How Agents Can Limit Their Liability with Regard to Home Inspections

By
Home Inspector with Comprehensive Building Consultants

How Agents Can Limit Their Liability with Regard to Home Inspections

In a world where litigation is the preferred method of resolving even the most minor conflicts, it should come as no surprise to real estate agents that they are increasingly finding themselves named as defendants in lawsuits wherein purchasers of residential real estate are claiming damages as the result of the alleged fraud and/or negligence of one or more of the participants in the transaction.   Aggrieved purchasers of residential real estate are operating in a target-rich environment and have a remarkable array of potentially responsible parties from which to seek financial redress for their claimed grievances.  In lawsuit after lawsuit, one finds multiple defendants: the sellers, the sellers' agent, the sellers' agent's broker, the buyers' agent, the buyers' agent's broker, the home inspector, the pest inspector, and so on.  The alleged grievances can include multiple counts, as well: fraud, negligence, breach of contract, etc.   Once a lawsuit has been filed and you have been named as a defendant, you can kiss your E&O deductible goodbye, even if you are blameless, which, in the overwhelming majority of instances, you are, because the overwhelming majority of these types of lawsuits is completely devoid of merit.  The size of these complaints and the sheer number of their allegations guarantee it.  No competent lawyer could possibly read and respond to the vastly overblown pleadings that normally characterize these types of lawsuits for anything close to the typical real estate agent's E&O deductible.   Therefore, the best strategy is to avoid being named in the suit in the first place.  Fortunately, there are a number of effective policies that, if followed, can sharply reduce and even eliminate your exposure to being named in a meritless lawsuit.   Lawsuits resulting from a residential real estate transaction almost always result from a feeling on the buyers' part that they got less than they bargained for.  After they moved into the property, they discovered that it was not all that it was cracked up to be.  Sometimes, the alleged defects were present at the time of the home inspection but, for one reason or another, were not discovered during the home inspection.  The fact that the alleged defects were not discovered by the home inspector does not automatically mean that the home inspector was negligent or that you were negligent for recommending the inspector -- in fact, far from it.   There could be a number of reasons why the alleged defect was not discovered at the inspection that fall well short of actionable negligence.  The defect could be something that is not discovered because its inspection is simply not contemplated by the home inspection, such as a determination of the adequacy of any structural system or component, for example.  Such a determination is outside the scope of a home inspection.  Or it could be something that is not reported because it was concealed by furniture on the day of the inspection, or was located in an area that was inaccessible.  Not infrequently, known defects are deliberately concealed by the sellers.  And far more frequently than anyone would imagine, the alleged defect that is the subject of the buyers' complaint was actually discovered by the home inspector and noted in the inspection report, but not acted upon by the buyers because they did not bother to read the inspection report.   Therefore, when selecting a home inspector for your client, you should bear uppermost in your mind that the home inspector is your first line of defense against a meritless negligence claim.   Top Nine Ways You Can Sharply Reduce Your Professional Liability Exposure:

