What Are Your Obligations With a Buyer’s Inspection Report?

They’re typically purchased by the buyer but can outlive the buyer’s involvement in the deal. Discover what you can and can’t do with this important information.

The buyer’s inspector contacted the seller and stated that neither the seller nor the seller’s broker can provide a copy of the inspection report to a subsequent buyer who has not paid for the report. Is the seller or the seller’s broker ever prohibited from providing a copy of an inspection report to a subsequent buyer?

A seller or seller’s broker is only prohibited from sharing a copy of an inspection report with a subsequent buyer if the seller or the seller’s broker is the client of the inspector and the seller or seller’s broker signed an agreement prohibiting the seller or broker from sharing the report.

Most inspectors know that a client will use the inspection report to negotiate repairs in a transaction and that the client may need to provide a copy of the report to the other party. This is the nature of the industry that gives rise to the demand for the inspector’s business.

Most inspectors do not require that their clients sign confidentiality agreements prohibiting the client from sharing the report with others. Even if an inspector has a client sign a confidentiality agreement that limits the client’s right to copy and distribute the report, that agreement is binding only upon the client and not upon any other person who may receive a copy of the report.

What obligations does the seller have to subsequent buyers to disclose information in the prior inspection report?

A broker or seller who receives an inspection report is charged with knowledge of the information in the report. This is true even if the broker or seller does not open the report or disagrees with the information contained in the report. If an inspection report reveals material defects, the seller and the broker are obliged to disclose those defects to subsequent potential buyers.

The seller and broker may choose to disclose the defects orally, but that may be imprudent since no record of the disclosure would exist. The seller and broker may instead summarize the defects in a written communication to the subsequent buyer, but that may create a risk if information is omitted.

Instead, the seller and broker should provide a copy of the report to the subsequent potential buyer along with the seller’s disclosure notice, thereby providing all of the information the seller and broker have with regard to the condition of the property. The Texas REALTORS® Seller’s Disclosure Notice (TXR 1406) instructs the seller to identify and attach copies of previous inspection reports received in the past four years. The association’s notice cautions the buyer against relying on previous reports as a reflection of the current condition of property and suggests that the buyer employ an inspector of the buyer’s choice to inspect the property.

My seller client disagrees with the buyer’s inspector’s finding that an item needs to be repaired. Does a seller have to make the repairs requested by a buyer?

No. There is no requirement for a seller to make any repairs. However, a seller who rejects any repair amendment or refuses to negotiate any repairs risks the buyer terminating the contract if the buyer has an unrestricted right to terminate the contract and is within the termination-option period.

If the seller strongly believes the information in the inspection report is incorrect, the seller could have another inspection performed in an effort to continue negotiating with that buyer. If the buyer refuses to negotiate and terminates, the seller should provide both inspection reports to subsequent buyers.

Source: Texas REALTOR® Magazine