WRA Legal Hotline questions abound when it comes to the completion of the Real Estate Condition Report (RECR). This article looks at how to respond to some all-too-familiar comments from buyers and sellers about the RECR.

Seller said: “I don’t want to make repairs”

A seller completed a RECR but told his listing agent he does not want to make any repairs. The buyer drafted an offer with an inspection contingency with seller right to cure. What is the best way to discuss the buyer’s offer when presenting the offer to the seller? 

When presenting the offer to the seller, the agent may discuss the potential outcomes if defects are found in the inspection. The seller may want to accept the offer reserving the “right to cure” under a home inspection contingency. Then, if a buyer delivers a notice of defects and the seller decides the defects are within the seller’s ability to cure, the seller retains that option. Alternately, if the buyer delivers a notice of defects, the seller does not have to elect to exercise that right but rather can let the offer become null and void.

Seller said: “I don’t have to disclose, it’s not a defect”

The seller is aware of potential knob-and-tube (K&T) wiring in the property, commonly used in properties built during the late 1800s and early 1900s, but does not know for sure whether it is active K&T. The seller did not disclose the possible presence of K&T wiring on the RECR. How can the listing agent disclose K&T? Would disclosure of the K&T wiring via the broker-to-broker remarks in the MLS be sufficient? 

Disclosing potential K&T wiring in the broker-to-broker MLS remarks is a good start but may not be sufficient disclosure. Because a licensee has to disclose material adverse facts or information that suggests a material adverse fact to all parties in writing in a timely fashion, disclosing only via broker-to-broker MLS remarks may not mean that the parties ultimately receive that information. 

To ensure a buyer is aware of this information, an agent could use a Disclosure of Material Adverse Fact form and ask potential buyers to sign it. Additionally, an agent could draft the offer to reflect the presence of potential K&T wiring by noting it in the additional provisions or as a property condition representation on lines 163-164 of the WB-11. Disclosing the seller’s decision to not make repairs may be communicated through the broker-to-broker MLS remarks. 

Seller said: “But I never lived there”

The potential listing broker inspected the property. Prior to listing, the broker provided the seller with a RECR to complete, but the seller said she never lived in the property. Is the seller exempt from completing the RECR? 

Regardless of whether a seller has lived in the property or not, the seller knows what the seller knows and ideally will complete the RECR according to the seller’s knowledge. The seller may have received a RECR at the time she originally purchased the property and would thus know the information contained therein even if the seller didn’t occupy the property. Likewise, if the property is in the midst of renovation, the seller may have knowledge of current or previous defects. Whether a seller includes information about repaired defects in the RECR is a conversation for the seller to have with her legal counsel. The licensee may refer the seller to legal counsel to discuss the completion of the RECR. 

See “Should the Seller Disclose? Why the broker should be glad that the seller's attorney makes that call,” in the June 2012 Wisconsin Real Estate Magazine at www.wra.org/WREM/Jun12/SellerDisclosure, the October 2009 Legal Update, “Diligent Disclosure,” at www.wra.org/LU0910 and Legal Update 02.07, “Duty to Disclose,” at www.wra.org/LU0207 for further discussion of licensee and seller disclosure obligations.

Buyer said: “I am not signing the RECR”

The buyer is making an offer and has a copy of the seller’s RECR. The RECR includes several defects. The buyer refused to sign the RECR because the buyer wants the seller to make repairs as a part of the offer. What are the ramifications if the buyer proceeds without signing the RECR? 

It is appropriate for a buyer to review the RECR and draft an offer based upon the information contained therein. For example, if the seller discloses defects in the roof, the buyer may ask the seller to repair or replace the roof as a condition of the offer. The buyer’s signature on the RECR is an acknowledgement of receipt of the RECR. The RECR does not prevent the buyer from requesting repairs of any defects disclosed therein. 

