« Go Back

Legally speaking: Dealing with a negative home inspection report

By Peg Ritenour, OAR Vice President of Legal Services/Administration

The OAR Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law, our “Legally Speaking” series spotlights some of the timely questions that are being asked by REALTORS. This one involves how to handle a property inspection report that caused a purchase contract to be released…

Q: I have a listing on which there was a pending purchase agreement. Following an inspection, the buyer submitted an addendum requesting that the seller fix several items. A copy of the inspection report was attached to the addendum. The buyer and seller couldn’t reach an agreement and the seller released the buyer from the contract. The seller updated the Residential Property Disclosure form to disclose the problems found by the inspector and the property went back on the market. Another buyer is interested in making an offer and his agent has demanded a copy of the previous inspection report, claiming I am required by law to provide this to subsequent buyers. I thought I couldn’t give the report to anyone else because the report belongs to the first buyer. Who’s right?

A: Actually neither of you is 100 percent correct.

Certainly, it has been the longstanding position of the Ohio Real Estate Commission that when there is a negative inspection report on a property, the listing agent has a duty to disclose this fact to subsequent buyers. This is because the Commission considers this to be a material fact that a reasonable buyer would want to know before making a decision to purchase a property, or the terms on which he will purchase a property. This is true even if the seller questions the inspector’s findings or qualifications. (In this situation it is recommended that the seller have his own inspection done, and provide information regarding both inspectors’ findings to any subsequent buyers.)

While the Commission wants the fact that a previous inspector found issues with the property to be disclosed to other potential buyers, there is no law or ruling that specifically mandates that a copy of the actual report be provided. Instead, as was done by the seller in this scenario, this can be disclosed by the seller in the Disclosure form or could be communicated by some other means. Of course, it is always recommended that any disclosure be reduced to writing for the parties’ protection. Moreover, any answers on the Residential Property Disclosure Form that the seller now knows are inaccurate should be amended to avoid a potential claim of misrepresentation.

While not specifically mandated by the Commission or the license law, providing a copy of the actual report (or at least  the pertinent pages) may be prudent. By doing so, the seller and listing agent can avoid an allegation that they misstated the inspector’s findings, thus reducing their risk of liability. Certainly the listing agent should obtain the seller’s consent before providing a copy of the report to the second buyer’s agent and should refer the seller to his own attorney for advice on this issue.

But what about the concern that the inspection report belongs to the first buyer and therefore can’t be given to any subsequent buyers? Unless the seller or listing agent agreed they would not provide a copy of the report to anyone else (which would be highly unusual), the seller owes no duty of confidentiality to that first buyer and therefore may direct the listing agent to provide a copy of the whole report, or the pertinent pages, to a subsequent purchaser.

A word of caution, however: A subsequent buyer should always be advised by his buyer’s agent to still have his own inspection done by an inspector of his choice. Because the first inspection report was not prepared on behalf of the subsequent buyer, that buyer would have no standing to pursue an action against the original inspector for any reason (i.e., failure to find other defects in the property).

To conclude, while it is permissible for a copy of the first inspection report to be provided to the second buyer’s agent, there is no required specific law that mandates it be provided. Moreover, it should only be provided by a listing agent with his seller’s consent. Of course if the seller refuses, this could result in a buyer deciding not to make an offer to purchase the property. If the earlier inspection is provided to a subsequent buyer, that buyer should always be advised to hire his own inspector.

Tags: legal, Legally Speaking