Buyer Forgoes Inspections
During the booming real estate market before 2006 it seemed that buyers were far more interested in turning a profit on their real estate purchases than on making a long-term commitment. During those years, real estate was big business and everyone knew of at least one person that was cashing in on the frenzied market. Part of the booming success involved forgoing steps that were perceived as superfluous in the transaction process, namely buyer inspections. “After all, what did it matter,” some investors thought as they recalled scenarios like their neighbor’s house appraised for $350,000 and six months later sold for $425,000. Today’s market is vastly different however. Just because a home appraises for $300,000 today, does not mean that it will sell for that tomorrow. This bridled economic environment has also changed buyer’s views about property inspections. What was once seen as an unnecessary frivolity, has become essential. Buyers and sellers alike are leaning more on the opinions of inspectors and appraisers and paying much closer attention to problems that they identify. Despite this change in the real estate market, buyers may express disinterest in home inspections because they are not informed of the risks that they are undertaking by circumventing them. After thoughtful discussion with your buyers, they may embrace a new opinion of the role inspections play in ensuring that they are satisfied with their home purchases in both the short-term and in the long run.
If you are the agent representing a seller, and you receive notice that a buyer has not completed the specified inspections identified on the contract, you should send a document to the buyer and the buyer’s agent recommending that the inspections be completed. If possible, the document should be signed and dated by the buyer.
Send a note to the buyer’s agent: “With the best interests of the buyer and seller in mind, I recommend that your buyer conducts the specified inspection(s) identified in the contract. The seller and I (the seller’s agent) ask that if your buyer determines that the inspections are unnecessary, that your buyer sign and date this document as an indication that the buyer is fully aware that the inspection(s) will not be completed at their re-quest.” Please have your buyer sign and date this document and send a copy back. If you are the agent representing the buyer, and you have become aware that your buyers are not interested in having the prospective property inspected as recommended by you or an inspector, you should have your buyer sign and date a document indicating that he or she knows that an inspection will not be conducted, thereby releasing you from liability.
For example: “As your buying agent I acknowledge that you have decided to forgo the property inspection that has been recommended by me and the selling agent. By doing so, you release any liability for defects that may be identified after closing.” Make sure the buyer signs and dates this document.
It is common for agents to recommend inspectors. Often buyers will ask agents for this type of information; however, agents and brokerages have been found guilty of “negligent referral” when the individuals they’ve recommended do not have the professional credibility necessary to conduct inspections. Consider the following example: Dave, a real estate agent for Stone Real Estate, LLC., has always recommended his friend Stewart as a qualified inspector to his buyers; however, Dave never verified that Stewart was licensed to conduct inspections. Instead, he just took Stewart’s word for it. After all he was a friend and asking him for this information would have been socially awkward. After suit was brought against Dave and his brokerage for negligent referral, he learned that Stewart had lied about his credibility as an inspector. As it turns out, Stewart’s license had been revoked five years prior because of a long history of complaints resulting from inadequate performance. In an attempt to circumvent liability, some brokerages have mistakenly opted to avoid this outcome by making it a practice not to recommend anyone as an inspector; however, buyers have a reasonable case against brokerages that limit or avoid advising a buyer on the basis of “failure of fiduciary” duty and obligation to “advise and counsel the client.” The solution is relatively simple. Before recommending anyone or any company as an inspection resource, be absolutely sure that the individual or company is professionally qualified. In most states licenses can be checked via the respective state contractor licensing board.
It is very important that you establish and then follow a reliable system or process for qualifying inspectors before you recommend them to your clients. At a minimum you and the buyer should qualify inspectors by asking the following seven questions:
1. How long have you been an inspector?
There is no set time that qualifies an inspector; however, the answer provided will help establish credibility. For instance, he or she may work in a company or with a partner who has extensive experience.
2. What qualifications do you have as an inspector?
Some suggest that the best assurance of hiring a qualified inspector is finding one who can prove to you that they are a certified member of a credible inspection organization. (e.g., American Society of Home Inspectors (ASHI), or the National Association of Home Inspectors). Members of such organizations are required to pass rigorous examinations and facilitate dozens if not hundreds of verified inspections to standard. In many instances they are also required to take a minimum number of yearly continuing education courses to help ensure they have the knowledge, skills, and abilities to competently serve the public as home inspectors. Qualified inspectors with legitimate credibility will proudly show you their certification numbers without hesitation.Noteworthy inspectors spend hundreds of hours obtaining professional credibility, and as such take pride in announcing these facts. For this reason alone, both buyers and real estate professionals should not hesitate to ask property inspectors for proof of their professional credibility. If an inspector resents being asked for this type of information it should serve as a red flag.
3. Are you insured?
A professional home inspector should have general business liability insurance. In some instances, these inspectors can also be covered for “errors and omissions,” commonly called E&O insurance. With this kind of coverage, if the inspector happens to miss an important issue during his inspection, the buyer can later file a claim and have the issue resolved. If you qualify an inspector based on being the least expensive, you should at least verify that they have E&O insurance coverage before recommending them. It is also important that you verify the home inspector’s contract for limited liability clauses that limit their responsibility for damages. As an agent recommending inspectors, you should also ask inspectors to show written documentation that verifies his or her insurance coverage. Although this may seem an awkward task, it is important to do. Also, insurance coverage can be canceled. For this reason, you should verify an inspector’s insurance coverage on a regular schedule, for example, twice every year.