Warning From a Home Inspector

Don't let an inspection increase your risk of liability.

August 1, 1996

Home inspection, when done properly, can help avoid property condition lawsuits, which make up the bulk of legal actions stemming from residential sales.

Real estate salespeople, in an effort to reduce their legal liability, are encouraging the use of home inspections by clients and customers.

But does home inspection by itself reduce risk? Not necessarily. An inspection can actually increase risk in cases in which the buyer hires an unqualified or uninsured inspector.

During my 15 years as a professional home inspector, I've observed six ways that real estate salespeople can improve their procedures regarding home inspections and reduce their liability.

1. Establish a procedure for verifying identity before giving keys to inspectors.

How many times has your realty company provided a key to an inspector without challenge? What if the inspector is an impostor?

If you give a key to the wrong person, your company's responsible for any loss or damage.

Always ask the inspector to show a driver's license or some other form of identification, and record the inspector's name, address, and license number on a sign-out sheet. Never make inspection arrangements over the phone. Anyone can pose as an inspector. Establish a system for verifying the inspector's identity regardless of whether the inspector is let in by the owner or by the realty company.

2. If your state requires a seller disclosure statement, you should carefully instruct the seller on the proper way to fill it out.

The disclosure statement is an effective step in lawsuit reduction if it's properly and truthfully completed.

I've noticed that our state-mandated seller disclosure form is often provided to the seller with no formal instructions. Many times I see disclosures that aren't properly completed. This is most evident when there's a discrepancy between the inspection results and the information in the seller disclosure. A typical comment by the seller in this situation is, "I bought the home this way, and I don't consider it a problem."

Provide sellers with written instructions attached to the disclosure document. Emphasize that the seller needs to be candid and accurate. Include an explanation of the possible legal penalties for misrepresentation.

You should spend time with the sellers to ensure that the disclosure is properly filled out. Never fill out the statement yourself.

I always ask sellers to give me a copy of their disclosure statement when I inspect their house. That way, I can ask the owners to clarify any significant difference between my inspection results and their statement. If accurately completed, the disclosure form can help make inspectors aware of intermittent problems that may not show up during the inspection.

3. Refer all buyer questions concerning property condition to the home inspector.

Many times during inspections, the buyer will ask you questions about the condition of the house. You should never place yourself in a position where you verify a repair or a property condition.

For example, when asked about the water stain on the ceiling, you might be tempted to say that that's no longer a problem because the shingles have been replaced. However, the water stain may be related to a plumbing problem or an air conditioner leak or even to a defect in the new shingle installation.

Let the inspector assume responsibility for answering questions about property condition.

4. Help the buyer identify a competent person to perform the inspection.

Don't base your recommendations solely on advertisements, official-looking lists, or promotions about low fees.

Those selection criteria may not protect you or the client. Mistakes are inevitable and happen even with the most experienced inspectors. Don't be fooled into thinking that you can insulate yourself from lawsuits by not making inspector recommendations. The fact is that regardless of who selects the inspector—whether the buyer or you—an inadequate inspection may end up getting you named as a defendant.

The most effective risk management approach is to assist the buyer by providing a listing of selection criteria and qualifications that help define a competent inspector.

Even if your company policy is not to recommend inspectors, it's to your advantage to educate buyers about the selection process so that they don't end up picking an inspector solely on the basis of low cost.

Tell them to check with the inspector to determine

  • What is or isn't inspected
  • What scientific instruments—such as moisture detectors, combustible gas detectors, and electronic levels—are used
  • What organizations and professional societies the inspector belongs to
  • What kind of education the inspector has
  • What licenses the inspector holds
  • How many inspections the inspector has done
  • Whether the inspector works full-time
  • What type of report—a check-off form or a more detailed narrative—the inspector makes
  • What type of insurance—liability, errors and omissions—the inspector has
  • Whether the inspector has any businesses—such as home repair—that might represent a conflict of interest

5. Encourage the buyer to use only those home inspectors who are covered by both liability and errors and omissions insurance.

Liability insurance covers the inspector for claims arising out of damages to the property inspected. E&O insurance covers the inspector against claims resulting from negligence in discovering significant defects in the property inspected.

Insurance is expensive, and there are eligibility requirements that the inspector must meet. For your own protection as well as the protection of the seller and buyer, you should insist that the inspector be covered. Request a copy of the inspector's "certificate of insurance" and include it in the transaction file.

6. Insist that the seller use only licensed, qualified persons to make needed repairs.

Repairs should always be completed before closing. Strongly discourage homeowners from doing repairs that normally require a licensed contractor. In some cases they may actually compound the problem. Since they're moving, you'll have no guarantees should the work prove unsatisfactory. Encourage sellers to use only contractors who'll guarantee their work.

If the homeowners insist on doing repairs themselves, document the fact that you recommended otherwise.

If you follow these six steps in the home inspection process, you'll go a long way toward reducing lawsuits stemming from property condition issues.

Arthur Mandell is a licensed real estate inspector and a registered professional engineer. He's also the president of Scientific Home Inspection Service Inc., which has two offices in Houston.

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