A few weeks ago I posted a blog about whether it's a good idea or not to "disclose" an obvious material 
defect in your public advertising of a home, or let buyers discover it on their own when they visit the house. My opinion is that it's usually best to be upfront about such things so that you are marketing to the "right" buyer, not just using a shotgun approach hoping that "right" buyer stumbles along.
Well, there's more to the story; thought I'd share.
After the blog got featured, a member wrote to me privately telling me that she was currently in that situation with a new listing. The home is cute, in a great location, great square footage and tremendous potential. BUT (sigh - always a "but"), it has a material defect that will likely scare the pants off the majority of retail buyers. The defect is fixable, but at significant cost.
My reader had debated whether or not to disclose the defect in the public comments of her MLS listing. She (and her seller) had already priced the home properly (significantly below the non-defective comps), and she knew the price would be attractive to the market.
But... to mention the defect? Or not...?
After talking with her managing broker, my reader decided to be silent on the defect in the public marketing (with a brief mention of it in the broker comments), with the goal of generating as much activity as possible from a wide spectrum of buyers. Her seller agreed with this approach and away they went.
Well, the strategy worked, sort of. They had a bunch of showings the first week - woo hoo!
But...no offers and universally negative feedback. "My buyers loved the house until they got to the basement...then... yikes!"
At the end of seven days, her sellers asked her to change the marketing to more accurately reflect the reality of the situation. They admitted they were tired of all the showings, knowing that most of the buyers wouldn't consider the home at any price, and the negative feedback was wearing them out emotionally. (The agent admitted to similar feelings - that she was starting to dread notices of showings and subsequent agent feedback).
So, the agent changed the marketing as requested and immediately was rewarded with two showings, presumably by buyers who were willing to consider dealing with the defect. The agent told me that her enthusiasm level improved dramatically once she felt she was advertising the home more accurately, and felt she'd learned a valuable lesson in marketing - "UNDERpromise and OVERdeliver!"
Which raises the question - while OVERpromising in marketing might get more buyers/customers in the door, if they don't buy because they felt misled, was the marketing effective? (I vote NO).
But was the agent wrong in trying it "her" way at first? Did she dis-serve her sellers with her initial "more-inclusive" marketing?
I don't think so, but I'd love your thoughts on the matter! I'll share mine if you'll share yours.
EPILOGUE: Two weeks and six more showings later, the house went under contract and is scheduled to close this week.
I really like your explanation of what happened under both circumstances and I am really pleased that you were willing to share with us. Thank you for a great and thoughtful post. Suggested. :-)
I believe 'target marketing' gets you more qualified buyers and sellers than throwing it out to the masses. By disclosing what is you are in affect 'target marketing'. :0)
I don't think she was wrong to try it her way first, otherwise how are to learn if not by doing.
Jennifer...
We often call a post "thought provoking" but this one truly falls into that category. Why NOT put all of your cards on the table? In many cases, when the buyer sees the noted defect their thought could very well be:
"It's not as bad as I expected!"
Richard - EXACTLY. When I had listings that had "issues" I found that if I disclosed them upfront, buyers almost always found them less offensive than I'd described. People just like to be contrary!!!
Tonya - I agree. By "going for it" at first, she proved to herself and more importantly, to her sellers, that disclosure is best - but they wouldn't have known that without trying it the other way first.
Martha - Yep - it doesn't do much good to attract the wrong buyer if that also means you AREN'T attracting the right one.
Ellie - you're welcome and thank you!
Great post, and I can definitely see both sides. I'm sure that agent and her seller will be so happy when that one finally closes!
Sounds like a valuable lesson was learned by the sellers and the agent. I agree, Underpromise and Overdeliver!
It's great that the agent and the homeowner tried it one way. Then quickly adjusted to another way. It's all about flow.
Jennifer - As an MLO here in Los Angeles & Ventura counties, who works almost exclusively with buyers (my refi market is pretty limited these days), our market is absolutely saturated with sub-par properties. Buyers and their Realtors/agents who get lured to these properties by less than accurate MLS listings and pictures don't take to kindly to be duped when they show up and discover the true condition of the property.
