The following discussions from the WRA Legal Hotline address many of the basic elements of the Inspection Contingency, serving as a reminder to seasoned agents as well as a guide to new agents. In addition to the Inspection Contingency, this article also reviews radon testing.
 
Should the buyer include an Inspection Contingency? 

This is not an easy “yes” or “no” answer. In fact, the question is worthy of an entire article to serve as an appropriate answer. You are invited to read “The Home Inspection in a Competitive Market,” by Jennifer Lindsley on page 10.

When can the buyer have follow-up inspections?

After receiving a written report from an authorized inspection, the buyer reviews the report to determine if the inspector suggested or recommended follow-up inspections. If not, then no follow-up inspections are authorized, and an amendment would have to be agreed upon with the seller for additional access. When a follow up-inspection is recommended by the inspector, the buyer can conduct additional inspections as time allows. 

Who pays for the buyer’s follow-up inspections? 

Per the Inspection Contingency, these inspections are at the buyer’s expense. 

Can the buyer have follow-up testing? 

The follow-up inspection provisions of the offer to purchase are not an invitation to conduct testing! If a home inspector suggests testing — but no testing contingency is included in the offer — the buyer may ask the seller to amend the offer to include a testing contingency. The seller is not, however, required to agree and authorize tests after the acceptance of the offer.

Does the buyer have to give the seller copies of the inspection report(s) if there are no defects? 

Yes. Per line 190 of the WB-11 Residential Offer to Purchase, the buyer is required to provide these copies to the seller:
 
“Buyer agrees to promptly provide copies of all inspection and testing reports to Seller.” 

This obligation is independent of the decisions the buyer makes about the content of the report and whether the buyer will issue a Notice of Defects or attempt to renegotiate by amendment.   

What is all the talk about nature and extent? The seller disclosed information in the real estate condition report (RECR) about cracks in the garage concrete floor. The buyer conducted the home inspection, and the inspector listed cracks as a defect in the written report. Can the buyer issue a Notice of Defects? 

Whether or not the condition of the garage floor constitutes a defect and/or whether the condition was adequately disclosed in the RECR is not always easily determined. The Inspection Contingency states on lines 210-211 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. If, however, the seller’s description in the RECR matches that of the inspector’s report, the buyer cannot issue a Notice of Defects for the cracks. Legal counsel may need to be consulted to make that judgment. 

When can the buyer kill the deal with a Notice of Defects?
  
When the Inspection Contingency in the offer to purchase is drafted with no seller right to cure, the buyer may make the offer null by following the terms of the contingency. If you break down the contingency to the component parts, the offer will become null and void when all the following occur:

• There was an Inspection Contingency in the offer. 
• The Inspection Contingency did not include a seller right to cure. 
• The inspection was conducted by a Wisconsin-registered home inspector.
• The inspector provided a written report. 
• The written report listed defects. 
• The defects are defects as defined in the offer.
• The defects do not include items the nature and extent of which the buyer was aware prior to the offer.
• The notice lists the defects to which the buyer objects. 
• The buyer delivers the written inspection report. 
• The buyer delivers these documents in a timely manner. 
• The delivery of documents is by a delivery method authorized in the offer.

When all the above occur, the offer will become null and void. In addition to the inspection report and the Notice of Defects, the buyer will provide a cancellation agreement and mutual release (CAMR). When the seller signs and returns it, the CAMR serves as evidence of the parties’ agreement to release all rights and interest in the transaction. If the seller does not agree to the CAMR, the question is which, if any, of the steps were not met. In the event the seller does not agree to the CAMR, the parties may need legal counsel to determine how to proceed. 
  
After the inspection, should the buyer issue a notice or amendment? 

This is the million-dollar question. The right answer is, educate the buyer on the implications of each and let the buyer decide! After considering alternatives as well as the buyer’s objectives, the buyer must decide between a notice or amendment. It is the responsibility of the licensee to let the buyer know the potential outcomes when giving notice as well as the potential outcomes when giving an amendment. To help the buyer, consider using the home inspection flowchart. The broker can review the buyer’s position in the flowchart to offer the buyer options, letting the buyer decide which path the buyer prefers to take. 

The buyer had an inspection, the inspector identified a faulty insert for the fireplace and recommended a follow-up inspection of the fireplace, chimney and the flue. The buyer did not take the opportunity to have a follow-up inspection by an expert of the fireplace and chimney per the offer. Instead, the buyer provided an amendment requiring the seller to replace the insert. The seller agreed to the amendment, and the Inspection Contingency timeline lapsed. When the contractor arrived to replace the insert, she identified a crack in the flue and recommended the fireplace not be used until repaired. The quote to repair the crack in the flue was in excess of $6,000. The buyer is insisting the seller repair the flue. At this juncture, what is the buyer able to do?

In this situation, the buyer took a risk by not having a follow-up inspection as recommended by the home inspector in the written inspection report. Although buyers and sellers often agree to amend after the completion of the Inspection Contingency, the brokers must take care to assure the parties understand the implications of moving forward with an amendment. In this situation, the buyer’s only contractual expectation is to have the insert replaced as described in the amendment. The fact an expert identified other issues outside the Inspection Contingency leaves the buyer with information but little room to negotiate resolution.  

When drafting an amendment, the amendment should describe with detail what the seller is required to do as a condition of the amendment. Good drafting includes answering the who, what, when, where, how and what if not questions. Who will do the work, what work will be done, how it will be done, when is the deadline for the work, and what happens if it is not done according to the amendment.  

View the home inspection flowchart

Determine which direction to take in your transaction with the home inspection flowchart. Download the full-sized PDF at the button below. 

Download Flowchart

Radon testing: offer or addendum?

Let’s talk radon for a minute. The radon testing contingency in the WB offer is optional. Likewise, local board or company addenda often contain optional radon or other testing contingencies. The starting point here is to review the different contingencies with the buyer. When working with a buyer, it is important to read the specific addendum regarding testing and determine which meets the buyer’s expectations. In some addenda, radon testing may be its own contingency, or radon may be included in a general testing contingency that invites the parties to list the tests to be performed. After review and understanding of how the contingencies work, the buyer chooses the preferred contingency. Remember, if the buyer prefers using an addendum testing contingency for radon, the WB contingency may be left blank or marked with “N/A.”  

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