Real estate agents across the state are trying to navigate a competitive market for residential properties. Listing agents and sellers are accustomed to receiving multiple offers on a property, and agents working with buyers are innovating various negotiation strategies to give their buyers an advantage over other buyers competing for the same property. The competition and negotiation strategies in a competitive market are leading buyers to negotiate the Inspection Contingency in new ways.
My buyer wants to submit an offer without the Inspection Contingency. What should I do?
Historically, including an Inspection Contingency in an offer to purchase a residential property was standard in most cases. Occasionally, agents would encounter a transaction where the buyer was purchasing an existing structure that the buyer was going to completely remodel or even raze and rebuild and, in those instances, the buyer would perhaps not include the Inspection Contingency. Offers without the Inspection Contingency were the exception, however, and not the rule. In the current market, some buyers are opting not to include the Inspection Contingency as a negotiation strategy to make the buyer’s offer more attractive to a seller.
A buyer can ask the agent working with the buyer to draft an offer that does not include an Inspection Contingency. An agent in this situation should have a conversation with the buyer about what that choice means. Without an Inspection Contingency, the buyer is not authorized to have a home inspector conduct an inspection and is essentially agreeing to purchase the property in its current condition. This means items like potential issues with the roof, electrical system, foundation and structure that would be discoverable during a home inspection might go undiscovered until after closing when the buyer starts experiencing problems in the property. If a buyer is choosing not to include an Inspection Contingency, one item the agent may want to discuss with the buyer is that agents are not expected to have the knowledge of a third-party expert such as a home inspector; and as such, an agent’s inspection of the property prior to or during a showing may not reveal those items that a home inspector would notice and note in the home inspection report. The agent will want to make clear that the agent’s inspection of the property and subsequent disclosure of material adverse facts, if any, is not a substitute for the trained eye of a home inspector.
Another point of discussion between an agent and the buyer who is choosing to forego the Inspection Contingency is that the agent should educate the buyer about the option to include an Inspection Contingency in the offer and that the buyer affirmatively declined to include this contingency. An agent should follow any company policy that may be in place to address the situation, but it would be a good idea to document in writing this discussion with the buyer. Documentation could include an email to the buyer documenting that the agent has discussed the buyer’s opportunity to include an Inspection Contingency in the offer, that the buyer is affirmatively declining to include the Inspection Contingency and perhaps a link to the WRA’s home inspections resource webpage at www.wra.org/InspectionResources. There are many useful resources on this webpage, but of particular use when a buyer is considering not including an Inspection Contingency is the Home Inspection Handout for Homebuyers. This handout includes a useful list of what is required in a home inspection and what is optional in a home inspection and gives a buyer a general overview of how the Inspection Contingency works in the WB-11 Residential Offer to Purchase.
An agent working with a buyer who does not want to include an Inspection Contingency may also advise the buyer that some sellers may counter the buyer’s offer to include an Inspection Contingency on the advice of the seller’s attorney. The attorney may be advising the seller to counter a buyer’s offer to include an Inspection Contingency to perhaps limit seller liability for conditions discovered after the transaction has closed. If the buyer had a home inspection and the home inspector did not discover a condition issue during the inspection that is discovered after the transaction has closed, and the buyer subsequently sues the seller, the seller may be able to argue that the buyer ought to be able to rely on the inspector’s report and not the seller’s assessment of the property as represented in a real estate condition report.
My buyer received a former buyer’s home inspection report that was attached as an addendum to the seller’s real estate condition report (RECR). Can the buyer rely on that report and not pay for another inspection?
A licensee may provide a copy of the first buyer’s inspection report if it has been attached by the seller to the RECR or RECR amendment. If the seller has not attached the first buyer’s inspection report to the RECR, then to guard against any possible confidentiality concerns, the conservative approach says the licensee would not unilaterally provide a second buyer with the first buyer’s inspection report without consent of all parties to the first transaction.
If the second buyer is provided a copy of the first home inspection report, the new buyer should be advised that the first buyer’s inspection report is given to provide information only. The statutes regulating home inspectors provide that the home inspector will not be liable to subsequent buyers for any errors or omissions contained in the first buyer’s inspection report. The new buyer may be advised that the buyer should have a new home inspection performed if the buyer wants the home inspector to be liable to the buyer for any oversights.
My buyer wants to include an Inspection Contingency “for information only.” What does that mean?
