Best of the Legal Hotline: Pre-Closing Inspections


 Debbi Conrad and Tracy Rucka  |    January 01, 2004

REALTORS® should always encourage buyers to complete the pre-closing inspection. Lines 111- 114 of the WB-11 Residential Offer to Purchase state, "At a reasonable time, pre-approved by Seller or Seller's agent, within 3 days before closing, Buyer shall have the right to inspect the Property to determine that there has been no significant change in the condition of the Property, except for ordinary wear and tear and changes approved by Buyer, and that any defects Seller has elected to cure have been repaired in a good and workmanlike manner." The buyer can more effectively deal with problem situations before rather than after closing.

The following questions illustrate some of the discoveries that some members have made during pre-closing inspections.

Debris removal

Re: Debris found during the pre-closing inspection. The seller moved out and left all sorts of garbage in the home, including old paint cans and broken appliances in the basement. How can the buyer best address this situation before closing? 

The "Occupancy" provisions on lines 35-36 of the offer state, "At the time of Buyer's occupancy, Property shall be free of all debris and personal property ... "

Debris removal should be addressed before the closing to avoid later controversy. Upon discovery of the debris, the buyer can try to convince the seller to fulfill his contractual obligations and remove the garbage and appliances before closing. The parties can amend the offer to address the situation. They might agree to escrow a portion of the seller's proceeds until the debris removal is completed and verified, or the seller can convey the items to the buyer using a bill of sale, leaving the buyer to freely dispose of the items. Unless the items are removed or the parties agree to an amendment, the buyer might refuse to close if the seller's breach of contract is material, as described in the default section of the offer.

If the parties do close and the debris is not removed, the buyer can have the personal property removed, send the seller the bill, and sue the seller in small claims court if the seller won't pay.

Mutual mistake: no hardwood floors

Throughout negotiations, the seller indicated that there were hardwood floors under the carpeting in the house. When the broker pulled up a corner of the carpet during the final walk-through, the parties discovered that there is plywood underneath. The seller was told that there were hardwood floors when he purchased the home. The buyer believes that the seller is being honest. What are the buyer's options? 

Assuming the seller and the buyer did not know about the plywood floors, this might be treated as a mistake of fact. When both parties are mistaken as to a basic factual assumption on which the contract was made and the mistake has a material effect on their performances, the contract is voidable by the party adversely affected. Under this theory, both parties must have been mistaken. The mistake must be based upon a past or present fact.

The buyer might decide to rescind the transaction or the parties may amend the offer to address this discovery. The buyer may want to strategize with his attorney before making any decisions.

Damages between acceptance and closing

A property was vandalized after an offer was written. The buyer does not want to complete the transaction unless the broken windows and other damage is repaired before closing. 

The parties should review the "Property Damage Between Acceptance and Closing" provision on lines 115-123 of the residential offer to purchase. The seller is obligated to maintain the property in materially the same condition it was in when the offer was written. If the condition of the property has been damaged in an amount that is less than five percent of the purchase price, ordinary wear and tear excluded, the seller must repair and restore the property. Alternatively, the buyer and seller may negotiate and amend the offer to allocate the costs and responsibility for repairs in a different manner. If the parties do not amend the offer and the seller does not repair the damage, the parties may need to consult with their attorneys.

A buyer was ready to close until she did the walk-though. There had been a bit of water in the basement because of a grading problem. During the walk-through, the buyer discovered a multi-colored fuzzy substance hanging over 80-90 percent of the joists in the basement. The buyer asked the seller for testing. The seller, however, simply removed the substance. The buyer wants to sign a CAMR. What does the listing agent do in future transactions? 

The "Property Damage Between Acceptance and Closing" provision on lines 115-123 of the residential offer to purchase provides that if the damage exceeds five percent of the selling price, then the seller must give the buyer prompt notice of the damage and the buyer has the option to cancel the offer. On the other hand, if the buyer decides to proceed with the offer, the buyer is entitled to the insurance proceeds relating to the damage. In this situation, however, the damage likely exceeds five percent of the price and the parties have elected to cancel the offer.

The listing agent should refer the sellers to legal counsel regarding their disclosure obligations. Wis. Stat. § 709.035 requires sellers to amend the RECR when they become aware of information that would change a prior response. If the sellers refuse to disclose the water or the fuzzy growth found in the basement, the agent must decide whether he or she will continue to represent these sellers as their listing broker and what disclosures to make. See Legal Update 02.07, "Duty to Disclose," at www.wra.org/LU0207,  and Legal Update 02.12 at www.wra.org/LU0212 for a sample material adverse fact disclosure letter.

Missing appliances

A buyer noticed during a final walk-through that the stove and refrigerator were not on the property. They were noted on the MLS sheet, but they were not included in the offer. The buyer claimed that he was told that the appliances did not need to be mentioned in the contract because they were on the MLS sheet, so the buyer thought he was getting the refrigerator and stove. 

The appliances are not fixtures, so they must be specifically listed as additional items included in the purchase price in order to be included in the sale. The MLS data sheet only reflects what property is available and the offer establishes the parties' agreement about personal property. The cooperating agent may be liable if she misled the buyer about the inclusion of the appliances.

Good and workmanlike manner

A buyer had a home inspection done, and due to 12 defects listed on the inspection report, the buyer wants out of the contract. This is the last day of the inspection contingency and the seller has the right to cure. The buyer is giving the seller a notice of defects listing the 12 items, a copy of the inspection report and a CAMR. Can the buyer demand that unless a certain contractor performs all repairs, that the seller will sign the CAMR and release the buyer from the transaction? 

The seller has 10 days from receipt of the buyer's notice of defects to decide whether or not to cure the defects per the inspection contingency in the residential offer to purchase. If the seller elects to cure the 12 defects, the seller must repair the defects a good and workmanlike manner prior to closing and the buyer has the right to inspect the seller's repair work within the three days before closing.

The seller must fix the defects in a manner generally considered skillful by those capable of providing such work in the community, not per the buyer's specifications. If the buyer wants to obligate the seller to hire the particular contractor to do the repairs, the buyer and the seller must agree to this standard in an amendment to the offer.

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