While I understand that making a good impression with buyers and their Realtors/agents is not the listing agents primary fiduciary duty and responsibility, they may want to reconsider their strategy by being more honest and accurate with their MLS listing descriptions if they don't want their sellers property to be labeled just another pig with lipstick on it. Because I assure you, Realtors/agents do talk and that does happen - COE or not.
Jennifer,
I am in agreement with you. I do not like to waste my clients' time whethere seller or buyer. I prefer knowing what I am walking (or not walking) into when dealing with clients.
I'm in somewhat of the same dilemma. After your last post Jennifer... I decided to re-write my marketing on one of my listing. My Seller is happy and I expect this one to find "that" buyer that will LOVE the house!! :O) (just in case you're curious- it's a STEEP driveway - almost like an amusement park roller coaster steep!!) the house is beauitful, had a ton of lookers - some would arrive and not even attempt the driveway!! Here it goes' ... "Searching for the Thrill seekers, the driveway is steep- but the price isn't"! Thanks for always bringing to mind those things that we Realtors are dealing with!! :O) You always hit it on the button!
What I'd like to know is if it was "mentioned briefly" in the agent remarks, why weren't the buyers' agents telling the buyers about it upfront and/or calling the listing agent to get more information?
You have to disclose material defects that are not readily visible to buyers, but not necessarily in advertising. How in the world can you compress a complete inspection report into an ad. It would look like the ads for medications in magazines with a page full of nothing but disclaimers and side effects. Of course, make a sellers disclosure readily accessible to agents and buyers, attaching it to the MLS listing if you can as we can here in mid-Florida.
An ad is not a disclosure. It is an enticement to get buyers to come and see a property in person, warts and all. As long as there is no attempt to keep buyers from knowing about defects early on in the scenario, I see no problem.
As John above mentioned, why was the buyers agent not mentioning the issue with his buyers? The idea is that he/she can put it in calm but factual terms that could still interest buyers in the home. Certainly better than people seeing "cold text" in an ad or comments that they could misinterpret and imagine the worst.
Glad to hear you are closing soon
Love this post! It's so very informative and helps others understand that realistic marketing is the key to sales success!
It really depends what the defect is. If the house was built in 1953, you can expect a 1953 type house, that's a disclosure in itself. If the retaining wall is collapsing around the house, that is probably a good thing to mention in the MLS' agent section. And maybe how much it would take to fix! Then it might not be so scary for a potential buyer who is getting a good deal.
I just don't know what I would have done in this situation....other then ask my broker what to do. That is always the smart thing to do! Glad they go the house under contract so soon.
It certainly makes sense, logically speaking, to disclose the information upfront. The concern would be the banks. By having this on the listing it could effect financing or so we've been told. Instead of disclosing this information on the listing, how about asking the buyer agents to call the listing agent before showing.
hi Jenifer,
the truth always works better for everybody, it is the only way to go, many will try the wrong way and it never pays off....
Jennifer:
In California both sellers and agents have to disclose everything they see or know about the property, SPQ & AVID. If your friend had made disclosure document available by a link in the MLS then agents would know about the problem before they showed the proeprty. It is always best to disclose up front about a any problem. The buyer shouldn't have to discover a problem that agent and sellers know exists.
Well, it sure looks like disclosing is the way to go. At least in this circumstance, and most likely in most cases.
Disclose, disclose, disclose....lets be honest from the start..in Ma. it is the law.
First, I think you need to follow what is the law in your state, but then it falls into the tricky situation that you need people to come and see the house for themselves and if they can see all of the positives of the home before they see the glaring weakness. Then they can decide if the pros outweigh the big con.
It depends. Some material defects don't affect the marketability of the house and can simply be noted by a little card in the house, e.g. "chimney flue needs new liner and price reflects this repair". I would be careful about what you point out in marketing materials: what of the house gets a contract gets inspected, and then falls apart after five material defects are noted? Do you put all five defects in the remarks section or in the public description.
Best to think about this on a house by house basis.
Jennifer, the agent was wrong. All adverse material facts have to be disclosed to all potential buyers. She put her license in jeopardy. When in doubt - disclose.
Thanks for all the comments!
Michael - just to clarify, the agent didn't try to hide anything and the defect was clearly disclosed in the property disclosures. The question was whether or not to mention it in the public advertising. There was definitely no intent here to mislead anyone.
