Legal Hotline: My Deal Fell Apart Because of An Unfavorable Inspection. Now What?

I represent the seller in a deal that fell through due to an unfavorable home inspection report. Do I have to disclose to future prospective purchasers the reasons why the original buyers backed out?

Most likely, yes. Attorney General regulations explaining Chapter 93A provide that it is a violation when an agent, “fails to disclose to a buyer or prospective buyer any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.” Disclosure is limited to facts actually known by an agent, not suspicions or rumors; Chapter 93A requires that a real estate agent volunteer these facts, even if not asked. It is recommended that these disclosures be made in writing, so it is clear as to when and to whom the disclosures were made.    

This does not mean you can share the inspection report from the original buyer without their permission. There is a distinction between the factual information in the report – i/e structural issues, mold, major necessary repairs, and the report itself. If you know about problem conditions in the property, those conditions must be disclosed to other buyers.  The paper copy of the report itself is the property of the first buyer, since that buyer paid for it.  You should not give property of the first buyer to another buyer without permission. It is recommended that you ask the first buyer for permission to provide a copy of the report. Doing so reduces your risk that a buyer will claim that any facts were omitted.

The exception to the inspection rule is Title 5. If the sellers had a Title 5 inspection that originally failed, and three months later, a different inspector passed the system, you should provide the results of both inspections unless repair work was performed and the operating condition of the system has been guaranteed. If repair work has not been performed and the operation of the system not guaranteed, you are at risk if you fail to disclose both reports. Generally, a Title 5 report is not a guarantee of the operating condition of a system but rather a snapshot that signs of failure were not observed on the day of the report.  

Unless both reports are provided, a buyer may allege that the sellers conspired with the second Title 5 inspector and the real estate agent to mislead the buyers about the condition of the system.  If repairs were performed following the failed inspection, it is wise to provide buyers with information about the repairs so they can be satisfied with the adequacy of the work.

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The REALTOR® Legal Hotline offers authorized callers access to staff attorneys who can assist members with questions about current state and federal laws and regulations, permissible business practices, and important court rulings affecting real estate practitioners.  To take advantage of the Legal Hotline service, a member’s designated broker must first complete and sign an Authorization Form and return to the MAR Legal Department.  Once approved as an authorized caller, MAR members may access the Hotline by calling 800-370-LEGAL (5342), sending an e-mail to legalhotline@marealtor.com, or faxing questions to 781-890-4919.  The hours of operation are Monday-Friday, from 9 a.m. to 1 p.m. MAR compiles and publishes the questions and answers to our most popular inquiries, click here for the archives.
2017-10-03T17:46:49+00:00