“For information only” may mean different things to different parties. If an agent is working with a buyer who wants to include an Inspection Contingency “for information only,” a further discussion with the buyer may be necessary to assess what the buyer’s goal is with this qualifier to the Inspection Contingency. Does “for information only” mean that the buyer does not intend to issue a Notice of Defects, regardless of what the home inspector finds? If that is the buyer’s goal, rather than including an Inspection Contingency, the buyer might instead use the additional provisions to include language authorizing the buyer to have
a home inspection conducted by a Wisconsin-registered home inspector by a certain date and that the inspection is for information only. The buyer might further include language that the seller’s authorization for the “information only” home inspection does not constitute an Inspection Contingency.
The other side of this discussion is that when a buyer includes an offer contingent on a home inspection, some sellers have been countering the buyer’s offer to include language that the Inspection Contingency is “for information only.” If a seller is requesting that a listing agent draft such a counter-offer, the listing agent may want to have a further discussion with the seller to determine what the seller means by “information only.” Does it mean that the seller will not further negotiate with the buyer based on what the home inspector discovers? Does it mean that the seller will not cure any defects discovered by the home inspector? Does it mean that the seller wants to eliminate the buyer’s ability to issue a Notice of Defects post-inspection? Once the seller better articulates the seller’s goal of specifying “information only,” the listing agent may be able to better draft a counter-offer that more clearly captures the seller’s goal. If an agent working with a buyer receives a counter-offer specifying that the buyer’s Inspection Contingency is “for information only,” the agent can discuss options with the buyer including countering the seller’s counter to try to clarify what “for information only” means in this transaction.
My buyer wants to bring a home inspector to the showing. Is this allowed?
Currently, Wis. Admin. Code § REEB 24.13(2)(a) Drafting and Submission of Written Proposals provides, “Listing firms shall permit access to listed property for showing purposes, to all buyers and persons assisting or advising buyers, without unreasonable delay, unless the buyer’s or other person’s access is contrary to specific written instructions of the seller.” A home inspector, a contractor or another person who attends a showing with a buyer is arguably a person who is “assisting or advising” a buyer and is therefore allowed to attend a showing with the buyer unless the seller has provided specific written instructions that contractors, home inspectors or others shall not be permitted to accompany the buyer on showings.
Bringing a home inspector on a showing to engage in a mini-inspection may seem like a timesaver from the buyer’s perspective because it may reveal items that cause the buyer to move on to a different property or it may give the buyer the confidence to write an offer without an Inspection Contingency. If a buyer brings a home inspector to a showing and subsequently decides to draft an offer without an Inspection Contingency, the buyer is no more protected from issues discovered during the course of the transaction or after closing than any other buyer who drafted an offer without an Inspection Contingency.
If a buyer brings a home inspector to a showing and subsequently writes an offer that does include an Inspection Contingency, the buyer has some other obstacles to address if the later home inspection reveals defects or other condition issues with the property. A key piece of the Inspection Contingency is that the buyer cannot object to defects the nature and extent of which the buyer had actual knowledge or written notice before drafting the offer. Lines 210-211 of the WB-11 Residential Offer to Purchase provide, “For the purposes of this contingency, Defects do not include structural, mechanical or other conditions the nature and extent of which Buyer had actual knowledge or written notice before signing this Offer.” If a buyer takes a home inspector to a showing and the home inspector points out possible defects in the property or other condition issues with the property and the buyer ultimately writes an offer that includes an Inspection Contingency and objects to defects, the seller may be able to argue that some or all of the conditions the buyer is objecting to do not constitute defects because the buyer had actual knowledge of them prior to writing the offer. If the home inspector did not prepare any sort of written report after attending the showing with the buyer, it might be difficult for the seller to prove that the buyer had actual knowledge of the conditions prior to writing the offer. Difficult in no way means impossible, however. A seller with surveillance equipment on the property could easily record discussions between the buyer and a home inspector during a showing and with those recordings could establish that a buyer did have actual knowledge of some or all the defects the buyer is objecting to after completing a home inspection as a step in the Inspection Contingency.
The current market is competitive. There is no doubt about that. It is understandable that buyers are looking for ways to draft attractive offers by jettisoning contingencies, including the Inspection Contingency. Most contingencies are there to protect the buyer. Writing offers without an Inspection Contingency, including an inspection “for information only,” or bringing a home inspector to a showing is not without risk to the buyer. And even though the market is driving buyers’ desires to draft offers without contingencies, agents should continue to educate both buyers and sellers about these negotiation strategies and how they should be a part of the risk-benefit analysis for both parties in a transaction. If a buyer is instructing an agent to draft an offer without a contingency that offers some protection to the buyer, such as the Inspection Contingency, the agent must draft according to the instruction of the party, but the agent should document in writing the agent’s efforts to educate the party about the benefit of including such a contingency and the potential risk if not including it.
Jennifer Lindsley is Staff Attorney and Director of Training for the WRA.