One of the biggest disputes between buyers and sellers in a real estate transaction is whether a condition of the property constitutes a “defect.” Whether it’s an old roof, a leaky basement, cracked window pane or a wiring upgrade, buyers and sellers often disagree whether a condition is significant enough to require the remedy. 

However, this common dispute was made more problematic because the definition of “defect” in the standard offer to purchase was different from the definition of “defect” used in most home inspection reports. This inconsistency was attributed to the fact home inspector statutes and administrative rules had different terminology and utilized dissimilar verbiage in their descriptions as to conditions affecting the property. The long and short of the history of the dispute comes down to this: home inspectors were required to disclose material adverse facts, and the definition itself used descriptions different than the offer to purchase. 

In November 2015, I wrote an article titled “Help! Is it a Defect?” in Wisconsin Real Estate Magazine. This article discussed repeated conservations about consumers and agents fighting over an item listed in the inspector’s report, and whether that item could be listed as a defect on the buyer’s Notice of Defects. Almost three years later, we are still having the same discussion mostly surrounding what’s stated in the home inspector’s report. 

However, due to recent collaboration between the WRA and the Wisconsin Home Inspectors Association, new legislation has shifted the conversation ever so slightly. 

This article explores how 2017 Wis. Act 338, effective July 1, 2018, modified the home inspector statute, Wis. Stat. Chap. 440, to create consistency between the offer to purchase and the home inspector’s report. 

Offer to purchase

The 2011 WB-11 Residential Offer to Purchase defines a “defect” on lines 182-184 as: “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.”

Home inspector definition 

The definition of “defect” in the inspection report is now substantially similar to the definition of “defect” in the offer to purchase. Wis. Stat. § 440.97(2m) “Defect” means a condition of any component of an improvement that 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.

Therefore, as of July 1, 2018, when a home inspector calls something a defect in the inspection report, the condition must meet the definition contained in the home inspector statute of Wis. Stat. § 440.97(2m).

Weight of the inspector’s report

Not surprisingly, a great deal of importance is placed on the home inspector’s report; however, the parties to the offer to purchase are the buyer and the seller. The home inspector is hired by the buyer to conduct the inspection. The home inspector then provides the buyer with a copy of the inspection report. 

When a buyer is deciding which action to take based upon the information the buyer learned from the inspection report — do nothing, offer an amendment or provide a Notice of Defects — the offer to purchase is the controlling document as to the definition of “defect.”

Further, there is no shock and awe as to why a great deal of confusion and consternation existed for parties, attorneys and REALTORS^® surrounding this dispute. For instance, before the law change, when the home inspector’s report noted something as a defect but the condition did not meet the definition in the offer to purchase, parties became overwhelmed and unsure of their contractual rights requiring them to engage an attorney to argue over whether something was a defect per the offer to purchase because the home inspector called it a defect in the report. 

For these reasons, the home inspector statute was changed to create consistency between the definitions of defect in the offer to purchase and in the inspector’s report. 

Discrepancy in the rules and statute

As of July 1, 2018, the home inspector administrative rules of Wis. Admin. Code § SPS 131 are inconsistent with the statutory changes of Wis. Stat. Chap. 440. However, even though the rules use different regarding verbiage and terminology that are inconsistent with the new statutory language, the statutory language supersedes administrative rules. The home inspector administrative rules will be updated, but until then, note the statutory language of Wis. Stat. 440 controls the practice. Home inspectors are also required to be educated about the statutory changes. 

Wis. Stat. § 440.975(3) After completing a home inspection, a home inspector shall submit a written report to a client that does all of the following:
(a) Lists the components of an improvement to residential real property that the home inspector is required to inspect under the rules promulgated under s. 440.974(1) (b).
(b) Lists the components of an improvement to residential real property that the home inspector has inspected.
(c) Describes any condition of an improvement to residential real property or of any component of an improvement to residential real property that is detected by the home inspector during his or her home inspection and that, if not repaired, will have a significant adverse effect on the life expectancy of the improvement or the component of the improvement. *
(cm) Describes any defect that is detected by the home inspector during his or her home inspection. A home inspector is not required to use the term “defect” in describing a defect in the written report required under this subsection. A home inspector may not use the term “defect” in a written report required under this subsection unless that use is consistent with s. 440.97 (2m).
(d) Provides any other information that the home inspector is required to provide under the rules promulgated under s. 440.974(1) (c).
* The strikethrough represents the removed statutory language, while the underline represents new language added by the legislation to the home inspector statute.

It’s the party’s offer, and the party can argue if it wants to 

The legislative change is intended to eliminate some of the frustration and resolve some of the disputes relating to the use of defect in the inspector’s report and the offer to purchase. However, at the end of the day, the offer is the parties’ offer, and the party chooses to argue whether an item is a defect or not.

Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.