The Best of the Legal Hotline: Inspection Contingency Scenarios


 Deb Conrad and Tracy Rucka  |    June 05, 2014
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The situations posed in these Hotline questions and answers illustrate the never-ending variety of challenges that arise as the parties in a real estate transaction work through everyone’s favorite offer provision: the inspection contingency.

Leaky porch roof 

A buyer is objecting to a condition that the buyer considers a defect. The Buyer's Notice of Defects comes following a home inspection as well as follow-up inspections recommended in the home inspection report. 

The seller disclosed the following in the Real Estate Condition Report (RECR), which the buyer received and acknowledged prior to the offer: Item C.27 “I am aware of other defects affecting the property” was marked “Yes.” At Item D.3. the 'yes' is explained as “leak in roof over back porch when it rains heavy.”

Because the screened porch roof is flat and not visible from the ground, the buyer did not observe this roof during two showing visits. Inspections revealed that the asphalt roll roofing material over the porch is torn and cracking, with some of the felt below exposed. Roof deck boards below the felt and roll roofing were reported to be wet, and some are indicated as needing replacement. The report stated that this defect, if not corrected, will continue the deterioration of the screen porch roof and roof decking.

The buyer's notice objecting to the condition of the roofing material and water-soaked roof deck boards was delivered to the seller, who had the right to cure.

In response, the seller delivered a Cancellation Agreement and Mutual Release (CAMR) indicating the earnest money was to be released to the seller. Cover notes from the seller's agent indicated that the “[seller] feels she should be entitled to the earnest money since it was disclosed about the leak and it wasn’t in the offer to purchase for further inspection of the roof.”

Authorized follow-up

Question 1: Are further inspections authorized at lines 416 to 418 of the WB-11 Residential Offer to Purchase when recommended by the buyer's initial home inspection report?

The issues appear to be whether or not the inspections of the roof were authorized by the offer and whether or not the condition of the roof was accurately portrayed by the seller in the RECR. If the subsequent inspections of the roof were recommended in the home inspector's written report, they would be authorized under the language in the WB-11 Residential Offer to Purchase at lines 416-418 where it states: “Buyer may have follow up inspections recommended in a written report resulting from an authorized inspection, provided they occur prior to the deadline specified at line 421.”

Nature and extent

Question 2: The buyer expressed that the disclosure in the RECR did not provide the information necessary to understand the nature and extent of the roof's condition. That information was subsequently revealed in the inspection reports. Is the buyer's objection legitimate?

Whether or not the condition of the roof constitutes a defect and/or whether the condition of the roof was adequately disclosed in the RECR is not as easily determined. The inspection contingency states on lines 425-426 that “Defects” do not include structural, mechanical or other conditions the nature and extent of which the buyer had actual knowledge of or written notice before signing the offer. In the event the inspection reports describe a condition beyond what the seller disclosed in the RECR, the buyer’s notice may be an effective Notice of Defects. Legal counsel may need to be consulted to make that judgment. 

If the roof is the only defect identified by the buyer, the seller may take the position that the buyer’s notice does not include a defect and the seller has no obligation to cure. Offering a CAMR is one of the seller’s choices, and if the buyer agrees, the transaction can be concluded. If the buyer does not agree to the CAMR, the parties may need legal counsel to determine if the condition of the roof was a defect or if the seller’s RECR described the full nature and extent of the roof problems such that the buyers cannot give a Notice of Defects. If there is a dispute over the earnest money, either party may file an action in small claims court. That may be the only way those questions will be answered decisively.

Cedar roof repairs

The buyer delivered a Notice of Defects and is dictating with whom and how work is to be completed regarding installation of a new cedar roof and chimney repair. The listing broker understands that work needs only to be completed in a “good and workmanlike manner” per lines 429-430 of the WB-11 Residential Offer to Purchase. The report described missing shingles and some sections that need replacement. However, the buyer included a $44,000 contractor bid for a new cedar roof. 

Repair standards

Question 1: If the seller elects to cure and hires his own contractors, must he prove that the work was done exactly as in the buyer's proposed bid included with the notice? The listing broker, after speaking with the buyer's agent, thinks the buyer may want out of the deal. 

A Notice of Defects, when completed per the inspection contingency in the offer, lists the defects to which the buyer objects. The written notice triggers the seller’s election to cure in a good and workmanlike manner. By using the preprinted inspection contingency, the buyer and seller have agreed to the good and workmanlike standard for repairs. In the event the buyer wants the repairs done in a certain way, with certain materials or by named repairmen, an amendment may be used to make such a request. The seller’s consent is needed if the good and workmanlike standard is to be altered.

So long as the Notice of Defects included the objection to the defects and was accompanied by the inspection report, it would trigger the seller’s election to cure. The language addressing the manner in which the seller will cure may be taken into consideration in the event the seller elects to cure, but is not binding on the seller. The fact that the buyer asked for certain repairs would not necessarily negate that a Notice of Defects with proper attachments was given. For further discussion about the inspection contingency, click here.

Delivery

The Notice of Defects was delivered by email, but email delivery was not authorized in the offer. What problems might arise because of the email delivery?

If email was not an authorized form of delivery, there may be a delivery issue as well if the notice was only sent by email. In the offer, personal delivery is the default method of delivery that will always apply. In addition, the parties may authorize other delivery methods by checking the boxes in this section. The other delivery choices include commercial delivery, fax, U.S. mail and email. The parties may choose as many delivery methods as they like. Certain notices are effective upon delivery to a party or their designated recipient for delivery, for example, the financing commitment. Delivery can determine whether a contingency has been successfully satisfied or removed or even if the offer has become null and void. Presuming this is a consumer transaction, the parties would have had to give electronic consent before using email delivery, electronic documents and signatures, and would use the email delivery provisions at lines 49-54 of the WB-11 Residential Offer to Purchase to allow for email delivery.

The parties may wish to have the content of the notice and the delivery method reviewed by legal counsel. 

For further discussion about home inspection, click here.

Unauthorized inspector

What if the cooperating broker discovers the home inspection was conducted by someone other than a Wisconsin-registered home inspector?

According to the inspection contingency in the WB-11 Residential Offer to Purchase, the home inspection must be conducted by a Wisconsin-registered home inspector. The cooperating broker, when learning that the buyer had an inspection performed by someone else, may inform the parties and the listing broker in writing that the inspection was not performed by a Wisconsin-registered home inspector. Any written report from this other inspector could not be used as the basis for a Notice of Defects. If time permits, the buyer may engage a properly credentialed inspector to conduct the inspection. 

Any broker giving an inspector access to a property for an inspection should make sure that the inspector has the proper credentials. The broker may use the licensee look-up at online.drl.wi.gov/licenselookup/licenselookup.aspx to confirm a Wisconsin home inspector's credentials.

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA. Tracy Rucka is Director of Professional Standards and Practices for the WRA.

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