If the sale that triggers a home inspection falls apart, and there is an inspection report that has been generated, the question arises, what is the responsibility of the seller to review the inspection report and disclose information from that report in a subsequent transaction?
First, consider the seller’s obligation to provide buyers with a reliable representation on the major conditions of a property under the Illinois Residential Real Property Disclosure Act [“The Act”]. The Act requires that sellers complete a form specifically answering 23 questions about a wide range of conditions of their property.
Often, the seller completes the required disclosure form prior to the time he or she enters into a residential sales contract with a buyer. Presumably, the seller completes that required disclosure form honestly and based upon the seller’s actual knowledge at the time they completed the form. However, when an inspection of the home is triggered by an agreed contract, sometimes new defects (material or immaterial) are discovered on the property. Now there is a question about what, if anything, the seller must disclose.
Sometimes, post inspection, the sale of the home falls apart for reasons not related to the inspection and there is an inspection report out there that may or may not reveal newly discovered defects on the property. At that point, the question arises, must the seller review the inspection report and disclose any information contained in that report?
The language in the current Multi-Board Residential Real Estate Contract 7.0 in the Professional Inspections paragraph suggests that there is no such duty, and that the buyer should only provide the seller a copy of the report if the seller’s side specifically requests a copy. That language might provide a seller an opportunity to “dodge” a report allowing the seller to deny having “actual knowledge” of any defects on the property. This appears to be inconsistent with the purpose of the disclosure act.
This is particularly true because, under the Act, it is very clear that a seller does have a duty to supplement the disclosure report if the seller learns of a material defect after the original disclosure form was delivered to a prospective buyer.
Arguably, the best business practice for a seller, subject to seller’s attorney’s advice, would be to request any relevant part of an inspection report in order to provide their seller with important information relevant to the property for sale. First, information from the report may allow the seller an opportunity to remedy any major physical defects on the property so the seller does not need to amend the disclosure form. Furthermore, it might strengthen their negotiating position when a new buyer comes along. Second, it positions the seller to be in compliance with the disclosure requirements of the Act. In many circumstances it is better to meet disclosure issues that are material and related to the physical condition of their property “head on” rather than trying to avoid knowing that issues exist.
It is important to note that information regarding the physical condition of a property is not confidential to sellers. However, sellers might do themselves a disservice by trying to avoid knowing about defective conditions that might exist. On some occasions, it can be less expensive to disclose a newly discovered condition, and take a “hit” on the price, or fix the condition and be done with it. This could be preferable to having to explain to a court, if a civil suit is filed alleging bad faith in disclosure, that seller had an idea that a prior deal died due to a bad inspection and chose not to find out about it in order to avoid disclosure requirements. The best suggestion a seller’s broker can give in this situation is that the seller seek specific legal advice from their attorney.