Buyers are often told to obtain an inspection of a property they are purchasing. However, the nuances of what types of inspections or tests to ask for, how to review the inspection reports and how to negotiate for repairs with the Seller are not always clear. In this blog, we will discuss how different inspection scenarios can shake out and explain the difference between the inspection contingency and an inspection for informational purposes only.
Hypothetical 1:
Imagine you are the seller. You go under contract to sell your home, however the deal falls apart based on the buyer’s inspection. The buyer provided you with a copy of the inspection report, and in an effort to be up-front with your next buyer and avoid another inspection, you provide the second buyer with a copy of the first buyer’s inspection report.
The seller gave a copy of the first buyer’s inspection report to the second buyer “for informational purposes only.” Is this allowed?
Yes, a seller may choose to provide a potential buyer with a previous buyer’s inspection report, unless the seller and previous buyer agreed not to share the report. The seller is under no obligation to the home inspector to keep the report private.
Can the listing agent provide copies of a prior buyer’s inspection report to prospective buyers?
Listing agents should avoid providing a copy of the report to guard against any possible confidentiality concerns under Wis. Stat. 452.133(1)(d) because the report may be considered confidential, unless the agent has the consent of all parties to the first transaction.
Can the new buyer still obtain an inspection?
Yes. The new buyer is not precluded from making his or her offer contingent upon an inspection contingency, wherein the new buyer would have a new home inspection done.
Cautionary Note: The new buyer should be aware that he or she can only object to newly discovered defects that were not disclosed in the prior inspection report. It is presumed that the second buyer had “actual knowledge” of the defects disclosed in the first buyer’s inspection report, given that the new buyer was given a copy of the prior report. In other words, the first buyer’s inspection report was supplied to the second buyer “for informational purposes only.”
Who does the inspector owe a duty to if errors or omissions are discovered in the inspection report?
Home inspectors are only liable to the person who contracted for the inspection and not other parties that the inspection was provided to for informational purposes. [1] Therefore, if a second buyer chooses not to obtain his or her own inspection and instead relies on a seller-provided inspection report ordered by a previous buyer, the second buyer has no recourse against an inspector for any errors or omissions that may be contained in that report.
Is the buyer required to give a copy of the inspection report or testing reports to the seller, even if the buyer does not issue a Notice of Defects?
Yes. If a buyer has an inspection or testing done (such as radon, mold, water or septic testing), the buyer is required to supply the seller with a copy of all inspection and test reports, even if the buyer is not requesting any action from the Seller. This requirement is clearly spelled out in the WB-11 Residential Offer to Purchase at lines 190-191, which states that “Buyer agrees to promptly provide copies of all inspections and testing reports to Seller.”
Hypothetical 2:
Suppose that you are a seller who has been presented with an offer that has the box checked to include an inspection contingency, including the seller’s right to cure the defects, however in the “additional provisions” section of the offer, it states that “the inspection shall be for informational purposes only.”
Can the buyer present the seller with a notice of defects?
Yes, the buyer is not precluded from presenting the seller with a notice of defects if the inspection contingency was included with the offer. A buyer should be aware in this case that a seller may not be willing to fix the inspection defects or provide a credit. The seller may have thought that the buyer would not ask for any repairs, given the language in the offer stating that the inspection was “for informational purposes only.”
How can the buyer clearly ask for an inspection but not make their offer contingent upon one?
If a buyer feels comfortable with making an offer not contingent upon an inspection contingency, but would still like an inspection to be completed, this should be clearly spelled out in the additional provisions section of the offer. To clearly communicate the buyer’s intent, the buyer should not check the box for an inspection contingency in the offer. The buyer or buyer’s agent should also include provisions in the offer allowing the buyer’s inspector access to the property upon advance notice to ensure that all parties are on the same page. The buyer’s agent may also request that the buyer sign paperwork confirming the risk of foregoing a home inspection contingency.
Can an inspection for “informational purposes only” cause issues with the buyer’s lender?
Possibly, depending on the buyer’s lender and the type of loan the buyer is applying for. FHA, VA, and other government-backed lenders require certain minimum property standards relating to a property’s habitability and safety in order for the loan to be issued. When government-backed lenders discover conditions falling below their minimum standards, the lender may require that these conditions be fixed. This can cause issues if the offer is not subject to an inspection contingency.
Schedule a consultation with Wynn at Law, LLC today to discuss the real estate purchase and sale process
Many of the issues discussed above can be resolved with clear contract drafting. When all parties understanding the contract, the majority of disputes disappear.
Whether you would like to discuss general real estate questions or need help ensuring that a specific offer is clearly drafted, Wynn at Law, LLC’s attorneys are here to help. Contact Wynn at Law, LLC today for a consultation at 262-725-0175 or visit our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has offices conveniently located in Salem, Delavan, and Lake Geneva, Wisconsin.
[1] Wis. Stat. 440.977(2)
