I’m in the middle of an inspection right now on the buyer side of a deal. We are conducting several follow-ups with an electrician, HVAC person, plumber and a pool guy. Once we have all the data and info, we’ll do what I always want buyer agents to do when I’m the listing agent; we’ll prepare a simple addendum with a dollar amount and/or price reduction and not much detail.

If the listing agents wants to know more, I’ll offer to provide the inspection report and bids received. If they just want a verbal summary, I’ll offer it up and we’ll treat the information like layers of an onion. Often, a seller was already expecting inspection issues and the dollar amount seems reasonable and it’s settled with little fanfare.

The dispute with those agents who take a different viewpoint than mine is over the definition of “knowledge of” and “received” and whether a unilateral forcing of the “receipt of knowledge” has occurred when a buyer agent emails unannounced the inspection report as an attachment to the listing agent. Even different attorneys disagree about this.

I hold that I haven’t received it if I don’t actually accept it and view it, and neither has my seller. Others have a different opinion. But this only factors in if the deal craters and we have to decide what to do with that inspection report. No matter what you believe about any of this, a seller still has no obligation to read a buyer’s inspection report as part of the negotiations.

Steve

I have a question. You write: “If the agent “sees” it, it’s as if the owner “sees” it. It would be considered “received”. If the buyer backs out, the seller disclosure would have to updated.”

It would seem, though, that this goes against the point in the article and in your follow-up comments that “you can’t force knowledge upon someone,” something that should hold for both agents AND sellers.

Here’s a hypothetical situation. What happens if: the buyer instructs the agent ahead of time that he/she does not want to receive any inspection reports done by buyers. The agent tells the seller over the telephone that he/she has nonetheless received one and opened it (for argument’s sake, let’s say the buyer’s agent forced it upon the selling agent). Upon hearing this news, the seller instructs the agent NOT to send it along. I understand that, in further negotiations, the AGENT would be required to disclose the inspection report. However, in this scenario, would it not be wiser for the listing agent to dissolve the contract, given the reluctance of the seller to see the report and the resulting discrepancy between the agent’s knowledge of the property and the seller’s knowledge of the same?

It just seems to me that, as agents who have a duty of “obedience,” we have a duty to put our clients’ interests and desires ahead of our own. It would thus seem that, in instances where certain types of knowledge (i.e. inspection reports) are considered–rightly or wrongly–undesirable on the part of the seller, we have no choice but to comply with their wishes and protect them from the inspection report that they have pre-emptively expressed a desire not to see–even if this means we must recuse ourselves from the deal.

This all goes back to my previous comments about having a frank discussion about how inspection reports are going to be handled BEFORE listing the property. All of this, however, touches on a larger problem that neither TREC or ABOR adequately address but that you do bring up in your article: many buyers’ agents lack the etiquette to ask the simple question “how do you want to handle repairs/the inspection report” to the listing agent and in turn force knowledge onto listing agents, thereby putting the listing agents in very difficult situations (and their buyers).

If the agent “sees” it, it’s as if the owner “sees” it. It would be considered “received”. If the buyer backs out, the seller disclosure would have to updated.

If that didn’t happen, and a new buyer complained about something months later, the first question would be:

1) Did you not conduct your own inspection and, if so, why are you not discussing this with your own inspector if you think something was missed?

I’m not trying to convince every agent to do things my way. But the fact is, a seller does NOT have to read or look at a buyer’s inspection report at all. It’s not part of the agreement. It’s not part of the contract. Inspection isn’t even mentioned in the sales contract. So, it is in fact a seller’s right to say “I’m not interested in your inspection report, just send me a final proposed amendment if you want to change the contract before the Option Period ends”.

The discussion about what happens if that buyer and his inspection go away is a different discussion that the one about whether a seller has to look at the report as part of negotiation. The seller does not.

Steve

An agent/Broker has no Disclosure obligations unless they have actual knowledge about a material defect or condition that a seller is refusing to disclose. One of the main points I was making in the original article is that a subjective opinion from an unknown inspector is not “actual knowledge”.

The agent would have to inform the seller of seller’s disclosure obligations, but the actual disclosure is a product of the seller. If the seller doesn’t disclose something that the listing agents knows ought to be disclosed, the listing agent would need to say something about it to the other agent, in writing, to stay above board.

But this would apply only to “actual knowledge”, not guesses or unsubstantiated opinions provided by unknown third parties.

Steve

I think you’re over-thinking the Option Fee. It’s not material to the success of the negotiation or the transaction. A seller of a busted deal isn’t going to be any happier about keeping $300 than $100.

