Existing inspection report: What is the proper procedure for the real estate broker?

Discovering and disclosing unfavourable factors

The Regulation respecting brokerage requirements, professional conduct of brokers and advertising (hereafter “the Regulation”) states that a broker or agency executive officer must take steps, in accordance with accepted practice, to learn of any factors that may adversely affect the party represented by them or the agency for which they act, the parties to the transaction or the very object of the transaction. The Regulation also requires that he inform all parties to the transaction of any known factor that may adversely affect the parties or the object of the transaction. The seller, for his part, must make his declarations on the immovable.

Questioning and informing the seller

In this context, the broker must, among other things, verify with the seller whether an inspection report has ever been written on the property and inform the seller of his civil obligations towards the buyer.

For the sale of a residential immovable containing less than five dwellings including undivided co-ownership, any unfavourable factors must be declared using the form ''Declarations by the seller of the immovable'' (DS), at the time of signing of the brokerage contract to sell. For any transaction involving a divided co-ownership, brokers must now use the Declarations by the seller of the immovable – Divided co-ownership form (DSD).

In fact clause D12 of the DS (or DSD) form, entitled “EXISTING INSPECTION OR OTHER EXPERT REPORTS, states the following:

D12.1 To your knowledge, are there or have there ever been one or more inspection reports written on the immovable? ☐ yes ☐ no

D12.2 To your knowledge, are there or have there ever been any other test or expert evaluation done on the immovable (ex. pyrite, pyrrhotite, radon, ochre deposit, UFFI, asbestos, air quality, water quality or flow, foundation drain)? ☐ yes ☐ no

D12.3 Are these inspection reports, tests or expert evaluations available? ☐ yes ☐ no

If a seller has a previous report in his possession, the answer to D12.3 will be yes. In accordance with what is indicated in the preamble of the DS (or DSD) form, a copy shall be provided to the seller’s broker.

Informing the buyer of any unfavourable factors

The broker must disclose to any potential buyer any unfavourable factors mentioned in the brokerage contract to sell, an inspection report or a DS (or DSD) form, as soon as such factors are brought to his attention.

Providing a copy of the inspection report

Although the broker is not obligated to give the inspection report to the potential buyer or to annex it to a promise to purchase, this practice is recommended by the OACIQ. A broker who decides which elements of the inspection report should or shouldn’t be disclosed runs the risk of omitting something. And even if all the factors are mentioned by the broker, transcribing them could lead to errors.

In addition, the buyer’s broker who receives a copy of a previous report must not attempt to interpret it, but must give it to the buyer so the latter can review it with his own inspector.

It is also important to remember that the seller’s broker cannot give the buyer a copy of a previous inspection report prepared at the seller’s request if the seller is opposed.

Under his ethical obligations, the broker must at least disclose the unfavourable factors listed in the report which may affect the very object of the transaction, if he does not provide a copy of the previous inspection report to the potential buyer. When selling a residential immovable containing less than five dwellings, unfavourable factors must be reported in the Declarations by the seller of the immovable form (or the Declarations by the seller of the immovable – Divided co-ownership form for a transaction involving a divided co-ownership.

Always recommend an inspection to the buyer

Disclosing to a buyer the unfavourable factors contained in an inspection report does not release the broker from his ethical obligation to recommend to the person who proposes to acquire an immovable to have his own inspection done by a building professional or inspector.

Second opinion

If conclusions contained in an existing inspection report reveal unfavourable factors which appear unfounded in whole or in part, the broker may recommend that the seller have another inspection report prepared to give the buyer when these factors are disclosed. The broker may also recommend that the seller obtain written quotes in order to evaluate the cost of fixing the problems identified.

Protection of personal information on the previous inspection report

In addition, it is important to remember that under section 31 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising, a licence holder must respect the confidential nature of information given to the holder and the confidentiality of personal information obtained in the course of the holder’s brokerage activities.

The broker must therefore take all necessary measures to protect the confidentiality of a buyer’s personal information that may be contained in a previous inspection report, before remitting or giving access to a copy of this report. Personal information can be redacted to protect its confidentiality while giving access to the content of the report.

 

Last updated on: December 04, 2018
Article number: 122900