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13 things to know about the new home inspector law


 Cori Lamont  |    May 11, 2021
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The purchase of a home is typically the single largest investment a person makes. As a result, buyers purchasing a home want to understand the conditions relating to the home. Neither real estate licensees nor legal counsel are the experts when it comes to understanding the condition of the property. The expertise as to the condition of the property belongs to the home inspector. 

For obvious reasons, there is a great deal of emphasis placed on the home inspector’s report. But first, let us discuss the role of the home inspector and the content of the inspection report. 

Before the new legislation

A few years ago, the WRA embarked on a path to help better align the terminology used in the real estate transaction by sellers as a “defect” in the Real Estate Condition Report (RECR) and by buyers and sellers as a defect in the offer to purchase, to the terminology used by the home inspector in the home inspection report. In this legislative endeavor, the WRA worked with the Wisconsin Association of Home Inspectors (WAHI) to modify the home inspector terminology used in the report. Before this legislation was passed, the home inspector statute used the phrase “material adverse fact.” Therefore, as of July 1, 2018, when a home inspector called something a “defect” in the inspection report, the condition had to meet the definition contained in the home inspector statute of Wis. Stat. § 440.97(2m). 

Further, this legislation provided that while the item had to meet the definition of defect in the home inspector statute if the home inspector called an item a defect in the report, the law did not require home inspectors to use the word defect. The WRA was cautiously optimistic this consistency change in terminology was going to resolve the constant complaint that the home inspector’s failure to use the word defect in the report was creating serious challenges in the transaction. Thus, the WRA along with the WAHI knew there was a high probability that legislation may be needed in the future to address the overall issue of the use of the word defect in the report. 

Under the new legislation

Here we are in 2021, with new legislation to address the concerns of legislation past. To better assist you in understanding the new law created under 2021 Wis. Act 17, the following discussion outlines the top 13 things to know about the new legislation, including clarifications to a couple of frequently asked questions; we tried to hit them all. As of June 1, 2021, all home inspection reports will contain some of the same information, creating an expectation of consistency for all involved in the real estate transaction. 

1. The legislation did not change the offer to purchase.

As defined on lines 445-447 of the WB-11 Residential Offer to Purchase, defect means a “condition that would have a significant adverse effect on the value of the Property; that would significantly impair the health or safety of future occupants of the Property; or that if not repaired, removed or replaced would significantly shorten or adversely affect the expected normal life of the premises.”

2. Home inspectors were required to identify defects during the home inspection before the new legislation.

Home inspectors have been legally required to identify conditions that are defects during the home inspection, and this legislation does not modify that requirement. See Wis. Stat. § 440.975. Further, the law included a definition of defect in the home inspector statute. 

3. This legislation DID NOT expand the home inspector definition of defect. 

Defect means a condition of any component of an improvement that a home inspector determines, on the basis of the home inspector’s judgment on the day of an inspection, would significantly impair the health or safety of future occupants of a property or that, if not repaired, removed or replaced, would significantly shorten or adversely affect the expected normal life of the component of the improvement. See Wis. Stat. § 440.97 (2m).

While the legislation modifies the definition of defect to clarify defects are conditions based on the inspector’s judgment as of the day of the inspection, the legislation does not expand what the home inspector must identify as defects. The change was made to ensure home inspectors were not held to a standard that led consumers to believe a warranty was being made into the future condition of the property.

This new legislation does not change what is a defect to be identified by the home inspector. This bill simply requires a home inspector who identifies a defect during the inspection as currently required by law to label that item as a defect in the inspection report. 

4. This legislation requires pre-registration education for new home inspectors.

Before the law change, current home inspectors did not have any pre-registration education requirements. However, for those who wish to become a Wisconsin-registered home inspector, they will now be required to complete 40 hours of education before taking the examinations. 

5. This legislation DID NOT change the home inspection process. 

The home inspection is where a home inspector, who is registered in the state of Wisconsin by the Department of Safety and Professional Services, examines the readily accessible observable systems and components of improvements to residential properties. The home inspector’s report is the written opinion of the home inspector regarding the condition of the property’s improvements, mechanical and structural components of residential property that contains no more than four dwelling units. 

Items that the home inspector may choose to report on but is not required to report on may surprise you. Wis. Admin. Code § SPS 131.33(2) does not require a home inspector to report on the following aspects of items:

a. Their life expectancy. 
b. The reason for the necessity of a major repair. 
c. The method of making any repair or correction, the materials needed for any repair or correction, or the cost of any repair or correction.
d. The suitability for any specialized use of an improvement to residential real property.
e. Whether they comply with applicable regulatory requirements.

And then of course there are the items that a home inspector may never report, which include:

a. The market value or marketability of a property.
b. Whether a property should be purchased. 

6. This legislation compels a home inspector to call a defect a defect.

Before the law change and after, home inspectors are required to identify conditions during the inspection that meet the statutory definition of defect. This new legislation requires the home inspector to label those items as defects in the report.

When the buyer makes their offer contingent on a home inspection, the offer is conditioned on a Wisconsin-registered home inspector performing a home inspection “which discloses no Defects.” After the inspection, the buyer’s home inspector must provide a written report to them.

