Texas Seller’s Disclosure and Home Inspections

I was shocked when I read a colleague’s facebook post last week lamenting that his seller client had requested a copy of the buyer’s home inspection. He was frustrated, and complained that the seller would then be responsible for the burden of disclosure for any issues noted on the inspection report.

Years ago, the school of thought was that a Texas listing agent or seller could simply refuse to read or receive a copy of an inspection report, and thereby be exonerated from disclosure liability. If the working contract terminated, discovery would then be the duty of the next buyer, who might not find or care about the same issues.

Although this may have been a strategy for handling an unwanted burden of disclosure in the past, TAR has more recently addressed the matter in their September 2013 post titled, Does a Seller have to Disclose an Inspection Report He Didn’t Read? 

Answer: “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. If an inspection report reveals material defects, the seller and the broker are obliged to disclose those defects to subsequent potential buyers.”

By today’s standards, ‘knowledge’ can come by way of images / language extracted and shared from an inspection report, formal or informal repair requests documented by email, or even by way of a phone conversations between buyer and seller parties. In Texas, Sellers are expected to update seller disclosure notices with new information regarding defects, and to attach a copy of any prior inspection reports (if the Buyer has been generous enough to share a copy).

Worst case scenario, if a contracted Buyer is alleging an issue so serious that it would prevent financing approval on the property, it would be in the seller’s best interests to analyze the documentation upon which the Buyer’s conclusion is based.

Keeping in mind that a Texas seller has no obligation to change the original contract in any way, the fear of knowing the truth about an issue is a poor defense.  Being proactive might also put an end to a Buyer’s potential misunderstanding or misinformation about an issue of concern. Inspectors are not perfect, after all. Consider that really only one of three things will happen…

  1. The information will be right
  2. The information will be wrong
  3. The information won’t matter

Any way you slice it, parties will either come to terms by negotiating and addressing issues of concern, or they will decide to part company and terminate.

The risk selling parties take by choosing to stick their heads in the sand and feign ignorance will be far greater than any risk of fully disclosing any issue relating to a property. And, with increasing seriousness, risk is equally magnified.

The REAL worst scenario for any Selling party is to have awareness of an issue or condition that would cause financial or physical harm, and then to willfully hide it under the pretense of “not knowing” it in hopes that the next buyer would fail to find it through his own due diligence. ‘Successfully’ selling  to an unwitting buyer using this flawed mentality bodes for future lawsuit. The burden of disclosure is far lighter than a burden of guilt.

 

How Can Sellers Leverage Prior Inspection Reports To Their Advantage?

It is  time to tell an updated story about disclosure requirements in Texas.  As the brilliance of this strategy starts to take root, it may become increasingly difficult to GET Buyers to share a copy of their paid inspection report!

For a Seller, is never fun to have a transaction go sideways, but the reality is that sometimes Buyers make unreasonable demands. Whether driven by greed, fear, or ignorance, failure to come to terms under the option period may have nothing to do with property defects. An offensive or threatening negotiation strategy, personality conflicts between parties, inability to obtain financing, buyer’s remorse, and unrealistic expectations are common culprits in transactions gone awry.

Our advice to Sellers when listing a property is to disclose, disclose, disclose. We believe in living in transparency, not fear. Disclosing does not obligate repair. A seller can say, for example, “The ceiling fan is broken, and I will not fix or replace this item.” It might be short-sighted for a Seller to take such a stubborn stance, but if it is the truth of the Seller’s position, isn’t it better to advertise this way?

In the same way, a prior inspection report on file — marked up to refute errors, to document qualified repairs, or openly note items the Seller will not address — can be a tremendous gift in a listing agent’s marketing toolbox.  Buyers will appreciate the disclosure and knowing up front what they are getting into.  Likewise, Sellers will benefit from having expectations managed properly up front, and will enjoy reduced risk and vulnerability after the sale is complete.

See blog post on ActiveRain

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