HELP! Buyer dropped out but left damaging inspection report!

[Jane S.]

I'm selling one of my rentals and received an offer from a buyer along with their inspection report which is full of errors and lists many items as non-functional that ARE functional. I had some minor plumbing needing repair and it will be done today. The original buyer asked for return of earnest money and their agent didn't inform my broker until 3 days later. Meanwhile no one could view the property. I have now taken it off the market temporarily. BUT ...

When I asked my broker NOT to give this erroneous inspection report to a new buyer he says he must turn it over since it's "Material Fact" and he is legally bound to do so as a new buyer has to "know what I know". He says "we can maybe write a short letter to explain my view". A lot of good that will do. Short letter vs. 50 pages of errors??????

I've never seen such a damaging inspection report in the 16 years I've been an active investor! It will kill any sale. It's even hard to read because the captions for the photos dont even match up.

Before I listed it FS, I tried to rent it but none of the applicants could qualify. I had rental offers but their credit scores and financials disqualified them. It's a C neighborhood, but I remodeled the house so it's a B quality. 

I'm stuck with an exclusive license with this broker until the end of the year. I never thought it wouldn't sell within a couple weeks. But many RE folks agree the sellers market here "done got up and went."

The inspection report has the same effect as a big sign on the front of the house that says "DONT BUY THIS PLACE"!

The broker might agree to cancel the listing contract if I pay him I dont know how much. He's gonna discuss it "later today" but I dont know what that means. He's usually vague when it comes to respecting my schedule.

The other possibility is to list it as a flip and just get rid of it to a wholesaler. I dont know if the MLS would allow that!

[Joel Case]

Pay for another inspection, or two, out of your own pocket and provide all inspections to potential buyers. 

[Dustin Allen]

@Jane S.

Make any necessary repairs and then have another inspection done. 

[Bruce Woodruff]

Get another inspection from the best Home Inspector in your area

[Theresa Harris]

Interesting because where I am, the inspection report is the property of the buyer and is not normally shared with the seller.  So it wouldn't matter what it said as no future buyer would ever see it.  If there was an inspection clause in the offer and they met the deadline, then the earnest money needs to be returned.

[Bruce Woodruff]

@Theresa Harris is correct. The person that paid for the report actually owns it. When they 'shared it' with you, they made you aware of material defects, which you are required to report during the sale. But it should not include aesthetic items or opinions, only actual provable material defects. I do not think you are required to share the report with other prospective buyers, but you must disclose those defects that are actual in the sale contract.

Alleged defects that are not real in your opinion do not need to be disclosed IMO. Maybe a quick call to a RE attorney in your area can provide clarity.

[Dustin Allen]

When a buyer gets an inspection done and uses that inspection as a means of properly cancelling a contract, that makes the report material to the transaction. You can’t merely say they canceled because of these one or two items.  They cancelled due to what was found in the report and so that report must be provided to the seller when cancelling.

You can face some serious liability if you don’t share this report and the new buyer later finds out that there is an issue that was stated in that previous report. Your best defense is to make any repairs that you can, get another inspection done by a good and reputable inspector, and provide both reports to all prospective buyers along with a letter/statement explaining what was taken care of in between the reports.

Full disclosure is always the best course in Real Estate.

[Gary Mazz]

I was on the other side of this last year as a purchaser, I inspected a home in Scottsdale and didn't like a few of the items in the report like roots in the sewer line, a poorly installed leaking toilet pump, etc. I decided to back out of the deal based on the inspection report. Well, the owner of the home (a contractor himself) was livid and called the home inspector threatening him with filing official complaints with AZ and demanded he retract the inspection and redo it. As our inspector told us, and I am quoting from memory " the monetary penalty from AZ or the association governing home inspectors would cost him more than it would to redo his inspection" so he agreed to reinspect and make changes. I would try having a serious conversation with this inspector letting him know your dissatisfaction with the quality of this inspection and asking for a new corrected report. Find out what recourse you have in your state regarding his professional contractors license if his work is that bad. Or just make repairs and move on.... 