Sellers and their legal counsel often claim the condition is not a defect because the home inspector did not use the word defect to describe the condition the buyer is citing as a defect per the offer to purchase terms. Without consistency, confusion and disputes will continue for consumers on both sides of the transaction.  

7. This legislation requires the home inspection report to now include a summary page.

Typically, the home inspection report is lengthy and includes many details relating to the conditions of the property. This change allows buyers the opportunity to absorb a synopsis as to the inspector’s overall observations of the property, while pointing the buyer to the place in the report detailing the inspector’s observations.  

In addition to having the home inspector label items as defects that meet the statutory definition of defect, every report as of June 1, 2021, will include a summary page. And per the new statutory language, every summary page will include at least all of the following: 

  • The property address
  • The home inspector’s name
  • The date of the home inspection
  • The date the inspection report was received or prepared
  • The name(s) of the individual(s) who prepared the report
  • A list of conditions, labeled as defects, that are observed under par. (cm) to be defects, as defined in § 440.97 (2m).Other than items labeled as defects, a listing of components needing repairs, components needing further evaluation, items to monitor and maintenance item
    References to the page, heading or item number in the detailed account for further information. 
  • Statements including: 
    • NOTE: This summary page is provided for convenience and is not a substitute for reading the entire report and should not be relied upon as the complete list for the client’s reference. 
    • For the purposes of the report, defect, as defined in section 440.97 (2m), Wis. Stats., means a condition of any component of an improvement that a home inspector determines, on the basis of the home inspector’s judgment on the day of an inspection, would significantly impair the health or safety of occupants of a property or that, if not repaired, removed or replaced, would significantly shorten or adversely affect the expected normal life of the component of the improvement.
    • The contract of sale may define defect to also include a condition that would have a significant adverse effect on the value of the property, but such a condition may not be labeled a defect in the report unless it meets the definition in section 440.97 (2m), Wis. Stats. 
    • NOTE: A home inspector may not report on the market value or marketability of a property or whether a property should or should not be purchased. 

Other than labeling items as defects when applicable, as well as the incorporation of the summary page and its minimum statutorily required language, there is not a uniform process by which the inspector must document the inspection. While Wisconsin real estate licensees who must use state-approved WB forms find this lack of consistency occasionally frustrating, home inspectors are not required to use a specific approved form. This legislation intentionally stayed away from being too prescriptive to allow home inspectors the ability to set themselves apart in their business models.    

8. This legislation DOES NOT modify the responsibilities of home inspectors.

Under current law, home inspectors are required to identify conditions that meet the home inspector statutory definition of defect. This legislation does not change that. Therefore, home inspectors will continue to evaluate the property in the same manner.
 
9. This legislation DOES NOT increase the liability of home inspectors.

Home inspectors, before and after the law change, are required to identify conditions that meet the statutory definition of defect during the inspection. The mere fact a home inspector is now required to label those items defects does not increase liability. 

Rather than referring to the condition in various ways, such as “major issues,” “major concerns,” “significant issues” and “potential safety and health issues,” home inspectors will consistently be required to label those items identified during the inspection as a defect in the report. 

Additionally, to address concerns voiced by home inspectors as to liability, Section 11 Nonstatutory Provisions of 2021 Wis. Act 17 state the legislature was not intending to modify home inspector liability by requiring the home inspector to use the term defect as defined in the statute. 

Furthermore, during the last legislative session, the WAHI supported an amendment that removed the word “future” and inserted clarification that the condition identified as a defect is based on the home inspector’s judgment on the day of the inspection. 

10. The legislation DOES NOT change negotiation rights between buyers and sellers.

Neither the home inspector nor this legislation determines how the buyer and seller choose to negotiate the terms of the offer based on the inspection report. The buyer may receive the home inspection and still decide to do nothing, offer an amendment or provide a Notice of Defects. Again, nothing in this legislation changes how the parties choose to negotiate once the report is received. 

11. This legislation DOES NOT guarantee agreement between buyers and sellers.

This legislation is not a cure-all. Buyers and sellers may still disagree as to what is or is not a defect even if the home inspector calls the item a defect in the report. Whether any item listed is actually a defect as defined in the offer is determined on a case-by-case basis. If the parties cannot agree whether an item is a defect as defined in the offer, then the parties should be directed to their respective attorneys for advice.

12. Will this legislation encourage home inspectors to identify conditions that are cheap to repair as defects and modifies the parties’ rights to negotiate? 

Home inspectors are required to identify defects during the inspection. The cost to the repair item is irrelevant. Neither the home inspector nor this legislation determines how the buyer and seller choose to negotiate the terms of the offer based upon the inspection report.

13. What if this legislation results in home inspectors labeling everything as a defect?

Under this bill and current law today, a home inspector could list everything as a defect. If a home inspector decided to list every item in the report as a defect even though it did not meet the statutory definition, it could result in:

  1. A complaint filed at the Department of Safety and Professional Services challenging the competency of the home inspector’s practice.
  2. The inspector being known as providing an inspection report having no benefit to the buyer since the buyer is hiring the home inspector to assist in discerning the condition of the property.

For additional information about inspections, see the inspections resource webpage at www.wra.org/InspectionResources as well as the May 2021 Legal Update, “Legislation Makes Requirements for Home Inspection Reports,” at www.wra.org/LU2105.

Cori Lamont is Senior Director of Legal and Public Affairs for the WRA.

 

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