By James L. Goldsmith, Esquire

A recent spat between brokers brings focus to this standard form. There is a broker who, like others, requires that all settled transactions undergo a review before the salesperson’s commission is paid. The review assures that management is supervising its affiliates and that glaring errors can be rectified with the appropriate education or other measures.

At issue is the broker’s demand that the closed file include a copy of the Pre-Settlement Walkthrough Report signed by the buyers and sellers. Apparently some brokers in the area do not require their agents to use the Walkthrough Report. If it doesn’t exist, how can the salesperson comply with his office audit?

This article addresses the purpose of the form, whether it is required and whether it should be used if not required by law. The form is a Realtor® form, created by Realtors® for use by Realtors®.  Its use is not required by law, but it is a form designed to protect Realtors® and their licensees and their clients. I can think of no compelling reason why it shouldn’t be used in every transaction

Let’s begin with why buyers conduct pre-settlement walkthroughs. The agreement of sale is an executory contract where promises are exchanged and with full terms to be fulfilled by a later date. A buyer will apply for mortgage funds and make a payment at a later date; the seller will deliver the property at a later date in broom-clean condition and with certain items being repaired.

It’s usually easy to see that the buyer has fulfilled their side of the transaction. The title agent will assure that the funds are present or title doesn’t pass. When it comes to assessing whether the seller has completed their obligations, the title agent is in the dark. Only a pre-settlement walkthrough can shed light on whether the property is in its promised condition. Unless the title agent assumes that responsibility (and I am not aware of those who do) it is up to the buyer and their agent to assure that the property is in the promised condition. Accepting the property in a condition other than what was promised may result in a waiver of the seller’s duty regarding the property condition. So, it is essential that the walkthrough take place.

Having a document indicating that the property is in the promised condition, signed by the buyer, is the best evidence the buyer agent has that they have satisfied this obligation of the buyer agent. Why wouldn’t the buyer agent/broker want this form in their file?

Is it possible that a buyer agent is doing a disservice to the buyer by having this form signed? What if a problem surfaces post-settlement? Is the buyer precluded from claiming that the property was not in the promised condition? No, it happens all the time. The form is merely evidence that on the day of settlement there was nothing observed that was in violation of the agreement of sale.  Conditions can be latent and surface post-settlement. If there is evidence to suggest concealment or violation of the Seller Disclosure Act, this form will not preclude buyer’s right to seek redress.

Similarly, a seller’s agent would want evidence that their client delivered the property in the promised condition. Though it may be undone by a later discovery, it is evidence of the undertaking of the walkthrough and what was found. Further, because there is the possibility that something may be discovered before settlement that is in violation of the covenants regarding property condition, the form further provides the opportunity for the parties to agree as to how those conditions will be addressed in the future.

Preprinted forms always have the advantage of being thoughtfully constructed and time-tested. Do you want your agents, or do you want to be the one, to draft an agreement an hour before settlement regarding a condition only then discovered on the property? Let me answer this for you: no! It is my opinion that preprinted Pennsylvania Association of Realtors published forms are always better than those made up on the spot.

While I can’t think of a compelling reason to avoid the Pre-Settlement Walkthrough Report, I am not sure I would draw blood if the other side refused its use. Explain to your client the purpose of the Report and make written notes in the file regarding the condition of the property either as acceptable or describe in its shortcoming. Correspondence to the other party’s agent indicating failure of the property condition to satisfy the agreement is essential as is your recommending that your client seek legal counsel if there is a problem that the seller is unwilling to address, in writing.

Copyright © James L. Goldsmith, Esquire, 2020  |   All Rights Reserved