This is the first episode in our video series covering the use of a home inspection report to mitigate risks of misrepresentation in the preparation of a seller’s Transfer Disclosure Statement (TDS). Stay tuned each week for the latest episode!
Investigative reports flesh out the marketing package
The primary objective of a seller’s agent on taking a listing is to solicit and locate prospective buyers to submit an offer to acquire the listed property, as sufficiently disclosed by the seller and their agent so not to mislead the buyer about its condition. When a prospective buyer is located, directly or indirectly via a buyer’s agent, the seller’s agent owes the buyer a general duty to voluntarily and promptly provide critical information on the listed property that might adversely affect its value. This property information is collectively referred to as material facts.
Upfront factual disclosures put the buyer on notice of conditions on or about the property known to the seller or the seller’s agent. Without this information, a prudent buyer is unable to set a price and make an offer. For the most efficient delivery of property information for timely presentation to prospective buyers, the seller’s agent at the listing stage gathers data on the property and organizes it into a marketing package.
The marketing package contains third-party investigative reports prepared by unbiased professionals or government agencies addressing essential aspects of the property’s condition that are of concern to prudent buyers. [See RPI Form 133]
One such investigative report is the home inspection report (HIR) to accompany mandated property disclosures. [See RPI Form 130]
The agent for a seller of a one-to-four unit residential property asks the seller to grant them authority to order an HIR on the seller’s behalf. [See RPI Form 130]
The home certification process is a cost the seller incurs to properly market the property if they are to avoid claims by buyers about defective property conditions after a purchase agreement is entered into.
The seller’s agent explains the HIR is also used to prepare the seller’s Condition of Property Transfer Disclosure Statement (TDS). The HIR will then be attached to the seller’s TDS. Both will be included in the agent’s marketing package presented to prospective buyers who seek additional property information. [See RPI Form 304]
On receipt of the HIR, the seller may act to eliminate some or all of the deficiencies noted in the report. Sellers are not obligated to eliminate defects they disclose when offering a property for sale, unless they choose to. If a defect is eliminated, an updated HIR report is ordered out for use with the TDS for property disclosures to interested buyers.
The seller’s TDS as reviewed by the seller’s agent and supplemented with the HIR, is used to inform prospective buyers about the precise condition of the property before they make an offer to purchase. Thus, the seller will not be later confronted with demands to correct defects or to adjust the sales price in order to close escrow. The property will have been purchased by the buyer “as disclosed.”
The marketing role of the seller’s agent
The task of gathering information about the condition of the property listed for sale and delivering the information to prospective buyers lies with the seller’s agent. [Calif. Civil Code §2079]
Further, for the seller’s agent to retain control throughout the process of marketing, selling and closing escrow with a buyer, the seller’s agent needs to request and use the HIR (on behalf of the seller) to assist in the preparation of the TDS. Thus, they avoid exposing themselves and their seller to claims of misrepresentation when the buyer goes under contract without first having reviewed an HIR (or TDS). [See RPI Form 130]
As part of the management of the home inspection process, the seller’s agent needs to be present while the home inspector carries out the investigation of the property. The agent can discuss the home inspector’s observations and whether the findings are material in that they affect the desirability, habitability or safety of the property, and thus its value to prospective buyers.
If the seller’s agent cannot be present, they need to ask the home inspector to call the agent before the HIR is prepared to discuss the home inspector’s findings and any recommendations for further investigation. On receipt and review of the HIR by the seller and seller’s agent, any questions or clarifications they may have on its content is followed up by a further discussion with the home inspector, and if necessary, an amended or new report.
