Six Ways to Protect Against Litigious Buyers : Disclose defects, provide an inspection, get an insurance policy to cover repairs.

Selling your home or other real estate is not easy. With prices so high, buyers have become very picky and demanding. They expect the property to be in perfect condition. But no home is without flaws, so sellers and their realty agents must know how to protect against buyers who are only too anxious to sue for damages.

For example, last year I sold a newly remodeled home. As far as I knew, everything was in tiptop condition. However, just last month I received a bill from the buyer who expects me to pay the cost of cleaning the sewer line, seven months after the sale was closed. To guard against being liable for frivolous claims like this, smart home sellers and their realty agents take these precautions:

Disclose, disclose, disclose. The best protection a home seller and his/her realty agent have against a litigious home buyer is to disclose in writing all known defects in the property. For example, recently I inspected a home for sale where the realty agent left written disclosure forms on the kitchen counter so all prospective buyers could take a copy to study.

California was the first state to require sellers and their realty agents to provide written home defect disclosures to buyers. In states without similar disclosure requirements, the best real estate agents ask their sellers to fill out voluntary disclosure forms to protect both home sellers and their agents.

Provide a one-year home warranty policy for the buyer. Most realty agents recommend their sellers provide a one-year home warranty policy, costing around $250, which pays for repairs to the plumbing, wiring, heating and built-in appliances. Such warranties prevent buyer complaints.

To illustrate, about a week after I moved into my current residence, the water heater began to leak. I’m sure the seller had no knowledge of this problem, but it was nice to phone the warranty company and have a new water heater installed the same day at a cost of only a $25 service fee. As a result, the seller and realtor never heard any complaint from me.

Have the home professionally inspected at the time of listing. The best realty agents recommend their home sellers obtain a professional inspection at the time the house is listed for sale. The cost is around $300 in most communities, sometimes less. Such a report is reassuring to prospective buyers who may have doubts about a home’s structural soundness. It also reveals any defects found by the inspector, so the buyer cannot later complain about nondisclosure.

Obtain a termite inspection report when listing the home for sale. Another technique the best professional realty agents use is to order a termite and structural pest control inspection report at the time the home is listed for sale. This prevents costly surprises for the seller later.

Most home buyers and mortgage lenders insist on such reports, so it is best to know the extent of any damage up front. The seller can elect to either have the damage repaired or to give the buyer credit for the repair cost.

Of course, the buyer can hire his/her own inspection company but if a report has already been obtained, the buyer will usually accept it.

Be sure the realty agent carries errors and omissions insurance. Despite all precautions, just in case something goes wrong and an unexpected defect later materializes, be sure the realty agent carries errors and omissions insurance from a reputable insurer. Beware of self-insured agents who may not have adequate reserves. A realty agent without “E and O insurance” is like an uninsured motorist--very dangerous.

Sell the home “as is.” Finally, after using all these techniques, if you are the seller and are not certain of the home’s physical condition or if you want to avoid any possible liability for a defective condition, such as an inadequate septic tank, sell the home “as is.” That means the seller and realty agent have disclosed known defects and make no warranties or representations and will not pay for any repairs. For further details, please consult a real estate attorney.