BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Buyer Inspection Election
Q: I am a buyer’s agent on a transaction which closed several months ago. After the close of escrow, my buyer discovered a significant pool leak near the bottom of the pool evidenced by a drop in the water level. The seller had simply disclosed that he repaired “surface cracks.”
I recall discussing that disclosure with my buyer who chose not to pay extra for a pool inspection report because the disclosure seemed so minor; but I didn’t write that down anywhere. Mediation was demanded by the buyer’s attorney. The seller, the listing broker and my broker and I all elected to participate. The cost of repair was fairly significant and it was clear that the seller’s contractor did an inadequate repair job.
While I felt that I had no liability, the mediator pointed out that I had no evidence that the buyer had elected not to have the pool inspection. The mediator used that point to drive up our settlement offer.
From now on, I am using the Buyer Inspection Election form all the time.
A: Your situation is an all too common occurrence. The failure of a buyer’s agent to adequately document which inspections buyers choose to have, or not to have, has lead to numerous claims against brokers, and increased settlement costs and liability. Without written evidence of which inspections the buyer has chosen, and which were rejected, buyer agents have to defend the claim based on “he said – she said.” Such cases are difficult and expensive to settle.
It is common for home inspectors to recommend additional inspections, particularly in areas that require specialized knowledge, such as roofs, foundations, soils, swimming pools, septic systems and the like. This way, the home inspectors are deflecting liability away from them should there be a problem which they cannot investigate, or do not have the skills to properly assess.
Attorneys for buyers frequently assert that it is the buyer’s agent’s obligation to make recommendations regarding whether there should be additional inspections, and failure to do so is a breach of that agent’s fiduciary obligation to protect the buyer.
Thus, it is important for buyer’s agents to document which additional inspections buyers choose to have, or not to have, so as to avoid the situation in which you now find yourself.
PRACTICE TIPS:
1. Immediately upon contract acceptance, discuss with your buyers which inspections they would like to have. Document that decision. In addition, after receiving the home inspection report, discuss with your buyers whether they want to have any other additional inspections.
Such additional inspections could be those recommended in the home inspection report; based on disclosures by the seller; based on the special needs or concerns of your buyers; or even suggested by the property itself or the surrounding area, such as a hillside behind the home. Document that decision as well.
2. Use the CAR “Buyer Inspection Election” form (ZipForms form BIE), or a similar form, to document your buyers’ decisions in this regard. Have your buyers sign this form giving them a copy and keeping a copy for your broker file.
3. Note that the BIE form states:
“BROKER ADVICE: YOU ARE STRONGLY ADVISED TO INVESTIGATE THE CONDITION AND SUITABILITY OF ALL ASPECTS OF THE PROPERTY. IF YOU DO NOT DO SO, YOU ARE ACTING AGAINST THE ADVICE OF BROKERS.”
4. It is helpful for the home inspector to have a copy of the seller’s TDS and other disclosures as this will guide the inspector to look closer at those areas where seller discloses that they have had a problem. While the seller may believe that the problem or defect has been corrected, the home inspector can look closely at this situation and make a more complete report.
5. If your buyers ask you whether you think they should have a particular inspection that has been recommended by the home inspector, tell them to discuss that directly with the home inspector. With respect to other possible inspections, it is best to let buyers make that decision themselves as you are not legally qualified to assess whether a particular inspection report will reveal material defects or conditions affecting value, condition or desirability of the property. It is dangerous indeed to recommend against having a particular inspection. It is safer to err on the side of caution and recommend the inspection in question.
6. If your buyers change their minds, document that decision as well. For example, if your buyers had indicated on the form that they wanted a roof inspection, but later changed their minds, document that decision either on the form itself or in an e-mail. You do not want to close with a form stating that the buyer wanted a roof inspection, then no roof inspection was performed, and later it is discovered there is a roof problem.
7. Of course, if your buyer chooses to buy a property with no inspections, that decision MUST be documented. You can use the BIE form to document that decision as well. In addition, there are other forms in some areas, or even individual brokerage forms, where this decision can be documented.
DO NOT FORWARD TO CLIENTS. 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.
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