Lawsuit Prevention Q&A: Oops! The House Had a Flooding Problem

The realty professional recommended a house inspection, but the buyer declined. Can the practitioner avoid liability?

January 1, 1998

Q: Recently, some buyers filed a lawsuit against the seller and me charging misrepresentation of the property's condition.

Here's the situation: When looking at the house, the prospective buyers asked about flooding problems. The seller advised me that occasionally, during heavy rains, a “small trickle” of water came in through a hairline crack in the concrete foundation. I, in turn, gave that information to the buyers and recommended that they hire an inspector to look for any further evidence of water problems. The buyers declined to follow my advice, and soon after closing, they incurred serious flooding problems. Who will be liable for the damages?

A: Real estate professionals may gain some protection by encouraging buyers to have a professional home inspection that would reveal defects that might influence the buyers’ decision to purchase.

In a recent Illinois Court of Appeals decision, the court held that “a person may not enter into a transaction with his eyes closed to available information and then charge that he had been deceived by another.” (Connor v. Merrill Lynch Realty Inc., 571 N.E.2d 196, Ill. App. Ct. 1991, quoting Central States Joint Bd. v. Continental Assurance Co.)

Although the broker will probably not be liable if, in fact, he did recommend an inspection, whether or not the broker can defeat the buyer's claim may depend on what is in the broker's transaction file. If the broker's file has no evidence of the recommendation and the buyer's decision not to have the inspection, it will be up to a jury to decide who's more credible -- the broker or the buyer. If, however, the broker maintains documentation of recommendations made to the buyer, the broker's defense is considerably easier.

Systematic documentation may include chronological journal entries, as well as letters or forms advising the buyer to have a home inspection and noting the buyer's decision to forgo a house inspection even though it was recommended by the broker. You should routinely give buyers a form explaining why house inspections are necessary. If you also provide a list of qualified inspectors, you should state explicitly that you do not guarantee or warrant the accuracy of any inspection report that may be generated.

A refusal by the buyer to have an inspection performed should be followed with a written confirmation from you and a suggestion that the buyer reconsider. That documentation should also state that you assume no responsibility for any defects or problems that a house inspection might have disclosed and that you make no representation or guarantee about the quality or fitness of the house being purchased.

This Q&A was prepared by the NATIONAL ASSOCIATION OF REALTORS®’ endorsed errors and omissions insurance carrier, ERC, in affiliation with Kirke-Van Orsdel Inc., the program administrator. For information on this E&O program, called REALTOR®Guard, phone 800/367-2296.

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