BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Disclosing Bad Reports from Prior Buyers
Q: I am a listing agent and we just had the buyer cancel based on the condition of the property. The buyer hired his own contractor friend to inspect the property and write a report which basically stated that the property was in very poor condition; bad foundation, roof problems, etc. Based on this report the buyer cancelled the contract. My seller is furious because the property is in excellent condition. It is pretty clear that the buyer wanted a devastating report so he had a reason to cancel. My seller doesn’t want me to disclose this report. Do I have to?
A: In a word: YES.
Sellers and agents must disclose to buyers all information in their possession which materially affects the value or desirability of the property. This is true even if everyone believes that the information is not accurate.
So, even if the seller does not disclose this report, the listing agent must do so.
PRACTICE TIPS:
1. Sellers and listing agents must fully disclose all information in their possession materially affecting value or desirability regardless of whether you and seller believe the information is wrong or biased.
2. If a seller instructs you as a listing agent not to disclose that report, you should point out to the seller not only his/her obligation to make a full disclosure, but also your obligation to disclose that report. Make clear that, if the seller does in fact instruct you not to deliver that report to the next buyer, you would have to resign from the transaction and the listing. Try to negotiate a resolution. If you and seller are at an impasse regarding disclosing this report, contact your manager or broker for advice as to how to proceed.
3. A good way to handle the situation is to recommend to seller that he/she obtain a second report from a qualified local inspector whom you trust (if one has not already been obtained by seller) and then disclose both reports to the second buyer. Then, advise that second buyer’s agent that seller does not believe the report obtained by first buyer and is only negotiating off the second report obtained by seller.
4. Seller could also be referred to an attorney to review the improperly-written, bad report as to whether that inspector has liability to the seller for damaging the seller’s ability to sell the property.
5. BUYER AGENTS: If this type of an improperly-written, damaging report is obtained by a buyer you are representing and then, after your buyer cancels, another agent in your office represents a second buyer on the property, that damaging report, along with all other disclosure items and reports in your file, must be disclosed to the next buyer.
6. LISTING AGENTS: Also, if you are the listing agent in this scenario and your listing expires and then is listed with another brokerage, and then you or another agent in your office represents the second buyer on that property, this damaging report and all other disclosure items and reports in your file must be disclosed to that second buyer.
WEEKLY PRACTICE TIP: 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.
© Copyright Broker Risk Management 2013 07/19/13