Friday, February 7, 2014

The General Rule Is That Sellers of Residential Real Estate Are Required To Complete A Real Estate Condition Report

I passed my Real Estate Salesperson and Real Estate Broker exams during the past month, and I am in the process of getting licensed as a Real Estate Broker. Consequently, I will write several posts in the future about aspects of real estate practice that are not directly related to litigation. This is one of those posts, even if my experience as a litigator inspired me to write it.

In an earlier post, I strongly suggested that prospective homebuyers insist on receiving a Real Estate Condition Report prior to submitting any offer to purchase a residential property.

My firm has a client who is adamant that his seller violated the law by failing to furnish a Real Estate Condition Report on his property on the grounds that he never lived in the property. The client is 100% correct. Wis. Stat. § 709.01 requires transferrors of residential real property to furnish a Real Estate Condition Report unless (1) the property has never been inhabited; (2) the seller is a personal representative of an estate; (3) the seller is a trustee; (4) the seller is a conservator; or (5) the seller is a fiduciary appointed by or supervised by a court. This statute does not contain a general exception for home flippers who purchase properties out of foreclosure, make some repairs and cosmetic improvements, and then sell to new homeowners.

Unfortunately, I see these kinds of shenanigans all the time. Either the seller does not furnish a Real Estate Condition Report or furnishes one with all of the Property Condition Statements crossed out with a statement that "seller has never lived in the property." If a seller has "never lived in the property," he should have no problem certifying in a Real Estate Condition Report that he is not aware of any defects affecting the property. Yet, home flippers often try to skirt Chapter 709's requirements instead. 

Wisconsin law does not appear to provide a post-closing legal remedy for violation of Wis. Stat. § 709.02. Even though my client is 100% correct, he has no remedy for this particular wrong. Instead, we are suing the seller for making misrepresentations in the written purchase contract and through concealing defective basement walls with paint.

It is up to prospective homebuyers and buyers' agents to police violations of Chapter 709

Again, no one should submit an offer to purchase residential property without first receiving a completed Real Estate Condition Report. While a seller is not legally required to furnish a Real Estate Condition Report prior to receiving an offer, there is no reason why he could not do so. Sellers typically complete Real Estate Condition Reports on the same day that they list their property for sale with a real estate broker. If the seller withholds his Real Estate Condition Report, there is something amiss.

In the event that the Real Estate Condition Report is not furnished by the time that the offer is submitted, the buyer has a right to rescind the contract if the required report is not furnished within 10 days after acceptance. Since Wis. Stat. § 709.02 requires a "completed copy of the report," I would argue that a buyer still has a right to rescind if a home flipper furnishes a Real Estate Condition Report with the Property Condition Statements crossed out or left blank. Every situation is different, however, and homebuyers and their agents should consult with counsel prior to exercising their rescission rights.

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