Thursday, January 20, 2011

What You Need to Know About Pre-Sale Inspections

Reader Gary Baldridge writes: I have heard many comments on the pros and cons of pre-sale inspections and what liability may differ from doing a buyer inspection."

Now that sellers are being encouraged to obtain professional home inspections prior to listing their properties for sale, a development that I not only applaud but also believe will become increasingly popular and commonplace, home inspectors need to be careful of potentially exposing themselves to liability to non-client third parties.

Normally, actors are only potentially liable to individuals to whom they owe a duty of care. Motorists, for example, owe a duty of care to their passengers, other motorists and their passengers and bicyclists and pedestrians. They fulfill that duty by obeying traffic laws and conventions, maintaining their vehicles in a safe condition, maintaining adequate insurance and driving carefully.

When performing a service for a client pursuant to a contract, a service provider would normally owe a duty, and thus be potentially liable for professional lapses, only to her client. She fulfills that duty by performing her duties in a professional manner.

However, a service provider could also be held liable to third-parties if her negligence could foreseeably cause harm to others as, for example, when an auto mechanic’s negligence causes the unexpected failure of her client’s brakes resulting in injuries to an innocent third-party. That potential for being sued by unknown third-parties is why bartenders will refuse to serve obviously intoxicated customers, take away their car keys and call taxis for them.

When performing a home inspection for a buyer, a home inspector normally would only owe a duty and thus, be potentially liable, to his buyer-client for issues that she “unreasonably” fails to discover and/or report - that is, she failed to discover them but should not have - and that failure - that unreasonable professional conduct - caused her client damages. That’s certainly fair enough. I don’t know any professional home inspectors who have a problem with that.

A potential problem arises, however, when someone with whom the home inspector does not have a contract claims to have been harmed by the alleged negligence of the inspector. I recently had a case in Philadelphia involving an inspector who had performed an inspection for a young husband and wife in their twenties who were buying their first home. Some eighteen months later he got served with a lawsuit by the father of the wife claiming that he had conducted a negligent inspection that had caused this man damages.

The couple had apparently failed to qualify for a mortgage and so a new Agreement of Sale was drawn that listed the wife’s father as the sole purchaser and more than a year later, this purchaser, a stranger to the home inspection contract, was claiming that the inspector had failed to discover certain issues that were causing him damages.

Pretty ridiculous, right?

Sure but the problem is quite common and generally arises when the home inspector’s client exercises his right to terminate the Agreement of Sale based upon the inspector’s findings. When the property goes back on the market, the real estate agent will often hand the inspector’s report to a new prospect who does buy the property and then wants to sue the inspector some time down the road when problems inevitably arise.

The problem can be muted somewhat by prominently noting that only the individuals who hired the inspector may rely on the inspector’s findings and that anyone else who relies on his report does so at their own peril. The inspector my still get sued but will easily be able to demonstrate that the subsequent buyer’s reliance on the report was "unreasonable."

And that brings us to Gary's question regarding pre-listing inspections conducted on behalf of a seller. The purpose of these types of inspections is to make the seller aware of issues that he either needs to correct or disclose to a potential buyer or perhaps both. The idea is to reduce the seller’s exposure to suit, not to reduce the buyer’s anxiety.

Hence, to avoid any surprises, Inspectors should make sure that their pre-listing inspection clients know that this report is for their information only and that they may not use it to allay their buyers’ anxiety. Pre-listing inspection agreements should also stress this point and include a provision requiring the seller to defend and indemnify the inspector should a buyer subsequently claim that he relied on the inspection report to his detriment.

22 comments:

  1. I recently added this to all my reports under Additional Information section on a TREC report.

    The Inspection and report are performed and prepared for the sole and exclusive use and possession of the Client. No other person or entity may rely on the report issued pursuant to this Agreement. In the event that any person, not a party to this Agreement, makes any claim against 

    Inspector, its employees or agents, arising out of the services performed by Inspector under this Agreement, the Client agrees to indemnify, defend and hold harmless Inspector from any and all damages, expenses, costs and attorney fees arising from such a claim

    ReplyDelete
  2. Great article but what rights do we, Home inspectors, have against realtors that give our report out to the next buyer of a property that we inspected and then we get a complaint or law suit filed?

