Has a property you were selling ever received an unfavorable inspection report? You know that you need to disclose negative reports, but how do you do that legally? Let’s take a look at what happened when one of our real estate E&O members faced that issue.
The buyer received the inspection report and was unhappy with the amount of repair needed. As a result, the buyer cancelled escrow.
The listing agent knew she needed to disclose the negative reports to the next buyer, but the report stated that it was copyright protected and could not be disclosed without permission from the creator/inspector. She wondered how to balance out her obligation to disclose the reports with the protection notice on the report.
The agent called CRES Legal Advisory Services, included with every CRES Real Estate E&O + ClaimPrevent® plan. Counsel advised that under the California civil code, the CRES member and the seller have a duty to disclose all items materially affecting the price paid and the desirability of a parcel to all future buyers. That means the real estate licensee was obligated to disclose what she knew of a prior inspection report and that a buyer cancelled escrow because of the amount of repairs. (And any attempt to limit the dissemination of a third-party expert report was deemed to be in violation of California law.) This overrode the agent’s obligation to obtain permission to share the copyright protected report, and the agent could not be sued for sharing it confidentially with future buyers under the obligation to disclose.
The insured agent needed to create a disclosure referencing the reports of the buyer who cancelled, attach reports, and send the disclosure and related reports to all potential buyers or their agents.
If the negative reports weren’t disclosed, the listing agent could have faced a real estate lawsuit. Situations like these are exactly why we encourage our clients to report possible issues before they have a claim. Note that this client got a response based on California civil code. You may need to take different action, but CRES Legal Advisory Services can advise you based on where you practice.
See our ClaimPrevent® Topic Summary on Real Estate Seller Disclosures.
Be Sure You’re Protected with Real Estate Errors and Omissions Insurance
The right insurance is critical to protect your income and your business. Just like auto insurance and homeowners insurance, real estate errors and omissions insurance is coverage you shouldn’t live without.
CRES real estate E&O gives you the most extensive protection at an exceptional value, with pre-claim legal services included.
We want to know when you have questions or potential issues, so that we can help you avoid serious issues and real estate lawsuits. That means if you know your legal obligations, but you’re confused as to how to meet them, you should give us a call. Don’t wait until you have a claim.
Unlike other real estate E&O policies that don’t help you until you actually have a claim, CRES E&O works for you DAILY — any time you have a potential claim or issue.
