Reading Between the (MLS) Lines

[Note to Readers: The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced. If you need legal advice, please consult an attorney.]

Test your knowledge of today’s housing market, and answer the following question:

How can Buyers’ agents (and their clients) tell that a listed home has a major defect?

A. The home’s MLS status repeatedly goes from “A” (“Active”) to “A,i” (“Active, Subject to Inspection”), then back to “A.”
B. The home’s final selling price was discounted $30k (or more!) from the price it went “Pending” at.
C. The Seller told prospective Buyers about it on their Disclosure.
D. All of the above.

Answer: “D”.

Here’s the explanation:

A: Once a home is under contract, MLS rules require that its status be changed to “Active, subject to inspection” (“A,i” for short). Otherwise, Buyers have a funny way of getting upset when they discover that a home they want to buy is already spoken for.

When the Buyer’s home inspection goes well, and the Buyer and Seller are able to resolve any issues, the Buyer removes their Inspection Contingency, and the home’s status is subsequently changed to “Pending.”

When the inspection doesn’t go well . . . the house comes back on the market, sans the “i.”

One cancelled deal could easily be attributed to a flaky or remorseful Buyer, especially if there were multiple offers.

Several fall-thru’s almost always implicate the home’s condition (note: a deal that cancels once a home is “Pending” instead suggests a problem with the Buyer’s financing).

B. As counter-intuitive as it may seem, when the Buyer’s inspection reveals a major defect, the homeowner does NOT need to dramatically lower their price ” or at all.

However, if the Buyer cancels as a result, the Seller must update their Disclosure or risk committing fraud.

The inevitable result: all future (and now-skeptical) Buyers will demand a similar if not greater discount.

Which is why Sellers have a strong incentive to take their lumps with Buyer #1.

They can either fix the problem(s) themselves, or ” if the Buyer’s lender will allow it ” drop the sales price enough to compensate the Buyer for tackling the repairs, post-closing.

C. Sellers who are aware of a material home defect have two reasons to be forthcoming:

One. They risk committing fraud if they aren’t (see above); and

Two. Buyers will demand an even bigger discount if they discover the problem during their inspection.

That is, assuming they don’t automatically walk . . .

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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