What happens when there is damage to a home after acceptance of an offer to purchase?

These two questions will be discussed in this two part series, where we will explore what a seller’s duties are, what a buyer’s rights and remedies may include, implications on the condition report that a seller may be required to complete, and ways the parties can come to a mutually beneficial agreement.

Part I of II – Damage Before the Real Estate Transaction.

The Real Estate Condition Report:

Most sellers are required to answer specific questions relating to their vacant land, commercial property or residential property on a form called the “Real Estate Condition Report” (RECR). The RECR directs sellers to disclose “defects” that the seller is “aware” of. Wisconsin statute 709.03 defines a defect as any of the following three conditions:

1. A condition that would have a significant adverse effect on the value of the property;

2. A condition that would significantly impair the health or safety of future occupants of the property; or

3. A condition that if not repaired, removed, or replaced would significantly shorten or adversely affect the expected normal life of the premises.

In essence, this is the form where sellers would disclose any damage that may have affected the property prior to being under contract. It is worth noting that under Wis. Stat. 709.035, if a seller had already completed a RECR prior to being under contract, and an answer to one of the seller’s questions change, the seller is under an obligation to either amend the report on file or complete a new condition report.

Timing of the Real Estate Condition Report:

A seller may supply a completed RECR to a buyer before a buyer makes an offer. Alternatively, a buyer can submit an offer and require the seller to provide a completed RECR within a specified number of days, or within the default 10 days under the standard contract language. It should be noted that the RECR is not meant to replace an inspection contingency, even though the condition report may disclose the same type of defects that an inspection report may find. It is recommended that a buyer have the RECR in hand prior to his or her inspection, as the report may disclose defects that a buyer directs an inspector to take a closer look at.

Why the Real Estate Condition Report is Important:

The RECR is a document that sellers should complete truthfully and in good faith. Buyers who discover that a seller intentionally answered the report untruthfully may sue the seller for misrepresentation among other legal claims, even after the transaction has closed. Real estate agents are precluded from providing a seller with advice as to whether something qualifies as a defect or not, as this is considered legal advice. If a seller is concerned about what to disclose, the seller should contact an attorney for help.

Buyers may have the right to rescind their offer if the condition report discloses a defect that the buyers were not aware of or if the condition report is incomplete. Specific time frames must be followed in order for a buyer to exercise these rescission rights.

Insurance Claims Disclosed in the Real Estate Condition Report:

One of the questions that a seller is required to answer on the condition report is whether any insurance claims for damage to the property have been filed within the past 5 years. If the seller answers “yes” to this question, the seller must explain why the insurance claim was filed. Buyers may negotiate with the seller by requesting a copy of the seller’s Comprehensive Loss Underwriting Exchange (CLUE) Report. A CLUE report is most often used by insurers when underwriting individuals for a policy, but under the Fair Credit Reporting Act, homeowners have the right to request one free CLUE report on themselves per year.

The CLUE report discloses insurance claims that have been filed on the property within the past 7 years and the amount that was paid out on the claim. Buyers should be aware that not all insurers report to LexisNexis, the provider of CLUE reports, and therefore a CLUE report that discloses nothing does not necessarily mean that insurance claims haven’t been filed on the property within the last 7 years.

You may now be wondering what happens when the need to file an insurance claim arises after acceptance of an offer and what a seller’s duties are in relation to the Real Estate Condition Report when confronted with damage to the property while under contract – both of these situations are discussed in part II – Damage During the Real Estate Transaction, along with other considerations for the parties to the transaction.

Schedule a consultation with Wynn at Law, LLC today to discuss how the Real Estate Condition Report affects your home sale or purchase

Wynn at Law, LLC can assist you with how to approach the real estate condition report – whether that be assistance with completing the report or advice on how to proceed based on what is disclosed in the report.

Contact Wynn at Law, LLC today 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.

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