It is not uncommon for a real estate purchase transaction to fail because of something that has been uncovered by a third-party investigation undertaken on behalf of the buyer. Depending on the circumstances of a particular transaction, the buyer may have a two, three, even four-week period during which he may hire appropriate professionals (e.g. geologist, home inspector, roofer, termite inspector, etc.) to provide him with information concerning matters that he would not be able to determine on his own.
The inspector prepares a report. Based on its findings, the buyer may then decide to move forward or to cancel. But, what happens to the report?
If the transaction is in California, and is taking place according to the terms of the standard Residential Purchase Agreement (RPA, produced by the California Association of REALTORS®), the report, or a copy thereof, is to be given to the seller by the buyer. Section 12. B. of the RPA says that the buyer shall "…give Seller, at no cost, complete Copies of all such Investigation reports obtained by Buyer, which obligation shall survive the termination of this Agreement."
So, even if the buyer decides to cancel, there is still an obligation to provide a copy of all reports to the seller.
OK, now what happens? Must the seller pass the report on to a new buyer? While there may not be a law that specifically addresses this issue, it is clear that sellers have a duty to disclose to buyers material fact that might affect the buyer's decision. It would be pretty hard to argue that the contents of the report did not constitute a material fact.
Moreover, in most circumstances, the seller would also have a contractual obligation to pass on such a report to a buyer. Section 10.A.(4) of the RPA specifies the following: "(i) Seller, unless exempt from the obligation to provide a [Transfer Disclosure Statement], shall complete and provide Buyer with a Seller Property Questionnaire (CAR Form SPQ)..." That is, unless the seller is in an exempt category (e.g. a probate seller), the seller is contractually obligated to provide a Seller Property Questionnaire to any future buyer.
The Seller Property Questionnaire asks at Section M.1. if the seller is aware of "Reports, inspections, disclosures, warranties, maintenance recommendations, estimates, studies, surveys or other documents, pertaining to (i) the condition or repair of the Property or any improvement on this Property in the past, now or proposed, or (ii) easements, encroachments or boundary disputes affecting the Property". Moreover, it specifies that "if yes [i.e. the seller is aware of such report], provide any such documents in your possession to Buyer."
This much, then, is clear. (1) The buyer is obligated to give the seller any reports the buyer has received. (2) The seller will be obligated to pass on the report(s) to any future buyer(s).
After that it gets a little murky.
The report that was done for buyer #1 may get passed on to buyer #2, but buyer #2 has no relationship to the person who prepared the report. (Indeed, such reports often state that they are specifically meant for the exclusive use of the person who requested their preparation.) Whether, or on what terms, the person who prepared the report would be willing to discuss it with buyer #2 would be entirely up to the preparer.
Or suppose, for example, that the report were deficient or erroneous in some way. Would anyone other than buyer #1 have recourse against the person or company that prepared it? Probably not.
One thing that emerges from these considerations is that the seller who passes on any reports that were acquired from a previous buyer would do well to make clear that they take no responsibility for the accuracy or reliability of the report. They should encourage any subsequent buyer to obtain their own reports and not to rely on whatever the seller has passed on.