The Best of the Legal Hotline: Home Inspection or Amendment Revisited


 Tracy Rucka  |    August 09, 2016
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Hotline calls abound when it comes to the use of a notice or an amendment. After the inspection is complete, there is not an automatic path for the buyer to follow. There are many paths ‚ÄĒ and even if the buyer begins down one path, the buyer can, with some limits, change his mind. The following questions and answers as well as the flowchart below can help brokers guide the buyer down the buyer‚Äôs preferred path.

The amendment path

If a buyer attempts to negotiate an amendment with the seller after the home inspection, how much time should the seller be given to respond? 

The timing on the amendment will be strongly influenced by the amount of time remaining in the inspection contingency. Generally the buyer wants to give the seller enough time to make an informed decision on requested repairs. However, the buyer must consider if there is enough time remaining to give a notice of defects in the event the seller does not agree to the amendment. When drafting the home inspection contingency, licensees should set the home inspection deadline with enough time to schedule the inspection, allow the buyer to obtain follow-up information such as repair costs, and give the parties time to negotiate via amendment.

If the seller needs more time to get bids, can the buyer and seller extend the inspection contingency? Who would draft such an amendment? 

There are three separate questions here; the first is about the drafting. When working with a party interested in a different path, draft the amendment upon request. Don’t expect the other broker to draft something for the party you are working with. 

If the seller needs more time than is in the amendment, two steps may be necessary. If the buyer’s amendment is set to expire before the inspection contingency lapses, the first step may be to extend the buyer’s inspection contingency. Either party may offer such an amendment. If the seller offers an amendment extending the inspection contingency timeline and it is agreed upon by the buyer, the buyer may then initiate a new amendment allowing the seller more time to investigate the costs to complete the work as requested in the amendment. At the core of these questions is communication, understanding the underlying need of the parties and finding how to best amend to find common ground, if possible. As with any offered amendments, the parties are required to agree.

Can the buyer include anything in an amendment, or do the items have to be defects as defined in the WB-11 Residential Offer to Purchase (WB-11)? 

It is the buyer’s prerogative to use an amendment to negotiate with the seller. An amendment may be used for defects, as defined in the WB-11 at lines 182-184, other conditions listed in the inspection report or price. If the buyer is requesting work to be done, the proposed amendment must detail who would do any work, set standards for the work to be done, set when the work will be complete, allow access for follow-up inspections if any, and include any additional information based on the buyer’s request. 

What if the seller does not agree to the buyer’s amendment? 

Nothing happens. An amendment is only binding on the parties if the amendment is signed and timely delivered by the date on line 31. Any unsigned amendment would have no effect on the transaction, so the ball is back in the buyer‚Äôs court. Per line 424 and the terms of the Inspection Contingency in the WB-11, the seller‚Äôs election to cure is not triggered by an amendment. Line 424 states, ‚ÄúCAUTION: A proposed amendment is not a Notice of Defects and will not satisfy this notice requirement.‚ÄĚ As time allows, the buyer has three choices: try an amendment, deliver a notice of defects or proceed to closing.¬†

The notice path

When there is no right to cure, can the buyer give a notice of defects, making the offer null and void? 

Yes, well, a qualified yes. To give a proper notice of defects, the following need to occur:

  • The home inspection must be conducted by a Wisconsin-registered home inspector who provides the buyer a written report that includes defects as defined in the offer.
  • The buyer lists the defects to which the buyer objects in the written notice.
  • The inspection report and the written notice of defects are timely delivered by an authorized delivery method in the offer.¬†

The notice of defects in this instance may be accompanied by a Cancellation Agreement and Mutual Release (CAMR) authorizing the disbursement of earnest money. 

What if the seller will not sign the CAMR? 

The obvious question is: why is the seller not signing the CAMR? There are usually two responses to this question: either the seller is annoyed by the buyer’s decision, or the seller is claiming the buyer failed in one of the previously mentioned conditions. For example, if the buyer used an unauthorized inspector, delivered late, failed to deliver a copy of the inspection report, or listed items not considered defects as defined in the offer, the notice of defects would fail, and the seller would expect the buyer to proceed with the transaction unless the buyer remedied the mistake in a timely manner. 

