What happens if a seller receives a copy of a recent inspection report? Must they share it with a future buyer? The scenario is common. A seller lists their home. A buyer submits a contract with an option period. Seller accepts. During the option period, an inspection is conducted by the buyer. The inspection reveals something unacceptable to the buyer, who subsequently backs out. The buyer’s agent sends the inspection report to the seller’s agent as an explanation. If a seller’s agent receives a copy, it is deemed to have been received by the seller. Must it be shared with future buyers as part of the seller’s disclosure? It’s been said: “disclose, disclose, disclose.” Texas Property Code §5.008 outlines how. The statute, which is intended to be a minimum requirement, does not specifically require the inclusion of copies of recent inspection reports. TREC has an approved Seller’s Disclosure Notice that mirrors the language of the statute and does not require recent inspection reports to be included. Texas REALTORS® also have a recommended form with added provisions intended to reduce the risk for a seller, including a directive to list any written inspection reports received within the past four years and to attach copies. Other organizations have other, similar recommended forms. So must the seller share a copy of the inspection report? No. But they must disclose all knowledge of the condition of the property. Property Code §5.008 requires that the notice be completed to the best of the seller’s belief and knowledge as of the date the notice signed by the seller. While the statute does not require the seller to update any disclosure once an inspection is received, the seller should do so so to ensure that any future buyer is made aware of newly-revealed conditions. TREC’s Canons of Professional Ethics and Conduct require “a real estate broker or salesperson … to exercise integrity in the discharge of the license holder’s responsibilities, including employment of prudence and caution to avoid misrepresentation, in any wise, by acts of commission or omission.” One could easily argue that by not advising a client to update the Seller’s Disclosure Notice, a license holder is omitting material facts the buyer has a right to know. As such, the seller should be instructed to update the Seller’s Disclosure Notice for any future buyer to include all that was learned from the inspection report. A best practice to avoid a potential lawsuit claiming failure to disclose a material defect against both the seller and the broker is to include a copy of the prior inspection report with the Seller’s Disclosure Notice and provide both by attachment in the Multiple Listing Service entry or other advertising platforms. If the seller repairs or corrects any of the items on the inspection report include invoices, receipts, and any warranties with the Seller’s Disclosure Notice as well. News and Article Category:
In simplified terms, performance of a contract means doing what you are required to do under the contract. If you fail to do what you are required to do under a contract—if you fail to perform under the contract—then you are in breach of the contract, and breach of contract is generally sufficient grounds for a lawsuit. When it comes to contracts specifically related to the buying and selling of goods, the UCC contains various rules regarding the buyer's performance. Key among these are rules regarding payment, inspection, rejection, and revocation. Many of these rules rely on the general principle of what is reasonable in the circumstances. In practice, this means that disputes are generally treated on a case-by-case basis. Buyer's Primary Obligation: Payment for Goods Under the UCC, the primary obligation of a buyer of goods is to pay for the goods. The general rule is that the buyer must accept and pay for the goods when the seller has delivered—or, to use more technical language, tendered delivery of—the goods. More particularly, the UCC indicates that, by default, the seller's delivery of the goods and the buyer's payment for the goods are expected to be concurrent. Unless otherwise agreed, tender of delivery of the goods is a condition of the buyer's duty to pay, and tender of payment for the goods by the buyer is a condition of the seller's duty to complete delivery. While it is possible that a seller and buyer may make other contractual arrangements regarding payment, where payment is due upon delivery, the buyer does not have the right to keep or dispose of the goods unless he or she pays for the goods. As to the form of payment, the UCC allows for payment "by any means or in any manner current in the ordinary course of business," unless the seller demands payment in cash. Depending on the specific circumstances, "any means" could mean bank checks, credit cards, or other methods of payment. Buyer's Right to Inspect Goods The UCC gives a buyer a right to inspect goods prior to accepting or paying for them, and a buyer is not required to pay for goods that he or she does not accept. More specifically, before making payment, the buyer has the right to inspect the goods "at any