Recommending a home inspection company is a helpful and valuable service a real estate agent can perform, however, it can also lead to a real estate lawsuit. And while the courts mostly rule in favor of the real estate agent, it is important to take steps to guard yourself against a real estate lawsuit while still being able to effectively guide your buyers towards a home inspection when applicable.
A professional and competent pre-closing home inspection, paired with a good Home Warranty Plan after closing, provides protection and peace of mind to the client – and it is a valuable aspect of the professional services a real estate agent provides.
However, agents should be cautious and take care not to oversell the value of the home inspection or a specific inspector’s qualifications. If the home inspector misses or overlooks a significant problem which then surfaces after the sale, the agent does not want to be placed into the position of the client saying “I relied on you in selecting this home inspection company; you repeatedly assured me that he was the best.” This is especially important because there are aspects of what a typical home inspection will consist of, and what the contract provides for that a buyer (and perhaps even many real estate agents) will most likely not be aware of until it is too late.
In order to reduce your risk of a real estate lawsuit due to problems with a home inspection, you must be careful which home inspectors you recommend to your clients and how you recommend them. Here’s how:
Ensure Your Clients Know the Inspection May Be Visual Only
A professional home inspector is naturally more likely to spot a problem during the course of his inspection than the average homeowner. However, many homeowners are not aware that most home inspections, for which buyers typically pay $350 – $600, are visual inspections only. The contracts are usually very clear that the inspector is performing only a, “limited, visual inspection of apparent conditions in readily accessible areas.” One of many areas this can impact is the roof. The inspector may not be obligated to get up onto the roof, and he or she may not even go into the crawl space underneath the roof.
Furthermore, a limited visual inspection means that the inspector may not discover common conditions such as roof leaks or the presence of termites, and is even less likely to discover the existence of more hard-to-notice foundation, plumbing or electrical system problems.
If a significant problem like a major roof leak is discovered after closing, the homeowner is going to be unhappy that it was not discovered before the sale. That unhappiness will be compounded if the homeowner then discovers that his or her rights to pursue relief against the inspector are strictly limited – or even non-existent altogether.
Many Home Inspection Contracts Are Very One-sided
A home inspection contract can contain exclusions and limitations as to what the inspector is obligated to do, and what sort of remedies a homeowner has in the event of an inspector’s failure to discover a problem. Some contracts even contain a provision that states that if the client is not present at the time of the inspection and therefore not able to sign the inspection agreement, the unsigned (and unread) agreement becomes incorporated into the inspection report itself — and mere delivery of the inspection report to the client will constitute acceptance of all the terms and conditions of the agreement.
In addition to limiting what the home inspector is required to actually do (e.g., limited visual only), home inspection agreements typically contain very restrictive limits on the inspector’s liability. We have seen agreements that limit any monetary liability to a sum equal to the price charged for the inspection service itself. Others are not as restrictive but still contain a cap on damages, such as limiting any damages to 10-15 times the inspection contract price. To illustrate, on a “15 times the contract price” agreement, this means that if a home inspector fails to discover a $25,000 roof leak, the grand total damages recoverable from the inspector on a $400 contract would be limited $6,000. Where does the homeowner go for the other $19,000?
Other very restrictive terms and conditions are often contained within the contract, specifically intended to limit the inspector’s liability and make it more difficult for a homeowner to make a claim. Some contracts require the client to make any claims against the inspector in writing and to be reported within 10 days of discovery or the claim is waived. Some contracts also require that any legal action must be brought within one year from the date of the inspection, or claims will be waived and forever barred in lieu of the normal 4-5 year statute of limitations.
What Does This Mean For The Agent?
If things go wrong after the closing due to a problem or defect discovered by the buyer, the buyer may retain counsel to seek legal relief. Once the buyer discovers that the remedies available against the home inspection company are either very limited or non-existent altogether, the homeowner may look to the agent to cast blame. The agent needs to remember the balancing act between the value of recommending a professional, reliable (and therefore favored) home inspector, versus being placed in a position where the agent is blamed for choosing the allegedly negligent home inspector. They buyer can claim that they relied upon the agent’s handling of the matter and the agent is now also to blame for the faulty inspection.
How to Reduce Risk
Suggest two or three separate companies to the buyer, advise them to review each company on their own, and then leave it up to the buyer to select which inspector he or she wants to retain.
Remind the buyer in writing that they can also select an inspection company that you have not suggested.
Advise buyers to carefully read the inspection agreement prior to authorizing the inspection to occur. The contracts are typically not very difficult to read, and are often as short as one or two pages in length. If a buyer reads the agreement, he or she will see the limiting factors (such as that the inspection is visual only) in advance.
Never accept referral fees from an inspection company.
James R. Myers, Esq Guest blog written by James R. Myers, Esq, Partner at The Chartwell Law Offices, LLP Visit Chartwell Law Offices: www.chartwelllaw.com
This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.