Steve

I agree that 500$ option fee is kind of crazy high but, if there are multiple offers, a buyer might come close to it. I certainly would for a house I really wanted, indeed I just did. Just as an example: there was another, slightly higher bid on the house I am buying this week. When I spoke to the realtor, he said that he wanted to go with us because we were cash buyers but that we had to come up with our price. Basically, I dug my heels in with our offer. At the same time, I gave the realtor my word that I wouldn’t ask for anything off after the inspection unless there was something major. (This is a house from 1958, so we kind of knew what the inspector was going to find). The seller’s realtor and the seller didn’t want to take me at my word until I offered a 400$ option fee. The listing agent was kind of bowled over by it (and advised me to consult with an already practicing realtor. I didn’t). Long story short, the seller went with our offer and took the exorbitant option fee I offered as a sign of good faith. In the end, we did a hydrostatic water test and there was something major with the house–a sizable leak. The seller got their own plumber out, they found the leak and got a bid. The seller is now assuming the repair of the leak (2000$). Our inspection report (which the realtor asked to see without consulting the seller or advising the seller as to the potential liability of seeing it, mind you) ended up acting as leverage. There is no chimney on the fireplace they are advertising, the water heater from 2008 is incorrectly installed, the vents don’t match the pitch of the roof, the windows don’t open, a few windows are broken etc. Obviously, there was also a lot of other little things in addition to these items. When the seller/realtor realized that any other buyer would have asked for a heck of lot more off their initial offer or be turned away, the seller was all too happy to capitulate with the leak.

I recount this because it was a gamble. Granted, I could have lost my 400$ option fee on account of insisting they pay for the leak. At the same time, the fact that I offered so much initially is what put our (somewhat pathetically low) bid to the top of the list. What is more, even in spite of my high option fee, I still had room to maneuver when something major was found.

Basically the seller knew that we had made a lowball offer. However, we had every intention of sticking to it, and our 400$ option money was the proof. The same could not be said for the buyer with whom we were in competition. We stuck to our word, and I like to think that all of the concerned parties are happy with the results. Basically, my frank conversation with the seller’s realtor about my disdain for the two-step negotiation phase was reassuring to the seller.

Again, it is unlikely that I would advise a client to follow my lead on this. But I do think that some buyers would be willing to pay a higher option fee if they really wanted the house. I also think that asking for more option money so that a buyer can differentiate his/her offer from another, similar offer is a completely legitimate request. Offering it could work to the benefit of the buyer. 500$ may be higher than most buyers’ agents will that their clients go. But 300-400$ is something that I think other buyers would seriously consider IF competition for the property were fierce.

Again, we’ll see if my approach works once my next investment property hits the market.

> Let’s say the buyer comes back with the one number and it’s, say, $3000. You say that at that point you may ask the buyer’s agent some general questions.

Yes, I’d ask some general questions, like, “how are you coming up with that number?”, and go from there.

It’s not that we want to stick our fingers in our ears, close our eyes and go “la la la la l a”, it’s really, bottom line, about preventing the seller from getting a flaky buyer’s inspection report hung around the neck of our seller.

If the listing is a 1982 house, we all know what sort of stuff that house is going to have flagged on an inspection report. It’s old, probably with some updates, but it’s 1982. I don’t need to see the inspection. I might ask the agent “is it mostly age related and the typical nick-knack stuff, or did the inspector find something major?”

Nija, good luck on your license examine. FYI – I’ve never seen a buyer pay $500 option fee. Well over 50% of option fees are still just $100, even for homes $500K and up. Sometimes we’ll see it at $200-$300, but I’ve never encountered $500 and I wouldn’t let my buyer pay that amount.

Steve

As a seller/investor (who is, incidentally, taking her real estate exam this weekend), this is going to be my approach the next time I sell a property: Basically, I am going to decide on a number (let’s say a thousand dollars off of the agreed upon price of sale). If the buyer asks for less than that during option period, I’m not asking any questions and will just capitulate. However, if the buyer asks for more than that, I am either A) just going to walk away and take the option money or B) call my own trusted inspector and get my own report done. Which way I go will depend on how urgent it is for me to sell. It will also depend on how long the property is on the market, of course. For example, if I get an offer in the first week, I am just walking away if the buyer asks for more than a thousand dollars and will then just take my husband out to dinner with the option money. If a month goes by and/or there’s been an offer or two that has fallen through, I may go with option B. (Of course, as per my earlier posting, I am going to instruct the buyer’s agent AHEAD of time about how I want to go about repairs, which is to say I DON’T WANT TO SEE THE INSPECTION REPORT–EVER). Whatever the case, in those first few weeks, option period is going to cost any potential buyer 500$ or I am simply not getting into bed with said buyer. (Obviously, all bets are off if the house is on the market for a long time). For hot, newly renovated properties, I really think that one should hold a hard line–both against the inspection report AND against those annoying buyers who make an offer for a price they have no intention of actually paying. Basically, with 500$ of option money plus 300$ for the inspection, only those buyers who are serious about their offer are going to make my property go pending. The yahoos who have been advised by their REALTOR to go in high and then chip away during the option period will think twice. Of course, if during the option period these same buyers still ask for a large sum after paying my (admittedly exorbitant) option fee, then I can take that as a sign that perhaps something went horribly wrong with the renovation. At that point I will know that I need to get an inspection done by my OWN inspector.