reasonable place and time and in any reasonable manner." In cases where the buyer is taking possession of the goods at the seller's location, this likely would mean an inspection at that location. In cases where the seller ships the goods to the buyer, the buyer has the right under the UCC to perform the inspection after the goods have arrived at their destination. (Be aware that the UCC distinguishes between a buyer paying for goods and a buyer "accepting" goods. Acceptance is discussed below. The buyer is responsible for any costs associated with inspecting goods. However, if the goods do not conform to the contract, the buyer has the right to recover inspection costs from the seller. Notwithstanding the general rule allowing the buyer to inspect to goods before making payment, the UCC has a few specific exceptions where the buyer must pay before making any inspection. Perhaps the key exception is where the contract is for goods delivered C.O.D. (cash on delivery) or on similar terms. Buyer's Right to Reject Goods General contract law, as opposed to the UCC, commonly allows for a party to fulfill contractual obligations through substantial performance. This means that it may suffice if a party substantially, though not exactly or perfectly, meets the requirements of the contract. For contracts for the sale of goods, however, the UCC requires "perfect tender" by the seller. As mentioned above, tender means, in essence, the delivery of goods to the buyer, and perfect tender means delivering goods that precisely meet the terms of the contract. According to the UCC, if the goods as tendered "fail in any respect to conform to the contract," the buyer has various options, including rejecting the goods. If a buyer wants to reject goods because they do not conform to the contract, the rejection must occur before the buyer accepts the goods. This prompts the question as to when acceptance occurs. According to the UCC, acceptance occurs when the buyer:
A different section of the UCC reinforces the second of these listed scenarios; Section 2-602 states that a rejection must occur within a reasonable time after the delivery of the goods, and, moreover, that the buyer must seasonably (reasonably promptly) notify the seller of the rejection. What is a reasonable opportunity to inspect, or a reasonable time after delivery of the goods, will vary depending on the specific details of each situation. On a state-by-state basis there may also be case law that would provide further guidance. Apart from the foregoing rules on rejection, there are additional rules for a buyer who rejects goods. These include requirements that the buyer properly notify the seller of the rejection and that the buyer give the seller an opportunity to cure whatever problem or defect (non-conformity) in the goods led to the rejection. Revocation of Acceptance by Buyer Rejection occurs before a buyer accepts the goods, whereas revocation refers to situations where a buyer has already accepted the goods. The UCC gives buyers the right to revoke acceptance of goods only in very limited circumstances. More specifically, a buyer make revoke acceptance if either:
As with rejection, revocation must occur within a reasonable time after the buyer discovers the grounds for the revocation—and before there is any substantial change in condition of the goods which is not caused by their own defects. Also, as with rejection, revocation is not effective unless and until the buyer notifies the seller of it. Seller's Right to Cure Defective Goods A key section of the UCC gives a seller the right to cure goods delivered to a buyer that are defective or non-conforming. In other words, if a seller delivers goods that don't match the contract, and the buyer rejects those goods, the UCC gives the seller an opportunity to fix the problem. The seller has the right to cure in two specific situations:
An example of the first of these situations would be a seller who, under a sales contract, has until March 31 to deliver goods to a buyer, and delivers defective goods on March 15, which the buyer rejects. The seller would still have until March 31 to deliver conforming, non-defective goods to the buyer. An example of the second situation might involve a seller delivering "better" goods to a buyer—such as a more expensive, higher-quality model of a device, with more features, which the buyer nonetheless rejects. The seller likely would have the right, within a reasonable time, to provide the model actually ordered by the buyer. Note: This article is based on the current version of the model Uniform Commercial Code (UCC). However, not all states have adopted all sections of the current model UCC. Moreover, the model UCC specifically leaves it to individual states to determine the precise wording of certain sections. Therefore, you should always check your own state's commercial code for the most accurate information. For more information, see Nolo's website for other articles on the UCC. April 2013 |
An opportunity for inspection is a condition to the right of the seller to enforce payment.
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