and local fair housing laws, the Americans with Disabilities Act, data security laws, anti-solicitation laws, and the Truth-in-Lending Act, the number is considerable.
In our metropolitan market there are 3 jurisdictions – Washington, DC, Virginia and Maryland – and they all have somewhat different laws and requirements.
In all three jurisdictions, as a result of all these laws and regulations, real estate professionals are required to provide certain disclosures to their clients. The purpose of this post is to give you an initial idea of what some of these laws, regulations and disclosures are about. Please read them for your information. If they seem complicated do not worry about it because I will explain everything in detail when we meet.
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Property Condition Disclosure
Sellers must typically provide prospective buyers with a property condition disclosure form or a disclaimer form. The disclosure form carries some post-sale risks for the seller, therefore most sellers decide to provide a disclaimer form.
The disclaimer form informs prospective buyers that the seller is not a home inspector or other expert, and that buyers should take whatever steps necessary to perform their own due diligence. The disclaimer form in no way protects the seller from hiding latent defects or misrepresenting other serious problems with the property.
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Home and Condominium Owners Associations
If a property is part of a Home Owners Association or a Condominium Association prospective buyers must receive certain documents with information about the rules, regulations and financial state of the association. Buyers have 3 days to review the documents, during which period they may void the contract.
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Home Inspection
Buyers have the right to hire a home inspector to inspect the home they are interested in purchasing. I strongly recommend that you always perform a home inspection.
At the same time there are a few things to keep in mind: Home inspectors can often have different opinions on the same home issue and while I have seen some inspectors miss problems, I have seen other inspectors report every minor detail.
When selecting a home inspector it is important that you select one who is a member of the American Society of Home Inspectors (ASHI) or another professional organization. I can provide you with a list of dozens of inspectors for you to select from, or I can recommend inspectors that past clients have used.
The inspectors I typically recommend, do a very thorough job, point out and explain any problems that they find and also provide good home maintenance tips to the buyers.
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Lead-Based Paint
The Federal Government has designated any home built in or before 1978 as “target housing” for potential presence of lead-based paint. Lead-based paint is a potential health hazard, particularly for young children.
Although the use of lead-based paint had stopped a few years before 1978 the government officially banned it that year.
Agents must provide buyers with an EPA (Environmental Protection Agency) pamphlet describing the hazards of lead-based paint. Furthermore, buyers have the right to make their home offer contingent on a lead-based paint inspection.
In the event that a seller accepts a lead-based paint inspection and the home fails the test, if the buyer does not proceed with the purchase, the seller must disclose the test failure to all potential future buyers.
View the required EPA pamphlet on Lead-Based Paint (PDF file).
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Agency & Client Representation
According to local laws a real estate agent must disclose to the buyer and the seller at the earliest practicable time who they represent. The law allows a real estate agent to represent both the buyer and seller in a transaction. I perceive this to be a conflict of interest. I believe that all buyers should be represented by their agent, and that is why I only work as a buyer’s agent.
In a buyer agent relationship, even though the agent represents the buyer, the agent is compensated by the seller’s agent. As a result, buyers receive committed representation without any cost to them.
Unfortunately, I have seen people not take advantage of working with a buyer’s agent and as a result lose money, usually by overpaying. Learn more about buyer agency.
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Discrimination
It is illegal for real estate agents to discriminate based on a person’s race, color, religion, gender, national origin, elderliness, familial/marital status, disability, age, orientation, personal appearance, matriculation, political affiliation, place of residence or business, source of income and ancestry.
When we work together, please respect the fact that it could be illegal for me to comment on, or discuss, any subjects that involve any of the above mentioned protected classes.
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Affiliated Business Arrangements
The law requires that a real estate company that has a business relationship with a mortgage lender, settlement company or other service provider, disclose that relationship to the client. To avoid any conflict of interest, I typically do not refer clients to any companies that are affiliated with my company unless it is to my clients’ best interest.
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Financing & Settlement Services
The law makes clear that buyers have the right to select their own lender, settlement company or other provider. Usually my clients will ask me to recommend a lender or settlement company. I typically recommend a few companies that have performed well for past clients. It is illegal for me to receive compensation (in any form) from these service providers. The only reason I recommend them is because they are competitive and past clients have been happy with their services.
But wait! There is more!
These are just a few of the things that affect the real estate industry and your home purchase. You don’t need to worry about any of that but you should be informed and aware of their existence. When preparing a contract, you will receive copies of everything you sign, and we will discuss everything in more detail. In the meantime, if you have any questions, please feel free to contact me.