[JD Martin]

Quote from @Gary Mazz:

I was on the other side of this last year as a purchaser, I inspected a home in Scottsdale and didn't like a few of the items in the report like roots in the sewer line, a poorly installed leaking toilet pump, etc. I decided to back out of the deal based on the inspection report. Well, the owner of the home (a contractor himself) was livid and called the home inspector threatening him with filing official complaints with AZ and demanded he retract the inspection and redo it. As our inspector told us, and I am quoting from memory " the monetary penalty from AZ or the association governing home inspectors would cost him more than it would to redo his inspection" so he agreed to reinspect and make changes. I would try having a serious conversation with this inspector letting him know your dissatisfaction with the quality of this inspection and asking for a new corrected report. Find out what recourse you have in your state regarding his professional contractors license if his work is that bad. Or just make repairs and move on.... 

 Any inspector that would do that and change legitimate findings is dishonest and should have their licensing revoked. 

[JD Martin]

How did you get an offer with an inspection report? I've never heard of a potential buyer getting permission to conduct a full inspection on a property without a contract in place. I assume you misspoke here and meant that you accepted an offer from a potential buyer, which you then agreed to permit an inspection, and the inspection report came back with this list of items that the buyer used to walk from the contract. 

If that's the case, then you go through the punch list and see if the inspection is legitimate. If it is not legitimate, and has been "made up" for the buyer to use to demand concessions, I would get my own inspection with a licensed inspector that refutes those claims and then I would file a complaint against the inspector with your state's licensing agency. Otherwise, if the items are legitimate, you now know of these things and cannot fail to disclose them to potential buyers. Neither can your broker, who could lose his/her license by failing to disclose. The inspection report may have been the property of the buyer but if you've been given a copy, and you don't take some action to dispute the findings, then you agree that they are correct.

[Bruce Woodruff]

Quote from @JD Martin:

 Any inspector that would do that and change legitimate findings is dishonest and should have their licensing revoked. 

Correct. I have never heard of an HI changing a report. Never...

[Michael Brattelli]

@Dustin Allen best comment on here. Listen to Dustin.

[Vic Reddy]

@Jane S. - my rule - never get inspection report from Buyer. For my listing I clearly instruct buyers/agents to never send me inspection report, only an email with a list of requested repairs. If we agree on the repairs, I will ask specific pages from inspection report for the repairs we agreed

[Kathleen McDowell]

Hi Jane.  I can understand your frustration with the situation. However, your broker is correct and is protecting the brokerage as well you. All material items must be disclosed, and given the buyer canceled due to the report, we must assume there were items contained material to the transaction. Irregardless of who paid for the report, it must be disclosed. Non-disclosure is the biggest cause of real estate violations, fines and law suits, so you'll want to take care to disclose.

I suggest the following:

1. Make all material repairs (in the future you may want to pay for an inspection prior to selling. For all my investment properties, I do this in advance to ensure I'm aware of all items. It always pays for itself in the end).

2. One option is to outline what you consider material errors in the report and document them, asking the inspector to correct the errors and provide an updated report. Another option is to leave the errors if they are not material, and just rather 'sloppy' and write a response to the report to attach for prospective buyers. It could be good for them to see the more unprofessional report, as it may indicate lack of credibility.

3.  Get an inspector with a great reputation (ask your agent and do your own research too). Provide both reports to prospective buyers, with an attachment documenting the items that have now been addressed. 

4. I don't recommend finding a new broker, as they will follow the same procedures in terms of disclosure. But if you do want to select a new one, yes you can on occasion work with your broker to come to an agreement to part ways.  You will need to document your expectation and how your needs were not met. In my opinion, the reason would need to be more than not disclosing the report in order for them to consider releasing you as they have invested time and likely money as well.
 

Well done on passing on the lower quality rental tenants - I have found vacancy is cheaper than a bad tenant every time (damages/eviction/etc.)

On your question about listing it as a flip - you can note that property is being sold as-is, but the downside is some people will think this equates to big investment and you may not sell at your optimal price. Have you looked into working with a wholesaler to sell it off the MLS? Due to the low supply at present, I have found wholesalers particularly eager to obtain properties.

Although we are experiencing a market shift at the moment, we're really only seeing properties sit a few weeks longer on the MLS (remember 30-45 days was typical before 2022). So try not to get discouraged if it's not selling quickly. If you proactively make repairs, you'll likely find a buyer on market who places value on a home where they don't need to make repairs in an environment with labor shortages and price increases on supplies.

Best of luck.

[Bud Gaffney]

This might be illegal...

Anyways, get your own report + give it out to prospects :)

[Bruce Woodruff]

@Kathleen McDowell You are right....however there is a difference between disclosing material defect items vs giving out the inspection report, right?

