When we hear “inspection” in the context of a transaction, most of us probably think of the buyer’s home inspection or an inspection by a qualified third party for nonresidential property. Maybe we think of a buyer having a home inspection and a separate inspection of the swimming pool. Maybe we think of a buyer having an inspection of the property and a separate inspection of the well. For inspections occurring as part of a buyer’s offer to purchase, agents can and should leave those inspections to the experts. What about an agent’s duty to inspect the property? Both listing agents and other agents have a nonnegotiable duty to inspect a property. The duty to inspect applies in all types of transactions: residential, commercial, agricultural, vacant land, condominium and business. By reviewing the parameters of the inspection duty and implementing a system to ensure compliance, agents will stay on the right side of licensing law. Wis. Admin. Code § REEB 24.07 Inspection and Disclosure Duties gives an agent detailed instructions for how to comply with the inspection duty in every transaction.
Who must inspect?
Everybody must inspect. Listing agents, selling agents and buyer’s agents all have a duty to inspect the property. New agents, experienced agents, agents paid by the seller, agents paid by the buyer, and agents paid by the listing firm all have the same duty to inspect. This duty is nonnegotiable and cannot be waived by a party.
A listing agent is meeting with a seller to list a property. The seller indicated that he is selling as-is, so the agent does not need to complete an inspection. A prudent agent will explain to the seller that the inspection duty is nonnegotiable, not influenced by the seller’s decision to sell as-is, and cannot be waived by the seller, the agent or any other party.
A buyer is attending a showing of a listed property with the buyer’s agent. The buyer’s agent begins to fill out her inspection form. The buyer tells the agent not to waste her time because the buyer would never write an offer without including a home inspection. A prudent agent will explain to the buyer that the agent’s duty to inspect is unrelated to the buyer’s offer, is nonnegotiable and cannot be waived by the buyer, the agent or any other party.
When must the inspection occur?
A listing agent must inspect the property prior to the listing. Real estate agents do not always have the benefit of practicing by absolute black-and-white rules. Anyone who has ever called the WRA Legal Hotline has surely received the ever-so-clear answer of “it depends.” When there are rules informing an agent of how to practice, the rules are frequently accompanied by at least one and sometimes several exceptions. The rule for the timing of the inspection for a listing agent is about as black and white as it gets. There are no exceptions or qualifiers or “what if” scenarios that could change this deadline. It is as clear as it sounds: a listing agent must inspect the property prior to listing.
It is at this same time that the agent must ask the seller to comment on the condition of the property and ask the seller to respond in writing. Just like the agent’s duty to inspect, the duty to ask the seller to comment on the condition of the seller’s property is nonnegotiable and cannot be waived even if the seller is selling as-is.
All other agents must inspect a property prior to or during a showing unless the licensee is not given access for a showing. The “prior to or during a showing” part of this rule is pretty clear. If an agent is showing a buyer through a property that another agent has listed, the buyer’s agent must inspect the property prior to, or more likely, during the showing. This is not an optional inspection. The “unless the licensee is not given access for a showing” is where the rule gets a little gray. When or why would a licensee not be given access for a showing? Perhaps a seller has restricted access to the property and only wants the listing agent to conduct showings, or perhaps a buyer wants to write a “sight unseen” offer. In both of those instances, the agent arguably has not been given access for a showing and would likely be considered exempt from the inspection duty. An agent in that situation must ask whether he is competent to write an offer on a property that he has not inspected and whether writing an offer on a property he has not seen is a violation of his duty of reasonable skill and care. An agent who writes an offer for a buyer on a property that the agent has not inspected because he was not given access is not violating the rule related to inspection duty but may be in danger of violating the duty to provide competent service and the duty to provide services with reasonable skill and care. It may be challenging for an agent to know which contingencies a buyer might need in an offer and how to draft the contingencies if the agent did not inspect the property.
What counts as "the inspection"?
If the real estate is improved with a structure, the agent shall conduct a reasonably competent and diligent inspection of the accessible areas of the structure and the immediate surrounding areas of the property. An agent does not have to walk the entire property, seek out lot lines or forage deep into a property’s wilderness to conduct a competent and diligent inspection.
An agent does not have to operate mechanical items; open panels, doors or covers for access to mechanical systems; or move furniture, boxes or other property. An agent does not have to observe an area of the property for which entry presents an unreasonable risk of injury or areas that are only accessible by ladder, crawling or other means of access. An agent does not have to retain a third-party inspector or investigator to comply with this duty to inspect.
Essentially, an agent needs to take a good look around the structure and immediate surrounding areas but not engage in anything that would sully the agent’s outfit.
If the property is vacant land, the agent shall conduct a reasonably competent and diligent inspection of the vacant land. For vacant land, the agent does not need to observe the entire property but rather needs to observe the property from at least one point on or adjacent to the property.
Why do agents have to inspect?
For both vacant land and property improved with a structure, agents are looking for observable material adverse facts. Is it a material adverse fact, or is it not? If an agent has ever called the WRA Legal Hotline wondering if something was or was not a material adverse fact, the answer was probably something along the lines of “maybe, agent, let’s review the definition of material adverse facts, and then you decide after talking to your supervising broker.” There are those material adverse facts that 10 out of 10 agents would agree are definitely material adverse facts that need to be disclosed. Then there are the conditions that could easily go on one side or the other of a “maybe” discussion — for these facts, agent should turn to their supervising brokers for guidance.
An important part of this standard is the word “observable.” Agents are to be looking for “observable” material adverse facts. An agent does not have to go searching for material adverse facts but should rather be looking for observable ones.
What happens if an agent does not inspect?
The agent is in danger of violating state statute and administrative rule. An agent has a duty to inspect, a duty to provide competent service, and a duty to provide brokerage services with reasonable skill and care. Violation of one or more of those duties can result in an investigation by the Real Estate Examining Board (REEB) and disciplinary proceedings. The REEB has the authority to revoke, suspend or limit the license of any licensee or reprimand a licensee for a violation of Wis. Stat. Chap. 452 or any rule promulgated under Chap. 452. An agent can also be fined not more than $1,000 or imprisoned for not more than six months or both.
How can an agent ensure compliance every time?
The agent can ask her supervising broker for an inspection checklist to use when listing a property or to use when working with a buyer. If the supervising broker does not have a preprinted checklist to use, the supervising broker can develop one or use the WRA’s preprinted form.
The WRA has a handy, two-page form that agents can use to ensure compliance with their duty to inspect. Agents can add this form into their listing template or make it a part of a forms template used with buyers and potential buyers. The form, called the Listing/Selling Agent Visual Inspection Form, is available in zipForm. Right after the title on the form is a statement that tells the agent to complete this form to comply with her inspection duties. The form provides the agent areas to comment on the exterior of the property, the interior of the property, and other areas. It provides the agent with check boxes to mark whether there were defects observed, no defects observed, no access was permitted, or the component was not applicable to the property. The form is short and easy to use and is a great way for an agent to demonstrate compliance with the agent’s inspection duties.
Jennifer Lindsley is Staff Attorney and Director of Training for the WRA.