This is the fourth episode in our new series covering the contents and consequences of information in a Structural Pest Control Report (SPC), and an agent’s duty to advise sellers and buyers on their respective responsibilities for the removal of pests and needed repairs.
The third episode covers the duties of an individual holding a Branch 3 Wood-Destroying Pest and Organisms License/Registration and selecting a structural pest control company.
Clearance of an infestation or infection
An active termite infestation or fungus infection is occasionally found on an inspection prior to marketing the property. The seller then needs to consider taking corrective measures to both protect the property from further damage and ready it for a prospective buyer by eliminating the issue of termites.
A Pest Control Certification, a certificate of clearance by the SPC company indicating the property is free of infestation or infection in the visible and accessible areas, will then be issued. This certification is commonly called a termite clearance. However, if any signs of infestation or infection have not been corrected, it will be noted in the certification. [Calif. Business and Professions Code §8519]
Section II conditions which may lead to future infestations or infections will be noted on the Pest Control Clearance so the SPC company will not be liable for the costs incurred to eliminate those conditions. Section II conditions usually are only observed in homes that do not have a slab foundation and have a crawl space beneath the floor of the structure. [Bus & P C §§8516(d), 8519]
What and when to disclose
Consider a one-to-four unit residential property of wood frame construction listed with a broker who is employed to locate a buyer.
The seller’s agent explains they want the seller to order an SPC inspection and report at the time of the listing since any prospective buyer will want an SPC Report and Pest Control Certification before escrow can close.
The seller’s agent receives written authorization from the seller and orders an inspection and separated report from an SPC company known to the seller’s agent to be competent and diligent. [See RPI Form 132]
The inspection report received from the SPC company states conditions exist which will likely lead to an active termite infestation (Section II items) and recommends repairs and further inspection into inaccessible areas.
Unhappy with the report and the estimated cost of repairs, the seller has the seller’s agent get a second opinion from a different SPC company.
The second company states there is an active termite infestation (a Section I item) and lists estimates for repair more extensive than the first company’s estimates.
Seller’s agent’s delivery of all inspection reports
Continuing our previous example, a buyer is located for the property. Deciding to go with the first SPC company’s report, the seller completes the repairs recommended by the first company. The seller’s agent delivers a copy of the first company’s inspection report to the buyer (or buyer’s agent), but does not inform the buyer or the buyer’s agent of the second inspection report.
Escrow closes and the buyer moves in. The buyer discovers termites and the existence of the second inspection report. The buyer, after paying for extensive repairs and corrective measures, makes a demand on the seller’s agent for the costs to correct the damage, claiming the seller’s agent was liable since the agent knew about the second report and the termite infestation, a material fact the agent did not disclose.
Is the seller’s agent liable for the costs the buyer incurred to cure the termite damage since the agent knew about the second report and the termite damage and failed to disclose the report or its contents?
Yes! The existence of the second report disclosing an active infestation is a material fact requiring its disclosure to the buyer. Here, the condition adversely affected the value and desirability of the property. The seller’s agent is responsible to ensure the delivery of all known inspection reports to a buyer. The seller’s agent cannot pick and choose which reports to deliver. [Godfrey v. Steinpress (1982) 128 CA3d 154; Department of Real Estate Bulletin, Summer 2004]
