Weekly Practice Tip

BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

 

Disclosing Old Reports and Disclosures

 

Q:  I am a listing agent.  I represented the seller when he bought the property five years ago.  At that time he immediately put the property back on the market, and we had a buyer who cancelled the contract because of unfavorable inspection reports.  The buyer’s agent gave all of those inspection reports to me, and I gave seller copies.  Now, five years later, the seller has decided to sell and I have re-listed the property.

 

My seller does not want to disclose the inspection reports from that failed escrow, noting that several of the reports state that they are only for the use of the party who hired the inspector.  Also, seller is asking if he needs to disclose all of the reports and disclosures from when he bought the house, even though he did a lot of work on the house with permits since then.

 

Must we disclose all of those old inspection reports and disclosures?

 

A:  In a word:  Yes.

 

How far back?  All the way back. 

 

If a seller has inspection reports, disclosures and other documents with information about the value, condition or desirability of the property in their possession then, regardless of age, disclose them.

 

Sellers, even those who do not have to complete a TDS, must disclose all material facts known to them affecting value, condition or desirability of the property.  That includes all of the old inspection reports, estimates, disclosures, etc., in their possession.  There is no time limit on when this rule applies.

 

            See Weekly Practice Tip entitled:  “Seller Disclosure Obligations Apart from TDS”

 

With respect to the inspection reports from the failed escrow which state that they are for the sole use of the party who hired the inspector, a California court has stated:  “Inspection companies do not have a privileged, fiduciary relationship with the client, and their reports are not confidential.” (Leko v. Cornerstone Bldg. Inspection Service).

 

Also, all reports, disclosures, estimates, etc., from the escrow when the seller bought the property and all contracts, estimates, permits, etc., received by them during the time when they owned the property, must likewise be given over to the buyer.

 

PRACTICE TIPS

 

1.  When taking a listing discuss the obligations of the seller to disclose all prior inspection reports, engineering reports, disclosures, estimates for repair, etc., that are in the seller’s possession no matter the age or when received.

 

2.  As a listing agent, you must likewise disclose those same documents from your file if a prior escrow on the property failed and you have such documents in your possession.

 

3.  If you, as listing agent, represented the seller when they bought the property, you need to review the broker files and any agent files in your possession (if they still exists) and disclose all of those same documents to the buyer.

 

4.  When preparing all such documents for delivery to the new buyer, keep copies for yourself.  Prepare a transmittal cover letter with a list of the documents, their title, who prepared them, the date, and the number of pages.  Send that transmittal cover letter with the documents to buyer’s agent so that you have a record of what was disclosed.

 

            See Weekly Practice Tips:  “Documenting the Paper Trail” and “Documenting Your File”

 

4.  If a seller instructs you, as listing agent, not to disclose any such documents, advise the seller of the danger of not doing so, and suggest that they discuss the matter with their attorney.

 

5.  If the seller has a particularly damaging report (perhaps from a former buyer who wanted an excuse to cancel the escrow) and seller does not want it disclosed, remind seller of the obligation to disclose everything.  One strategy would be to employ a reputable inspector to prepare a report on the same subject, disclose both reports to buyer, and advise buyer that seller intends to negotiate from the reputable inspector’s report.

 

6.  If the seller instructs you not to disclose any such document, discuss the matter with your manager or broker.  Document your file.  In the worst case scenarios, it may be necessary to withdraw from the listing.  While not a happy result, that is still better than a lawsuit for failure to disclose.

 

DO NOT FORWARD TO SELLERS OR BUYERS.  This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents.  It may not be reproduced or distributed without the express written consent of Broker Risk Management.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.