I don’t have to disclose these past reports, do I?

“inspection-report"We all know what most sellers would like to do with past inspection reports they end up with about their own property – dig a nice hole in the ground, bury them and pretend they don’t exist.

While it seems like a good idea to some, the problem is you can never “unsee” what your eyes have already witnessed. So, a seller can bury them, burn them, shred them or pay Russia to ship them to the International Space Station, but the bottom line is you have them and you have certain duties moving forward.  Sellers most typically end up with inspection reports when a transaction with a prior buyer fails to close, either as a direct result of the inspections or some other financial reason, but in either event, the seller is left holding the bag – filled with inspection reports they would rather not have.

What am I contractually obligated to do?

Section 14 of the Seller’s Disclosure specifically asks “has the property been inspected in the past twelve (12) months?” If you answer yes, copies of the inspection report(s) are to be made available upon request. I believe the better practice is to just make the past inspection reports part of the Seller’s Disclosure and packet of information that is available to all buyers.  In addition, we have Form 217 (Previous Inspection Reports Notice and Disclaimer).  This provides a way of documenting the buyer’s actual receipt of the past forms which can be critical if the buyer would later claim after closing that certain information was not disclosed to them.  In other words, buyer amnesia prevention.

Also, the information contained in the past inspection report may necessitate the seller to update their Seller’s Disclosure. The Sales Contract and Seller’s Disclosure notify the seller that they are to update any of the written materials if they become aware of information and facts that impact the Property.  This raises a frequent question from sellers – what if I simply update the Seller’s Disclosure with the information from the inspection report but flush the actual report down the toilet?  Sounds tempting … but let’s save sewer pipes across the city and resist that temptation.  There is a tendency to put things into the seller’s own words and all of sudden “water intrusion” from the inspection report becomes “water seepage” in the update the seller drafts into the Seller’s Disclosure.  The best practice is both update the Seller’s Disclosure and provide a copy of the Inspection report.

Sounds great, but the Seller doesn’t agree with the inspection report.

This is another common issue.  The inspection report is received, the transaction collapses and the seller vehemently disagrees with the conclusions and assertions made by the inspector.  Here is the good thing – there is no law, statute, rule or even city ordinance which requires the seller to hand over the inspection report with duct tape over their mouth.

A seller is absolutely free to attach a cover page, a letter or get out the red pen and put comments directly on the past inspection report stating why they disagree with conclusions by the prior inspector.  Then, it is up to the buyer and their own chosen inspector to inspect the property and reach their own conclusions.  However, if a seller wants to discard the inspection report because they disagree with it, think how a future judge or jury would view those actions … guilty as charged in deliberately hiding material information and facts from the buyer.  It is a much better practice to disclose and comment as much as the seller feels necessary to get their point across.  Which leads to the next issue in providing past inspection reports.

Jackpot! My buyer just got a copy of a past report, now they can save the $400 and won’t have to get their own inspection done.

Wrong! But as a buyer’s agent here is how you are still helping the buyer. “Mrs. and Mr. Buyer, yes you have this past report and now, you are going to get 2 for the price of 1.  That’s right, 2 for the price of 1, what a deal.  You are still going to hire your own professional, have the inspection done and now you’ll have two reports to compare to analyze the property.”  There are several reasons for this.  One, the language of the contract may not permit the buyer to use the past report to cancel or renegotiate and the buyer may have to obtain the seller’s consent to use the past report in this fashion. If Form 217 (mentioned above) is used, the past inspection report is for informational purposes only.  Second, if the buyers do not select and engage the inspector themselves, they would later have no claim against the past inspector if there is faulty information in the report because they had no contractual relationship with the inspector.  Bottom line – buyers need to hire their own inspector and use the past report provided by the seller as simply bonus information about the property.

I have seen too many cases where the buyers discover past inspection reports and information was withheld or not disclosed by a seller and it really is nearly an impossible negative inference for a seller to overcome – and a listing agent if they were around as well when the past report was obtained.  How do the buyer’s find out about the past report – because there is always someone around digging up the holes the seller thought they filled.

Written by Chris Kelly
Chief Administrative & Legal Officer
ReeceNichols Real Estate, Corporate