    ReplyDelete
  3. thanks Joe, I've always had an "exclusivity" clause similar to yellowhat's (comment above)...I get a kick out of the folks that call a year later and say they found termites and what am I gonna do about it; only to find out when I look up the report address that the caller wasnt the client and I did comment on the active termites in the report!

    ReplyDelete
  4. This is good information Joe, and I am adding this to my Pre-listing page information. Thanks!

    Jay Markanich

    ReplyDelete
  5. This is Great Information ! I have worked with a Realtor that I know for a Fact he Sells my Report to the next Agent if his deal falls through, I have always thought this is Very unethical ? I have now Added what "yellowwhat"
    said to my NACHI Inspection Agreement !

    ReplyDelete
  6. Great article. Again Joe Thank You. I have added this to my inspection agreement.

    ReplyDelete
  7. Thanks for the information. I will add this to my agreement.

    ReplyDelete
  8. for these inspections, I included the clause: "This report is NOT meant to replace the inspection report that a potential buyer may request at a later date" Further, "the inspector recommends that any potential buyer of this property have his/her own inspection report prepared pursuant to the terms of the purchase agreement or real estate contract."

    ReplyDelete
  9. Thanks Joe! This will come in handy as I am doing a pre-listing inspection this week. Chris Rich, A Closer Look Home Inspections of NJ

    ReplyDelete
  10. Really good article Joe, Thank you for sharing this info. Awesome!

    ReplyDelete
  11. I have similar language in ALL of my inspection contracts, since we all know that some Realtors will give or sell your inspection report to the next potential buyer if the deal does not close, and I have always been concerned with these matters in all inspections, not just pre-sales.

    ReplyDelete
  12. Yes great eye-opener,I have to many people call me, and demand Info on and inspection report that did not have there name on it. Deal fell through for one reason or another and my report winds up in someone Else's hands! What can we do to stop the reports from being passed or sold to the next potential buyer by the Realtors ?

    ReplyDelete
  13. I once was talked into an escrow closing billing by a well meaning Realtor. The deal fell through because of the credit problems of my client. 6 months later & still not paid, the LISTING Realtor wanted a copy to pass on to the next potential buyer, I said "sure, pay me the original inspection fee & you can have it after I re-inspect. She hung up.

    TG

    ReplyDelete
  14. Nice Blog! Well most of your content and image is original and informative. /many thanks for sharing this, cheers.

    Home Inspection

    ReplyDelete
  15. I am going to buy a pre-owned house in hermosa and for that I have decided to use services of some Hermosa Beach Certified Home Inspectorto know the real condition of the house i am about to purchase

    ReplyDelete
  16. When I do Pre-Lisiting Inspections(rarely sellers are cheap), I don't issue a report, its a strick verbal consultation inspection, no report no paper trail. The owner/client learns what is "wrong" with the house and uses that information any which way they want. No report to pass around. If by chance I do get called to inspect the same house, I respectfully opt-out.

    ReplyDelete
  17. Hello, I was very inspired to discover this website. The explanation becoming that this is this sort of an useful submit. I needed to thank you for this insightful read of the subject.

    fha ny
    new york fha

    ReplyDelete
  18. Just admiring your work and wondering how you managed this blog so well. It’s so remarkable that I can't afford to not go through this valuable information whenever I surf the internet!
    tampa home inspector

    ReplyDelete
  19. It could help me make the most of my nourishment and time alone. Eating carefully may help me know about sound nourishment and acknowledging sustenance. pre buy inspection

    ReplyDelete
  20. Perfect example of speculation, empathy and expression. Here I learned a new way to speculate through author’s writing. It allowed me to feel a new way to speculate your thoughts and express them in an easy and clear way.pre buy inspection

    ReplyDelete