Leslie - I'm thinking that if there are five material defects (other than regular wear and tear), the property should be clearly marketed as "needing work" however you want to put that. This particular situatiion there was only one glaring problem; the rest of the house would appeal to your regular retail buyer.
Maureen - good point about the lender - in fact, the agent updated me yesterday that they did struggle a bit with the loan, due to the defect.
John and Kasey - That's the approach the agent took at first - to disclose it in the agent remarks and make the detailed disclosures available, assuming the agents would screen the property for their buyers. And maybe some did, but apparently, many did not.
Kelly - PERFECT! I used a similar strategy once with a house that was near a highway... let me know how that turns out!
Donne - Yep. While it's not the listing agent's job to make the buyer's agent look good, I can't see any benefit in making him or her look BAD! That was one of my main objections to putting the comments only in the broker's remarks - if the agent misses it, he's not going to be happy about that and who does that benefit?
Interesting post and comments. When I'm representing buyers, I really appreciate accurate descriptions of homes so we don't waste anyone's time. If the buyers are short on cash and don't want to make any repairs themselves, I don't want to show them a house with an expensive problem. It helps if descriptions give you some warning that doesn't have to be explicit. If a vague statement alerts me to a problem, I call the agent before showing.
We have to disclose any material defects. Does it have to be in the marketing? No, but I do think it is on a case by case basis. I have one listing where I put in the agent notes for agents to contact me for a list of needed repairs. Once I give them the list, some will say, "no thanks," others say "let me check w/ my client" a few say it doesn't matter.
Hi Jennifer - Like Micheal #27 responded, at least in AZ, any disclosure of facts known by the listing agent that may affect the decision of a buyer 'must' be disclosed, this is not an option. That being said, how this is conveyed is another matter. I agree with you, disclosing it wisely in the right manner, it may attract more effectively the right buyer to a successful conclusion.
I think it's always best to disclose everything, whether it's required or not. Some buyers don't want to buy a construction project or have time to deal with a 203K. If they need to get moved, get to work, and get their kids enrolled in school for example, they probably won't have time for a fixer upper and having to find contractors, get estimates, etc.
I agree with Dennis, "Disclose, disclose, disclose....lets be honest from the start..in Ma. it is the law."
If you know of any defects in the property and do not openly disclose it you should have to assume the liability of your actions or lack off. That is very dishonest biz if you ask me and gives your industry as a whole a bad rep for being dishonest.
If it's a material defect, it must be disclosed. We upload the property disclosures to MLS so everyone can see the detailed comments. We also have an agent to agent section where facts impacting the sale may be entered. I think in the long run, as you have mentioned, if buyers are mislead, the seller may get tons of showings that may go nowhere, much to the frustration of both parties.
If it's a known material defect, it should be disclosed. Having the foot traffic through a home is one thing, but when they leave and are perturbed it's not going to get the seller anything like an offer. I had one listing agent who knew the siding was bad. They continue to market it with "wood" siding, and it's pre-fab, and failing.
Well it worked out in the end for the seller. To me it's a toss up. I've never been faced with this situation before. As commented above it's a material defect and here it has to be disclosed as well.
I have never listed a property with a defect that would turn away a potential buyer but I think if I did, I would prefer to be upfront in the listing. Otherwise, it can be a waste of time for everyone involved from the buyer and seller to the agents.
It just shows that honesty is the best policy!
I hope you are having a great week!
Hi Jennifer, From a strictly sales oriented approach I always feel it is better to disclose up front ( better yet to fix it ! ) than to end up defending or explaining why the buyer should fix something ! Disclosing also enhances the agents status as being honest.
Underpromise and overdeliver...usually works the best in almost every situation. I'm glad it worked out in this case! Great story.
Great story. I'd say it all depends on what you are calling a "defect" can it be fixed? Have they attempted to fix it and it's still a problem? It sounds like a nasty basement from the way you wrote it. And again, that all depends. Is it a waterproofing problem? Mold? I'd say anything like that and you must disclose, it's the law. If it's just a less than desirable feature, then still make it clear there's some work to be done and it's priced accordingly.
I love this discussion. I just took over a listing that another agent had for a year with no offers. I put in the marketing comments that the home, if you wanted to know the truth, was kind of a dump, but with a little TLC, it could truly shine. You know what kind of agent writes something like that and gets the seller to go along with it? An agent who is going to sell that house.