Disclosing a negative inspection report

Posted on: May 18th, 2020 by Andrew Clark No Comments

Disclosing a negative inspection report

May 15, 2020
By Peg Ritenour, Ohio REALTORS Vice President of Legal Services

It has been the longstanding position of the Ohio Real Estate Commission that when a transaction is terminated because of a negative inspection report that the defects included in that report need to be disclosed to subsequent buyers.

Does this mean that you are required to provide a copy of the inspection report to a subsequent buyer? The short answer to that is technically no, as long as you disclose the defects in some other manner. But providing the report is probably a good practice.

Now, here’s the long answer as well as other things to think about to protect yourself and your seller from liability.

  • Talk to your seller about the need to disclose. Before the property goes back on the market you will need to talk to your seller about disclosing the issues found by the inspector to subsequent buyers. In some cases, the seller may question the inspector’s findings. In that case, he should be advised to have another inspection done and then disclose both inspectors’ findings to any subsequent buyers. If the seller has questions about disclosure, you should refer the seller to his own attorney. If the seller still won’t authorize disclosure, it is recommended that you discuss this with your broker. Cancelling the listing may be the most prudent course of action in this situation to avoid a potential lawsuit and disciplinary action for non-disclosure.
  • Provide a copy of the report if possible. While the Real Estate Commission requires that defects found by a home inspector be disclosed to subsequent buyers, it has never mandated that this by done by providing a copy of the actual report. However, if the report is not provided, you will need to disclose the issues contained in that report that you are aware of in another manner. When this is done there is always the risk that agents are deciding what will be disclosed and what won’t or that they are not accurately or fully disclosing the inspector’s finding. By providing a copy of the report, the seller and listing agent can avoid allegations that they mischaracterized the inspector’s findings or only made partial disclosure of the information in the report. Certainly, if the previous buyer only gave the seller partial pages of the report you that is all you can pass along.
  • But doesn’t that inspection report belong to the first buyer? Unless the seller or listing agent agreed they wouldn’t provide the inspection report to anyone else (which would be highly unusual), the seller owes no duty of confidentiality to that first buyer. Therefore, the seller may authorize the listing agent to provide a copy of the whole report, or the pertinent pages, to a subsequent purchaser. To protect that first buyer’s identity and other personal information, it is recommended that the name of the previous buyer be redacted.
  • Don’t give your opinion! When you provide a copy of the previous inspector’s report (or otherwise disclose an inspector’s findings), don’t share your opinion as to the merits of those findings, how to fix a problem, or the cost of repairs. By doing so, you may be found to have held yourself out as an expert in areas that are outside the scope of your real estate license. This exposes you and your brokerage to potential liability. Instead, leave such advice to the experts in those fields. Also, avoid sharing your opinion as to the inspector’s qualifications, business practices or reputation that could result in a defamation claim.
  • Always recommend that the buyer hire their own inspector. Even if a subsequent buyer is being given a copy of the previous buyer’s inspection report, the new buyer should always be advised to still have his own inspection done by a home inspector of his choice. Because the first inspection report was not prepared on behalf of the subsequent buyer, that buyer would have no legal standing to pursue a civil action against the original inspector if he missed a defect that resulted in damages to the buyer. More importantly, the condition of the property could have changed since the first inspection was done. REALTORS who suggest the buyer save money by just relying on an inspection done for another buyer could be exposing themselves and their brokerage to liability if that turns out to have been bad advice.
  • Have the seller update their Residential Property Disclosure Statement. Certain answers the seller made on the Residential Property Disclosure at the time of listing may now be rendered inaccurate as a result information uncovered by the inspection. To avoid a claim of misrepresentation the seller should correct these answers. If the seller does not, and the form is provided to a subsequent buyer with information the seller now knows is false, the seller could be opening themselves up to a misrepresentation or fraud claim. Therefore, it is recommended that the seller either complete a new form or correct the original form disclosing the issues they are now aware of. This is true even if the seller fixed the problems. In that case the seller can disclose the problem the inspector found and indicate what steps they took to address/correct it.

Legal articles provided in the Ohio REALTORS Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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