Agent Liability With Home Inspections

Do agents have fears about liability with regard to home inspections? We as inspectors go to great lengths to try and limit our liability, many times to our own demise. We often get too wrapped up in a deal coming apart, then what could happen if the deal goes through.

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 more and more finding themselves named as defendants in lawsuits wherein purchasers of residential real estate are claiming damages as the result of the alleged negligence of one or more of the participants in the transaction.

Once a lawsuit has been filed and you the agent have been named as a defendant, you can say goodbye your E&O deductible, 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 without merit.  The size of these complaints and the overall 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.

To counter this, the best strategy is to avoid being named in the suit in the first place.  Thankfully, there are a number of effective policies that, if followed, can sharply reduce and even eliminate your exposure to a lawsuit without merit.

Below are a few strategies to reduce your exposure from a home inspection point of view:

   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. 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. This is one of the more important strategies that both the agent and the inspector can subscribe to.
   3. 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.
   4. 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.
   5. 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.
   6. 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.
   7. Only recommend inspectors who adhere to a strict Code of Ethics and Standards of Practice, such as members of InterNACHI.
   8. 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.
   9. Become educated in the home inspection process. Ask the inspectors in your area if the give Realtor presentations on the home inspection process. A quality presentation will explain the Standards of Practice for your area, and the Code of Ethics that the inspector adheres to. I give both written and Power Point presentations to agencies in my area. It is surprising how many agents both new and veteran, come out with a better understanding of what a home inspection is and what they are to accomplish.