  1. Insist that your client hire a professional home inspector to inspect the property, and strongly recommend that the inspection also include ancillary inspections for the presence of wood-destroying insects, and such harmful pathogens as mold and radon.
  2. Have the home inspected before the sale so that it is "MoveInCertified."  MoveInCertified homes have been pre-inspected by InterNACHI-certified inspectors, and the sellers confirm that there are no major systems in need of immediate repair or replacement, and no known safety hazards.
  3. Take the time to manage your clients' expectations of what can reasonably be discovered by a limited visual inspection of a property that is full of furniture, carpets and stored items that further physically limit the scope of an already limited inspection.
  4. Be sure to carry your own Professional Liability Insurance to protect yourself from allegations that you should have independently verified that the property was defect-free.
  5. Review the inspector's Pre-Inspection Agreement to make sure that it contains a Notice Clause that requires the buyers to notify the inspector within no more than 14 days of the discovery of any defect for which they believe he is responsible.
  6. Avoid conflicts of interest.  Never recommend an inspector who participates in preferred vendor schemes.  All major inspector associations prohibit participation in such undue praise-purchasing schemes.  You have a fiduciary duty to recommend the very best inspectors based solely on merit, not money.  And it goes without saying that you should never recommend any inspector with whom you have a close personal or blood relationship.
  7. Recommend the high-value inspector, not the low-price inspector.  Good inspectors charge accordingly.  Trying to save your client $100 on an inspection could cost them $10,000.
  8. Only recommend inspectors who adhere to a strict Code of Ethics and Standards of Practice, such as members of InterNACHI.
  9. Always attend the home inspection.  Many real estate agents have been advised never to attend a home inspection, allegedly by real estate attorneys.  Agents who say that they have received such advice are never able to articulate its rationale.  You are no less likely to be named in a lawsuit by hiding during the inspection, and the reasons for attending the inspection are quite compelling.  First, your presence is a clear indication of your professionalism and concern for your client's interests, two factors well-known to engender referrals.  Secondly, it affords a very cogent opportunity to refocus your client's attention to the limited nature of the inspection.  For example, you could note the numerous obstacles, such as furniture, carpets and appliances, that can obviously inhibit the inspector's ability to see certain areas of the home.  Finally, should this transaction come to grief, your interests are usually perfectly aligned with the inspector's, and your recollection of such limiting factors would provide powerful corroboration of the exonerating reasons that a defect was not discovered during the inspection.
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Rainmaker
248,770
Ellie Penaranda
239.776.5077 Downing-Frye Realty - Naples, FL
Naples Florida Real Estate - Waterfront & Beach Co

Or worst, when the buyer is an out-of-towner and does not attend the home inspection and the agent doesn't either, I am sure you had your share of that, especially in Florida where most of our buyers are from out of town.  Russell you always give great advice.

Nov 16, 2010 08:09 AM #1
Rainer
25,042
Rick Bunzel
Pacific Crest Inspections - Anacortes, WA

Russell,

Thanks for regurgitating Nachi/Joe Ferry's article. I am sure after being a home inspector for 25 years you have some opinion of your own on this subject.

Personally I think the most valuable thing a Realtor can do is set the clients expectation of what a home inspection is and what it isn't. The second thing is encourage the client to interview inspectors and select the inspector that fits their needs regardless of cost. Lastly once the inspection report is completed sit down with the client determine what issues are really important and need to be repaired to get to closing.

 

Orcas Inspection
Lopez Island Home Inspection

Rick Bunzel, CRI
Pacific Crest Inspections

WA Licensed Home Inspector #312
ASHI Certified #249557
NPSAR Nominee Affiliate of the Year 2009-2010
NAHI Member of the Year 2008
NPSAR Affiliate of the Year 2006-2007
WWW.PacCrestInspections.com
360-588-6956
Fax 360-588-6965

Toll Free 866-618-7764

Nov 16, 2010 02:33 PM #2
Rainer
17,921
Russell Hensel
Comprehensive Building Consultants - Naples, FL

Well Rick, different way of thinking and doing things.  I do not sit down and discuss what is important and what is not important with the clients because #1 that is a personal matter for them and for them to ponder #2, here in Florida there is something called a Real Estate Contract and to make life "easier" for all involved it states what is to be repaired and what is NOT to be repaired.  It is my job to INSPECT and the REALTORS job to interpret the contract.  For me to "determine" what is to be repaired would actaully be interpreting the contract, thus operating as a Realtor and outside the scope of my work and to also be acting as a Realtor without a Realtor license.  Here that is against the law.  So, as I say, different strokes for different folks.

Nov 16, 2010 07:46 PM #3
Rainer
25,042
Rick Bunzel
Pacific Crest Inspections - Anacortes, WA

Russell,

 

Thanks for the reply. If you read the 1st sentence of the second paragraph you will see I was talk about what REALTORS should do to limit liability. As a home inspector other than categorizing the issues and answering questions on the report, I let the client and realtor decide whats important,

Orcas Inspection
Lopez Island Home Inspection

Rick Bunzel, CRI
Pacific Crest Inspections

WA Licensed Home Inspector #312
ASHI Certified #249557
NPSAR Nominee Affiliate of the Year 2009-2010
NAHI Member of the Year 2008
NPSAR Affiliate of the Year 2006-2007
WWW.PacCrestInspections.com
360-588-6956
Fax 360-588-6965

Toll Free 866-618-7764

 

Nov 17, 2010 12:24 PM #4
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Rainer
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Russell Hensel

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