What happens if the seller receives a notice of defects with a report from an unauthorized inspector? 

The standard inspection contingency in the WB-11 allows for authorized inspections and limited follow-up inspections. Access to the property should not be provided to any inspector who is not there to conduct an inspection per the offer. If the buyer were to provide such a report, the seller could challenge it as unauthorized. If time remains, the buyer may have the property inspected by a properly authorized inspector.

What should the broker do if there is a question of a defect as defined in the offer? 

On occasion, the parties do not agree whether an item(s) is a defect. It may be necessary for legal counsel or experts to review the home inspection report and advise whether the enumerated items are in fact defects as defined in the offer. Whether any item listed is actually a defect is determined on a case-by-case basis. Real estate licensees need to be careful not to provide legal advice to the parties and rather should encourage parties to use and rely on the expertise of their legal counsel.

It may be helpful for the buyer to request clarity from the home inspector. The inspector may be stating that the items are defects, but that does not necessarily mean they are defects as defined in the offer. It is inappropriate for a home inspector to engage in the unlicensed practice of law to make a determination for purposes of the offer if something is a defect. Likewise, real estate licensees should not engage in the unlicensed practice of law and should refer the parties to legal counsel regarding questions about defects in the transaction.

Can the buyer make the offer null and void by giving a notice of defects if the inspection contingency includes the right to cure? 

No. This question and answer illuminates the importance of discussing the implications of ‚Äúright to cure‚ÄĚ and ‚Äúno right to cure‚ÄĚ at the time the buyer negotiates the terms of the offer. When the buyer wants the ability to make the offer null and void when defects are discovered, using ‚Äúno right to cure‚ÄĚ gives the buyer the power to kill the deal. If there is a seller right to cure, when defects are found, the buyer may ask the seller to be released from the transaction with a CAMR. The seller may choose to release the buyer from the offer but is not obligated to. See the home inspection flowchart.

After the inspection, if the buyer chooses to go forward with the deal, does the buyer need to provide the seller a copy of the inspection report(s)?
Yes. The buyer has an obligation per line 407 of the WB-11 to share a copy of the home inspection report with the seller regardless of whether the buyer issues a notice of defects, attempts to renegotiate by amendment, or proceeds in the transaction.

Simultaneous notice and amendment?

The seller has the right to cure in the inspection contingency. The buyer submitted a notice of defects and an amendment together with a copy of the inspection reports. The seller is not sure how to respond. Can the buyer issue both a notice and an amendment? 

It is possibly a risky tactic for the buyer to deliver both a notice and an amendment. As previously discussed, if the buyer issues a notice of defects, the seller may elect not to cure, making the offer null and void. It is, however, a perfectly legitimate tactic for the buyer to issue a notice of defects and an amendment simultaneously, giving the seller choices. The seller may consider each document on its merits. 

Per the offer, once a notice of defects is delivered, the offer will become null and void if the seller does not timely give written notice of the seller‚Äôs election to cure the defects. It is therefore important for the simultaneously offered amendment to contain language to tie up the notice of defects ‚Äúloose end.‚ÄĚ The language used in the amendment may affirmatively state the parties agree the notice is withdrawn if the seller agrees to the amendment. If the seller were to reject the buyer‚Äôs amendment and not respond to the buyer‚Äôs notice of defects, the offer will become null and void by passage of time per line 433 of the WB-11. The seller‚Äôs third choice would be to provide a different amendment for the buyer‚Äôs consideration, and that amendment would also need to tie up the notice ‚Äúloose end.‚ÄĚ

Resources

Visit the WRA home inspection resource page for a complete list of resources.

Home inspection contingency flowchart: click the flowchart to view the full-size PDF.

Inspection Flowchart

Tracy Rucka is Director of Professional Standards and Practices for the WRA. 

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