An addendum, like the RECR, becomes part of the offer when it is incorporated by reference. The RECR may be incorporated in the Property Conditions Representations section for the offer at lines 159-162 of the WB-11 or at line 434 of the WB-11 where addenda in general may be made part of the offer. 

Not signing or not initialing a RECR does not exclude it from the contract. The RECR and the VLDR both include a section at the end where a buyer may acknowledge receipt of the report. It is not necessary, however, for the buyer to sign the report for it to become a part of the contract. It is wise to have initials or a signature as a matter of prudent practice to confirm the party has reviewed the addendum. The initials or signature helps guard against a party claiming that it did not receive the addenda. 

Buyer said: “I want an amended RECR from the seller”

The seller completed the RECR when the property was listed. The buyer's inspection revealed some additional issues not listed on the RECR. With the inspection now satisfied, the selling agent requested an amended RECR from the seller. Should the seller amend the RECR even though the property has an accepted offer? 

If a seller were to provide an amended RECR any time after 10 days after acceptance of the offer, the seller creates a risk of rescission when not required under the law. The representations made in a RECR are to be accurate as of the date of acceptance of the offer. 

Lines 159-162 of the WB-11 Residential Offer to Purchase provide:

Seller represents to Buyer that as of the date of acceptance Seller has no notice or knowledge of Conditions Affecting the Property or Transaction (lines 64-114) other than those identified in Seller's Real Estate Condition Report dated _______, which was received by Buyer prior to Buyer signing this Offer and which is made a part of this Offer by reference ...

If the seller ill advisably provides an amended RECR after the buyer’s inspection, it may give the buyer another opportunity to rescind the offer. Wis. Stat. 709.05(3) says the buyer has two business days to rescind after receipt of an amended RECR when there are additional defects disclosed. 

Wis. Stat. § 709.05 Right to rescind (3) “Rescissions under this section are timely if they are delivered to the owner or the owner’s agent within 2 business days after the prospective buyer or the prospective buyer’s agent receives the report, amended report or amendment to the report.”

Unless the seller is fully aware of the buyer’s rescission rights and is unconcerned with that risk, the seller should not give any RECR amendments or amended RECRs for information arising after acceptance, nor should there be any RECR amendments or amended RECRs more than 10 days after acceptance. If an amended report is provided, the seller opens up the opportunity for the buyer to rescind the offer where there would otherwise not be one. A licensee who advises a seller to provide an amended report without discussing the possible ramifications is also at risk because the licensee is ostensibly providing legal advice, and the advice the licensee is giving is incorrect and exposing the seller to unnecessary risk.

Buyer said: “The basement leaks, so the seller lied”

After the buyer closed on a property, the buyer noticed a large amount of water and mud coming into the basement. The seller’s RECR did not disclose any water leaks from the basement window after heavy rains, nor did the home inspection report identify the water issues in the basement. Is there any claim to be made against the previous homeowner for not disclosing the defect? 

A seller who accurately completes a RECR discloses to prospective buyers information about defects in the property, like water damage or mud entering the basement after heavy rains. Sellers who are aware of defects yet fail to disclose these defects in the RECR risk a claim for misrepresentation. To hold the seller liable, the buyer will generally need to demonstrate that the seller knew of preexisting problems or defects that he or she concealed or failed to disclose. The buyer may enlist the help of appropriate contractors to assist in establishing this proof.

Once a transaction has closed, the agent has no responsibility to assist the buyer with this situation or to give the buyer advice. Doing so will only expose the agent to potential liability. Per license law and the REALTOR^® Code of Ethics, the agent cannot engage in the unlicensed practice of law. The buyer should be advised that the issue of possibly undisclosed defects would need to be resolved by the parties themselves or with the assistance of legal counsel.

See the October 2009 Legal Update, “Diligent Disclosure,” at www.wra.org/LU0910 and Legal Update 02.07, “Duty to Disclose,” at www.wra.org/LU0207 for further discussion about licensee and seller disclosure obligations.

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