The OREF Residential Sale Agreement provides at Section 10 (Licensed Professional Inspections) that: “Buyer shall promptly provide a copy of all reports to Seller only if requested by Seller.”
This provision, or one very similar to it, has been in existence for many years, going back to the time when sellers didn’t want to know the results of UST testing, and so declined to permit it be performed.[1] The reason they didn’t want to know was that (a) if there was ground contamination they would likely lose their buyer, and (b) the owner would be automatically liable for the cleanup. As a result, the OREF Sale Agreement has since required that certain types of invasive tests first require seller consent, so the seller could decide, in advance, if they even wanted to have the test performed – since Oregon law does not require testing proactively to determine if there is a problem.[2]
Today, the issue remains whether the requirement that the buyer will share the inspection report “…only if requested by Seller” is still the best policy. A recent industry article by a poplar and well respected Portland principal broker opined that this approach was bad policy. He presented a fictionalized scenario in which the first inspection report identified faulty electrical wiring, but following the sale-fail, the seller did not request a copy of that report.[3] The inspection conducted in the subsequent sale transaction of the same property missed the faulty wiring issue entirely. After closing, the home burned down and a child died, due to the faulty wiring. Although I have difficulty seeing how the seller could be held liable for not asking for the report,[4] the article’s scenario is nevertheless chilling and has revived the discussion about this “don’t ask, don’t tell” approach.
Based upon anecdotal reports – such as irate brokers complaining to me about buyer brokers either submitting entire reports with their request for seller repairs, or buyer brokers unilaterally sending over a buyer’s report after a sale-fail, as a sort of “parting shot” – I suspect the tide of opinion is diametrically opposed to turning over inspection reports, unless requested by sellers.
While the article assumes the accuracy of the first inspection report and the inaccuracy of the second one, I believe the brokerage community is cautious about relying upon the accuracy of other unknown inspectors’ reports.
As we know, as soon as an unsolicited report arrives in a seller’s or seller agent’s inbox, the questions become: “Am I legally charged with knowledge of the contents if I don’t open this email? Am I going to have to turn it over to my new buyer, even if my own inspector doesn’t agree with it? Am I going to have to attach it to the seller property disclosure form if there is a sale-fail?”
It is this conundrum that raises the ire of sellers and listing brokers, since they believe that the OREF Sale Agreement text is clear on its face, and they do not like being placed in an impossible situation, with no clear answers, and uncertain legal liability.
For example, suppose the first report was patently wrong, and the second report was more thorough and correct. Now the seller, having both, is placed at risk of sabotaging their own sale by having to turn it over to the second buyer.[5]
In answer to a seller’s question, or that of their listing agent “What should I do?” I maintain that the Sale Agreement is a contract, and this provision means nothing more or less than what it says. It does not require sellers to request a buyer’s inspection reports, and it does not require buyers to unilaterally turn them over.
The policy of not turning over a report unless requested is not new; it has been Realtor® practice for several years. The reason it remains so today is because that is what the industry wants. If a change in the policy is demanded, I suggest brokers make their desires known to leadership. However, since most buyer agents also serve as seller agents, I suspect a large majority of the industry would not seek a change, or if they did, it would be to make the current clause even more forceful. So, until changed, I recommend that buyers and buyer agents should be respectful of the clause and the seller’s contractual expectations.
Lastly, to be clear, if, following an inspection, a buyer Repair Addendum asked for certain repairs to the electrical system (that if ignored, would be dangerous), or there were broker-to-broker discussions about the issue, and before they could be performed, the sale failed, I submit that the seller is now at least on “inquiry notice” to vet that issue – i.e. check it out. If it was learned that there actually was a wiring problem, the Seller Property Disclosure Statement should be amended and updated. What if the seller did not vet the issue, and did not disclose the potential wiring problem in an updated Property Disclosure Statement given to a new buyer? I believe that the seller has potential liability for the nondisclosure. Why? Because, based upon what I believe to be a “reasonable person” standard, the potential problem needs to be vetted by a seller, given the foreseeable danger to buyers if it was ignored.
Further, it would be specious for a seller to ignore the risk, based upon the argument that the new buyer’s inspector would call it out if important. Risk is risk, and buyers should be allowed to make an informed decision about whether the electrical systems should be repaired. Certainly, if the seller were in the shoes of the new buyer, he/she would want to know. It’s what’s called “The Golden Rule.” ~PCQ
[1] Underground Storage Tank (UST). This involves testing the soil around the tank to determine the presence of heating oil that resulted either from a leak or spillage when the tank was filled.
[2] That is not the case if the tank is no longer in use at the time of sale. In such cases, Oregon law requires decommissioning. See: http://www.deq.state.or.us/lq/tanks/hot/buyingselling.htm
[3] The scenario did not state that the cause of the sale-fail as due to discussions relating to the electrical issue. If it was, my opinion would be the same as the author’s.
[4] Oregon law does not require sellers to ask, or buyers to share, an inspection report. If the seller did not know what was in the report, and the law does not require that he/she request it, how can a seller be held liable for the contents? The clause in the OREF Sale Agreement represents a compromise, of sorts, requiring that buyers share the report if asked. This is more than what would happen if the Sale Agreement said nothing.
[5] In the fictionalized scenario, where the attorney is questioning the seller, the dialogue suggests that Oregon law “requires” attaching a copy of an inspection report, if one was performed within the last three years. I respectfully disagree. I submit that the property disclosure question (albeit poorly drafted) is really asking if the seller has had an inspection (e.g. as a buyer), and if so, to attach that report. The inspection question No. 5(F) cannot reasonably be construed to require sellers to proactively obtain copies of buyer’s inspection reports for sale fails, and then amend their disclosure form and attach it. Of course, if the seller did have a copy of a buyer’s report from an earlier sale-fail, I believe it should be turned over. But the instruction in the disclosure statement permits the seller to attach the report or provide an explanation. I would have no difficulty in answering “Yes” to whether such an inspection had been done, but explaining that “The inspection was performed by a previous buyer’s inspector. That transaction did not close, and Seller did not request a copy of the report.”