Anyway, my next sale is going to be my own personal experiment. Obviously, I wouldn’t try this with a future client. But, after two full-asking price offers in my first week the last time around, I am going to try a more self-confident approach next time I sell and insist that the offer be a REAL offer (and not something to revise during option because my vents aren’t perfectly angled for the pitch of the roof or my azaleas have root rot or whatever).

Note: I may come back from my next sale humbly and with my tale between my legs. But, I am closing (buying) an investment property later this week. It should be on the market in a few months, and I will report back once it hits the market. As an investor and, as of this Saturday (hopefully), a real estate agent who will henceforth be able to represent herself, I am curious to see just how this approach works. It can and may fail miserably but, man, will it be fun!

Excellent article, “You Don’t Have to See Your Buyer’s Inspection Report.”

I’ve coached my agent to observe your method re this topic.
I do have a question though. Let’s say the buyer comes back with
the one number and it’s, say, $3000. You say that at that point you may
ask the buyer’s agent some general questions.
Please share with me what questions you may ask the buyer’s agent at
that point. I was thinking of having my agent say to the buyer’s agent, at
that point, “Without referring to the inspection at all, give me a list of repairs
that you want my client to pay for with a dollar amount next to each one.”
What do you think?

David

But, and this is my larger and more general question: what about putting a clause into the contract with the listing agent stating explicitly that he/she does not have the right to accept, read or transmit any inspector’s report or portion of an inspector’s report without prior written consent from us and that he/she will automatically delete any message containing one? We’re investors and so we’ll be buying and selling a lot of houses over the next few years. The reason I am asking is this: It just seems to me that it would be helpful to both us and to any listing agent we might hire to have a signed piece of paper that expressly forbid him/her to view an inspector’s report. It’s not that I wouldn’t trust my listing agent (if I didn’t, I wouldn’t hire him/her). It’s just that, if it were in writing, our agent could then present the signed document to any potential buyer’s agent at the moment an offer was made, and inform him/her that–upon receipt of an inspector’s report–there would be consequences (a smaller commission for the buying agent, the immediate termination of the option period, the obligation on the part of the listing agent to recuse him/herself, or something). This would help a listing agent resist a buyer’s agent who was trying to push the inspector’s report, wouldn’t it?

I know your comments and the article is more geared to agents. But the fact is that, as an investor who is familiar with the system and potential dangers of inspectors’ reports when on the selling end, it just seems to me that we need to have some agency in this and that we should be able to do something to protect ourselves, our investment AND our listing agent.

Nija,
You have the right as a client to instruct your agent in any manner you please. The agent has a duty to disclose anything they know about the property, whether you tell them to or not though. In other words, you can’t expect an agent to obey an instruction to conceal pertinent facts and information from a buyer.

It sounds like your agent was operating in what he believed to be the most prudent way because you already know something about the house that he deemed material in nature. Without knowing all the details, it’s impossible to make a judgment about your specific scenario, and it would be improper to do so while you are being represented by another agent. But, in your example, and in any example where a seller knows something in advance of selling a home, the rule of thumb when in doubt is to disclose it.

For example, the house I currently own has a “belly” in the sewer line. I know about it but a buyer or inspector would not detect it during an inspection. I still have to disclose this fact and I would.

Steve

Curious as to what the “verdict” was on this. Did you follow up with TAR? Interesting debate….

Thanks for the link. Interesting. The TAR attorney at first sounds like she disagrees with the premise of this article, but in the second half of the segment, when asked if a buyer can force a seller to read the inspection report, she unequivocally says “no, you can’t force a seller to read the inspection report”, which is exactly what I’ve stated. Then she states essentially the same thing I do, which is that the buyer should NOT try to force the report on the seller but should instead focus on working toward an acceptable amendment, or excercice the option to terminate. I still hold that a buyer does not have the power to force terms and conditions, or amendment language, upon an unwilling seller.

I think the main question remaining is, if said buyer does terminate, is the seller left with “knowledge” of the contents of the unread inspection report. She’s saying that the seller does in fact have knowledge. I was told the opposite by a different TAR attorney. I think the mistake Ms. Levy makes is assuming that the contents of the report are absolute, when we all know that the content are subjective, often unclear, and will vary from inspector to inspector.

I’m sticking with my position, but I will be following up with TAR and will post the result of the follow-up.

Steve

2nd 1/2 of the mp3 is about the seller/seller’s agent not looking at the buyers inspection report… they say seller is still held as if they have that “knowledge”…