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.

The post Part I of II – Damage Before the Real Estate Transaction appeared first on Wynn at Law, LLC.

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)

The post Home Inspection Contingencies vs. Home Inspections for Informational Purposes Only appeared first on Wynn at Law, LLC.

No. Buyers can only conduct an inspection if they ask for one as part of their offer to purchase. There are two ways to do this. A buyer can request an inspection under the inspection contingency, which gives the buyer certain rights if the inspection discloses defects (more on this below), or, a buyer can request an inspection for informational purposes only.

The Scope of the Inspection Contingency:

The inspection contingency in Wisconsin’s residential offer to purchase allows a buyer to use a Wisconsin licensed home inspector to inspect the home for defects. Inspectors are governed by certain standards under Wisconsin law – namely that the inspector must “perform a reasonably competent and diligent inspection to detect observable conditions” of a home.[1]

Note the statute’s reference to “observable” conditions – the statute specifically states that an inspector is not required “to disassemble any component of an improvement to residential real property” in order to inspect it.[2] For example, if a seller has moving boxes piled up against a wall, the inspector is not required to move those boxes. The inspector may make note of the obstruction in their report, however, it is best practice for the buyer to attend the inspection so that they can ask the inspector questions and take note of any areas that may need further attention. Buyers are allowed to conduct follow-up inspections within their inspection contingency time frame.

There are certain areas of a home that an inspector must observe and report the condition of, which includes: the foundation, columns, flooring systems, roof(s), plumbing, interior, exterior, and heating/ air conditioning system to name a few.[3] The Wisconsin Administrative Code specifies which aspects of these areas that an inspector is and is not required to report on. For example, an inspector observing a roof must report on the roof’s drainage systems, flashing, and signs of leakage, but is not required to physically walk on the roof or inspect any roof solar systems .[4]

A buyer can also negotiate for an inspection of an area that would typically not be inspected by a Wisconsin licensed home inspector, such as a pool’s plumbing components or a more comprehensive look at the home’s chimney. If the buyer negotiates for these further inspections, the buyer should hire a licensed contractor who specializes in inspections of the specified area and consider whether they want to make their offer contingent upon a contractor disclosing no defects of these areas.

What are Defects in a Wisconsin Home Inspection?

Before delving into what a defect is, it is important to understand why they are important. If a buyer has negotiated for an inspection contingency, then he or she may present the seller with a “Notice of Defects.” A Notice of Defects outlines a buyer’s objection to specified defects identified in the home inspection report.

If the offer has given the seller the right to cure such defects, then upon presentation of the Notice of defects, the seller can elect to cure or fix the defects, at the seller’s expense, and before closing. However, a seller who has been given the right to cure or fix the defects can also choose not to fix the defects, at which point the offer becomes null and void.

Now, onto what a defect is. . . an inspection report will specifically label something as a defect if the inspector believes the condition will either: (1) significantly impair the health or safety of the occupants of a property if the issue is not repaired, removed, or replaced, or (2) would significantly shorten or adversely affect the normal life of the component.[5] However, the offer allows a buyer to object to one other type of defect that an inspector would not categorize as a defect in their report. The residential offer to purchase defines the third type of defect as “a condition that would have a significant adverse effect on the value of the Property”.

Inspections vs. Tests – What is and is NOT Included in a Home Inspection:

A buyer should be aware that the right to conduct an inspection under the inspection contingency does NOT give the buyer the right to conduct a test. The offer defines a test as “the taking of samples of materials such as soils, water, air or building materials from the Property for laboratory or other analysis”. Common types of tests include: mold, water, asbestos, radon, and lead-based paint. If a buyer does not specifically ask for these tests, then the buyer has no right to conduct the test.

This means that if the buyer has a specific concern, such as mold for health reasons, the buyer should be sure to ask for a separate mold test and to hire a certified mold inspector to conduct the test.

Wisconsin licensed home inspectors have certain minimum conditions that they must report on. However, an inspector may report on additional findings as he or she deems appropriate.[6] For example, an inspector may make note of a mold-like substance or rodent droppings, even though the inspector is not required to take note of such items.

Conclusion

An inspection is a crucial aspect of being an informed buyer. Understanding what a standard inspection covers, what constitutes a defect, and the distinction between inspections and test empowers you as a buyer. By proactively including an inspection contingency in your offer and knowing your rights, you can approach your home purchase with greater confidence and clarity.

Schedule a consultation with Wynn at Law, LLC today to discuss the home buying process

To provide you with the utmost confidence and security, Wynn at Law, LLC can assist you with the process of buying a home and can help you navigate the inspection process, including assistance with drafting a Notice of Defects, if needed.

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.

[1] Wis. Stat. 440.975(2) (emphasis added)

[2] Id.

[3] Wis. Admin. Code SPS 131.32

[4] Wis. Admin. Code SPS 131.32(4)

[5] Wis. Stat. 440.97(2m)

[6] Wis. Stat. 440.975(8)(a)

The post Real Estate Buyer Education: The Inspection Contingency appeared first on Wynn at Law, LLC.