The WRA Legal Hotline fields calls about the inspection contingency almost daily, and sometimes multiple times a day. Thus far in 2022, nearly 200 calls have been catalogued in the inspection contingency category. For your consideration, a few of these calls are discussed in this month’s article.
Follow-up inspections
The parties have an accepted offer with the inspection contingency. The written report by the Wisconsin-registered home inspector recommends a follow-up inspection of the foundation. Can the buyer have a follow-up inspection, and if so, who pays for this follow-up inspection?
The inspection contingency contained in the WB residential offer provides for three types of inspections:
1. Home inspections: Lines 194-195 of the 2020 WB-11 Residential Offer to Purchase provide, “This Offer is contingent upon a Wisconsin registered or Wisconsin licensed home inspector performing a home inspection of the Property after the date on line 1 of this Offer that discloses no Defects."
2. Component inspections: Lines 196-199 provide: “This Offer is further contingent upon a qualified independent inspector or independent qualified third party performing an inspection of ________ (list any Property component(s) to be separately inspected, e.g., swimming pool, roof, foundation, chimney, etc.) which discloses no defects.”
The parenthetical prompt after the blank line reminds licensees of the purpose of the long, blank line in the contingency. This is not a place to insert “entire premises” or to insert details about tests. This blank line is for the buyer to state the specific property components or items the buyer would prefer to have inspected by a specialist or that require expertise beyond that of a registered home inspector, for example, a furnace, chimney, swimming pool, roof or foundation. The component inspections are to be performed by a qualified, independent inspector or qualified, independent third party.
3. Follow-up inspections: Home inspectors recommend follow-up inspections on a regular basis. Lines 200-202 of the WB-11 accommodate this practice by stating, “Buyer may have follow-up inspections recommended in a written report resulting from an authorized inspection, provided they occur prior to the deadline specified at line 206.” In other words, a buyer may have a follow-up inspection if a written inspection report from the Wisconsin-registered home inspector or a component inspector recommends that additional inspections be performed. Such an inspection is paid for by the buyer.
Notice of defects
Prior to the negotiation of the offer, the seller provided a real estate condition report (RECR) describing defects in the foundation. The buyer wrote an offer with an inspection contingency, including the foundation in the component inspection, and the buyer’s written inspection report from the foundation company identified defects. The buyer issued a notice of defects listing the foundation issues and other defects. Is the seller required to cure the foundation issues the seller originally disclosed?
The seller is only required to cure defects as defined in the offer. Lines 445-447 of the offer define “defect” 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.” In addition, lines 210-211 of the offer state, “For the purposes of this contingency, Defects (see lines 445-447) 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.”
Therefore, even though the condition of the foundation is listed as a defect in the inspection report, the seller is not required to cure any item — the nature and extent of which the buyer was aware at the time of the offer. If the seller’s description in the RECR matches the written inspection report, the seller is not required to cure those items. On the other hand, if the inspection report contains defects beyond what was described in the seller’s RECR, the buyer may give notice for the defects exceeding what was disclosed in the RECR. The seller may provide a written notice to the buyer stating the seller elects to cure defects, as defined in the offer. The seller may make an affirmative statement indicating that the seller will not cure the foundation issues as described in the RECR. If there is a disagreement about the “nature and extent” of the seller’s disclosure, the parties may be referred to private legal counsel.
The buyer’s 15-day time frame for the expiration of the inspection contingency expires in five days. The buyer sent an amendment, but the seller rejected it. The offer includes a seller’s right to cure. Should the buyer try another amendment or give a notice of defects? Can the buyer give the seller more than five days to consider the amendment?
The decision whether to give a notice or an amendment must be made by the buyer. The broker may discuss the effect of giving a notice, an amendment or potentially both with the buyer. Once the broker explains the possible outcomes, the buyer makes an informed decision to give a notice or an amendment. The WRA’s home inspection flowchart can help determine which direction to take in a given transaction; download a PDF at www.wra.org/inspectionflowchart.
The buyer choosing to give an amendment may give the seller any amount of time to respond to the amendment. However, if the deadline for the inspection contingency goes by without the seller accepting the amendment or the buyer issuing a written notice of defects, the contingency is deemed satisfied. If the deadline for the amendment is after the inspection deadline, the seller may reject the amendment and fail to sign and accept it. In such a situation, the buyer no longer has the opportunity to provide a notice of defects because the contingency has already been satisfied by passage of time, and the buyer did not give a notice of defects in a timely manner. Again, the broker may provide the buyer with options and draft documents upon the instruction of the party.
For more information about the inspection contingency and the use of notices or amendments, see Legal Update 99.10, “Home Inspections,” at www.wra.org/LU9910 and Legal Update 04.08, “Effective Home Inspections,” at www.wra.org/LU0408.
Buyer changed his mind
The buyer’s inspection contingency deadline has passed. The buyer chose not to have a Wisconsin-registered home inspector conduct an inspection. Prior to closing, the buyer demanded access for a home inspection for the buyer’s informational purposes only. What is the best course of action to take in this scenario?
Access to the property for testing and inspections is found at lines 182-185 of the WB-11 Residential Offer to Purchase:
Seller agrees to allow Buyer’s inspectors, testers and appraisers reasonable access to the Property upon advance notice, if necessary, to satisfy the contingencies in this Offer.
If the buyer waived the inspection contingency, and the buyer later wants an inspection “for information purposes only,” it is up to the seller to agree to this inspection or not. There needs to be some sort of written permission or provision in the offer to authorize an inspector entering the seller’s property. The buyer might attempt an amendment to have a home inspection conducted by a Wisconsin-registered home inspector by a certain date and note 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 underlying dilemma is what will the parties do in the event the inspector finds defects? Will the buyer attempt to renegotiate the offer, attempt to claim seller misrepresentation or mutual mistake of fact? The parties may consider these alternatives before agreeing to an information-only inspection. See “The Home Inspection in a Competitive Market,” in the May 2021 Wisconsin Real Estate Magazine at www.wra.org/WREM/May21/Inspection.
Inspector at the walk-through
Can the buyers ask their inspector to attend the pre-closing walk-through? What if the buyers see the property condition has changed since acceptance? The cooperating agent believes the buyers might have buyer’s remorse. What is the best way to proceed?
Pursuant to the offer, the buyer is authorized to conduct a pre-closing walk-through. Unless amended, the offer does not allow access for the inspector. If there has been a change in the property condition, the buyer may issue a written notice identifying the changes. The parties may be referred to the Property Damage Between Acceptance and Closing provisions of the offer. Lines 478-481 of the WB-11 state:
Within three days prior to closing, at a reasonable time pre-approved by Seller or Seller’s agent, Buyer shall have the right to walk through the Property to determine that there has been no significant change in the condition of the Property, except for ordinary wear and tear and changes agreed upon by Parties, and that any defects Seller has agreed to cure have been repaired in the manner agreed to by the Parties.
Any time a buyer has buyer’s remorse, the buyer may be referred to the terms of the offer, the default provisions and private legal counsel. Upon the instruction of the buyer, the broker may draft a cancellation agreement and mutual release (CAMR) for the seller’s consideration. If signed and timely returned, the seller may agree to release the buyer from the transaction. If not agreed upon, the broker may need to make a timely written disclosure of material adverse fact if the buyers do not intend to meet their obligations per the contract. See the sample material adverse fact disclosure in Transactions (zipForm edition) or in the WRA’s subscription-based PDF forms library.