Home Inspections: I Won't Ask & You Won't Tell

Listing agents that take this position for their seller clients can create devastating results for a homebuyer and create potential legal issues for both the seller and the listing agent down the road.  Leveraging this seller's market to turn a blind eye to information that could harm either or both parties in a real estate transaction is additionally inconsistent with our code of ethics as Realtors® to treat our clients, customers, the general public and other Realtors® honestly and fairly.

A direct quote from a current real estate listing, in the agent remarks:“…the inspection results are NOT to be shared in any way with the Seller and Listing agent.  Material information may be found as a result of the inspection which, if disclosed, could harm the Seller.  If Buyer or Buyer’s agents uses said inspection to disclose material information they are subject to any and all damages the Seller incurs as a result.”

We’ve been in a seller's market for some time now where sellers and their agents have had the upper hand in the sale of their home.  With limited inventory and a long queue of buyers for every house, some sellers and their listing agents are opting to remain uninformed about the condition of the home being sold.  Some are going so far as to state in the property disclosure coversheets or in the MLS agent remarks, that if the buyer or buyer’s agent learns of negative material information about the property and reveals that information to the listing agent, the seller will hold the buyer and their agent financially responsible for any impact that has on the seller.

Let’s break this down.  Sellers are required to complete a document called a Residential Property Disclosure and Disclaimer form to provide to a buyer.  [Sellers can choose to sign the disclaimer portion stating that they know nothing about their home, but still must disclose latent defects]. The buyer reviews and signs this document, acknowledging the information contained within as part of the sales contract.  With the exception of rental properties, estate sales, etc. where the selling party may not have knowledge of the condition of the property and will sign a disclaimer stating that they know nothing about a property, the seller is required to disclose what they know.  They must disclose any known issues pertaining to the property that could indicate a problem or defect in the property.  For example, issues as small as a dead outlet would need to be indicated in the property disclosures under the section pertaining to the electrical components of the home.  The disclosure form pointedly asks the seller about the condition of systems, structure and environmental hazards that the seller knows about.  The seller completes this document and signs the document stating that it is truthful.  The listing agent is held to an even higher standard.  The listing agent must reveal not only what the agent knows but what the agent reasonably should have known.

Though we are in a competitive market, typically buyers are still performing a home inspection to determine the condition of the home before moving forward.  The home inspection comes in two flavors--specific and general-- and both reserve the right to terminate the contract during the home inspection contingency timeframe should the buyer decide to not move forward in the purchase. A specific inspection allows the buyer to negotiate repairs as a result of the home inspection findings.  The negotiation begins with the buyers agent providing to the listing agent a copy of the inspection report and a home inspection notice, which states that the buyer will remove the home inspection contingency provided that the seller makes the requested repairs outlined in the notice.  The parties negotiate this list of repairs until there is a meeting of the minds, or until the parties determine that they are in a stalemate and the contract is voided.  In the latter scenario, the listing agent and the seller may now be aware of property defects and some of those findings must be disclosed to future buyers, or remediated.  For example, should the inspection reveal an electrical hazard the seller must either disclose this information in the property disclosure form or have an electrician repair the problem.  

The alternate version is the general inspection which is also referred to as an informational inspection.  The only difference between the two is that a general inspection does not allow a buyer to negotiate repairs.  The inspection itself is the same. The buyer is expected to either accept the house as it is, or void the contract.  This is where the issue begins.

Should the general inspection yield information that causes the buyer to exit the contract, the listing agent and seller do not necessarily know why the buyer terminated the contract.  The cause for termination could be insignificant, or it could be significant.

Though the buyer is not obligated to provide the report to the seller, often the buyer's agent will be willing to either share the concerns, or with their buyer's permission, share the report.  Many sellers will want to have the opportunity to remedy any significant issues knowing that if the present buyer were unwilling to move forward, it is possible that the same concern could cause them to lose a future buyer.  Future lost buyers increase time on market and ultimately impact the sellers final sales price in a negative way.   It's also possible that the information uncovered and left unresolved, could cause damage to the property or could present a life and safety issue for the current or future occupants.

This “I won’t ask and you don’t tell” policy that some real estate agents are adopting by gagging the buyers agents or threatening litigation creates an environment of distrust in the marketplace.  While the standard for disclosure is set at what a seller knows and what a real estate agent reasonably should have known, I believe that extends to exercising due diligence to obtain information that is readily available as information about a home unfolds.  A real estate market that allows the covering of one's eyes and ears to avoid ascertaining material information about a home can be costly and dangerous for all parties.

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