[Jordan Moorhead]

@Jane S. unfortunately your Realtor is right. I never open them when buyer's agents send them over and just reply back telling them that I won't open any attachment about an inspection. I'm sure it will still sell at the right price?

[Kathleen McDowell]

Quote from @Bruce Woodruff:

@Kathleen McDowell You are right....however there is a difference between disclosing material defect items vs giving out the inspection report, right?

Excellent point Bruce.  There is, and each state's laws are different. In AZ, the seller in entitled to a copy of the inspection report as part of the contract. So therefore, they have received the information and can't claim they were not aware.  I would suggest its less risky to share the entire report than it is to pick out the points you deem to be material. It minimizes risk that the buyer may deem something to be material that you did not, and didn't disclose.

[Wayne Brooks]

An inspection report is one person’s Opinion and Recommendations….it is Not a material fact.  Individual states may have disclosure rules regarding a buyer’s inspection report, not here, so Maybe that would apply.  Let’s face it, most reports are full of “water valves are 15 years old, not leaking, but should be replaced”, etc, etc.

It’s perhaps best not to open them, but they don’t rate as a disclosable items here.

[Bruce Woodruff]

Quote from @Kathleen McDowell:

Excellent point Bruce.  There is, and each state's laws are different. In AZ, the seller in entitled to a copy of the inspection report as part of the contract. So therefore, they have received the information and can't claim they were not aware.  I would suggest its less risky to share the entire report than it is to pick out the points you deem to be material. It minimizes risk that the buyer may deem something to be material that you did not, and didn't disclose.

I guess you're right. I still would find a way to separate the 'real' issues from the fluff. Maybe call a good GC and get him to write a letter saying the little issues are crap......

[Jane S.]

guess what i got an offer $40k over list and my broker wrote in the acceptance "sold as is, where is, with all defects and limited to the repairs seller is making" AND buyer signed! i just completed necessary electrical, plumbing and HVAC repairs according to local code. closing aug 3 and buyer inspected, appraised, got his homeowners insurance policy and apparently was smart enough to ignore the ridiculous demands of drop outs. i think he might house hack it, its got a perfect floor plan for that. 

i love your advice of getting my own inspection. my broker gave the s**tty inspection to buyer i had asked him not to. from now on i will have MY inspection ready for anyone who wants to see it. as a "disclosure" 👩🏻‍✈️ i dont like the MLS its so weighted down with rules and regs ...

[Russell Brazil]

If you cancel so your agent doesn't provide it to future buyers....then you dont provide it, and the new buyer finds out,...you will just screw yourself over.

What you should do instead....get your own inspection, and provide that to future buyers. Provide the old report to the new inspector so they can confirm, or refute the other report.

[Theresa Harris]

Quote from @Jane S.:

guess what i got an offer $40k over list and my broker wrote in the acceptance "sold as is, where is, with all defects and limited to the repairs seller is making" AND buyer signed! i just completed necessary electrical, plumbing and HVAC repairs according to local code. closing aug 3 and buyer inspected, appraised, got his homeowners insurance policy and apparently was smart enough to ignore the ridiculous demands of drop outs. i think he might house hack it, its got a perfect floor plan for that. 

i love your advice of getting my own inspection. my broker gave the s**tty inspection to buyer i had asked him not to. from now on i will have MY inspection ready for anyone who wants to see it. as a "disclosure" 👩🏻‍✈️ i dont like the MLS its so weighted down with rules and regs ...

 I'm glad it all worked out and you got a better offer.

[David Avery]

An inspection is just an opinion from a want to be contractor!  Inspectors find so many stupid items and write a half page report about it.

Windows don't open and shut and lock, and missing screens.   No Sh..  The house is 120 years old and is being sold with original windows!   Dah!!  So, just because he wrote that the seller has to install new windows!!

FHA ,VA buyers look at a different house and make an offer on that one. Come on agents be smart!

I've seen 6 page reports up to 77 page reports.  Some inspectors miss very bad plumbing and electrical issues, some will take a picture of a fly and say " recommend pest control ".

If agents that represent the deal can't be smart enough to keep the deal together then get another job.

If brokers can't help their agents then get another broker!

Negotiate and make everything better!!

[Jane S.]

HI all,

Just closed on this property and buyer paid $50K over list, i heard buyer bought it as an investment ... no idea what he's gonna do with it, no interest in any contact with him. I had a great run with it, and the area is going down so its now the nicest house on the block. So glad thats over with.

Thanks for the really interesting responses, I'm going to definitely save this,

RE can be fun