The Law & You: Inspection Protection

Are you the inspector’s keeper?

August 1, 2001

Very few homebuyers believe that the property they’re purchasing will be free of flaws. In fact, they want to know what the imperfections are before they become obligated under the terms of a purchase contract.

Increasingly, sellers are being required to inform buyers of material facts affecting the value or desirability of a property. However, buyers generally want to know about more than just those issues that rise to the level of “material.” Home inspections provide that additional insight.

A risk management technique taught widely to all real estate professionals is to recommend a home inspection to all buyers. In addition, some listing agents recommend that sellers pay for a presale home inspection in order to have a detailed list of the property’s imperfections.

But what’s your liability if you recommend an inspector who fails to perform as expected?

The courts don’t generally hold real estate licensees liable when the inspector overlooks a major problem.

In one West Virginia case, the buyers bought a home with a backyard that sloped very sharply down to a retaining wall. A series of decks and wooden steps led down from the back of the house to the area of the wall. At the buyers’ request, the listing agent agreed to have an engineer examine the retaining wall and the home to determine their structural soundness. The listing agent selected and contacted a structural engineering company to inspect the property.

The engineering company sent the listing agent a written report indicating that the property was in good condition and that the retaining wall was sound. The listing agent called the prospective buyers to inform them that the report indicated everything was OK. At closing the buyers received a copy of the report.

Several years later, a landslide occurred on the back of the property. The retaining wall collapsed, and the decks and steps sustained substantial damage. An engineer hired by the owners discovered that a large amount of fill dirt had been placed in the slope of the backyard extending to the retaining wall, which presumably was the cause of the landslide.

The owners attempted to hold the listing brokerage liable on the grounds (among others) that it had hired the engineering company, thereby making the engineering company the agent of the listing office.

The West Virginia Supreme Court noted that one of the essential elements of an agency relationship is the existence of some degree of control by the principal over the conduct and activities of the agent. In this case, the court found the brokerage had no control over how the engineering company performed its inspection of the property, so it concluded that no agency relationship existed. The listing office was therefore not responsible for the performance of the engineering company.

A more recent Kentucky appellate court decision addressed the liability of a buyer’s representative who provided the buyers with a list of three pest control companies that could perform a termite inspection required by the lender.

The company selected by the buyers discovered termites and treated the property. After buying the property, the buyers discovered that the termite infestation had not been remedied. In addition, the pest control company allegedly overlooked visible termite damage.

The buyers sued their agent (among others), alleging she had breached her fiduciary duty by recommending a pest control company that allegedly failed to perform its work in a satisfactory manner.

The court ruled that recommending a contractor doesn’t guarantee that contractor’s performance. Since the buyer’s agent had given the buyers the name of two other pest control companies, the court found the agent wasn’t accepting responsibility for the work performed by the company selected.

Recommend with care

It’s very wise to recommend that buyers include a property inspection as a condition of their purchase offer. When you’re recommending inspectors, limit your liability by following these tips:

  • Put your recommendation in writing.
  • Don’t recommend or endorse any one particular inspector or inspection company.
  • Provide a list of at least three individuals or companies on the basis of your past experience and references from reliable sources who’ve used those inspectors.
  • Make sure to disclose any affiliation between you or your company and anyone on the list.
  • Never ask for or accept referral fees from individuals or companies on your list.

Laurie K. Janik was general counsel for the NATIONAL ASSOCIATION OF REALTORS® from 1987 to November 2013.

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