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How Realtors Can Limit Their Liability with Regard to Home Inspections

by Joe Ferry, Esq., and Nick Gromicko, InterNACHI Founder
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,
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
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 Ten Ways You Can Sharply Reduce Your Professional Liability Exposure:
  1. Insist that your client hire a professional certified 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.  Ideally identify an Inspector who is InfraRed Certified as well as this shows an extra level of committment on thier part for due dilligence.
  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.
  10. Register for InterNACHI’s free, negligent referral protection plan for real estate agents.