House Detective: Making the Most of Home Inspection

The House Detective:  by Barry Stone, Certified Home Inspector

Dear Barry: Our Realtor has been showing us listings for several weeks. But last week, we found a for-sale-by-owner property and made an offer to the owner without calling our agent. Since our Realtor spent so much time trying to find a house for us, are we obligated to involve him in this purchase?  Rob

Dear Rob: This type of situation is a sore spot with many real estate professionals. Your Realtor devoted many hours to your search for a home and now will receive nothing for those efforts. Unless you have a contract with him, you are under no obligation. However, most agents feel that the time and effort they spend showing property to a prospective client warrants some loyalty.

The seller in this case is clearly under no obligation to pay a real estate commission, nor is it likely that he would be willing to pay one. So there’s probably no way to involve your Realtor in the current transaction.

The most fair and respectful way to have handled this situation would have been to inform your Realtor of your interest in the property, rather than contacting the seller directly. The Realtor could then have called the seller and said, “I have clients who are interested in your home. Would you be willing to pay a reduced commission if I bring you an offer?” At that point, the seller could have accepted or declined. If he had declined, you would have been free to make your own offer, without misgivings between you and your agent.

At this point, you can choose whether or not to inform your Realtor of the decision you have made. Expressing your concern and extending your apologies would probably be more respectful than to say nothing at all.

The House Detective:  by Barry Stone, Certified Home Inspector

Dear Barry: In one of your columns, a buyer was annoyed that her agent would not recommend a home inspector by name. I’m a Realtor, and our company has a policy against recommending any service providers, and that includes termite inspectors and home inspectors. We simply hand our clients the yellow pages and point out the section where inspectors are listed. Past experience has shown us that this is the safest way to do business. If a home inspector that we recommend makes a mistake, we could be sued for making that referral. We’d like to provide the kind of personal service that includes a list of reliable contractors and inspectors, but our hands are tied by fears of litigation; much to our dismay and disappointment. How do you view this position?  Jennifer

Dear Jennifer: Your fear of litigation is understandable and is shared by many; not just in the real estate profession, but by nearly everyone in business; from grocers to doctors; from plumbers to engineers; from teachers to musicians. Trial attorneys, for whatever reasons, good or bad, have removed from our society the trust that was once communicated by a promise and a handshake. Instead, we have pages of fine-print legalese that no ordinary person can understand. Yet none of these documents eliminates the likelihood of lawsuits: They merely provide talking points for that dreaded day in court. But there are still ways of operating in this defensive business environment, without abandoning the kind of personal service that we prefer to offer in good faith to our customers.

The phone book approach to home inspector referrals may not provide the liability protection that Realtors seek. In fact, it may pose a higher level of exposure to tort liability. The problem with a yellow page selection is that a buyer may randomly hire a home inspector who has very limited experience; someone who is not very thorough or qualified and who may fail to disclose significant property defects. If a buyer chooses a mediocre home inspector from the phone book and the agent fails to give warning — to point out that there are better home inspectors — that agent could be vulnerable to a lawsuit, without having made a referral.

Fortunately, there is a safer middle ground between recommending a home inspector or supplying a phone book. Instead, you can provide a list of the most qualified home inspectors in the area and let your buyers choose an inspector from that list. In fact, you could ask a number of local home inspectors to submit a one-page flier outlining their professional credentials and their levels of experience in the inspection business. A packet of these fliers could then be given to every homebuyer. Buyers could select their own inspector, but their choice would be an educated one, based on information that would facilitate a more thorough inspection and, therefore, less liability. Run that idea up the flagpole at your next staff meeting and see if anyone salutes it.

The House Detective by Barry Stone, Certified Home Inspector

Dear Barry: I’ve been a Realtor for over 10 years and am a strong believer in home inspections. But recently, I had a situation with another agent who does not share my view. This agent represented a buyer for one of my listings, and the three of us were together at the property. The buyer had waived the right to a home inspection in the purchase contract. So I asked her, “Are you sure you don’t want a home inspection?” A few minutes later, the agent cornered me in another room and said, “Don’t you ever say that to one of my clients again!” She was visibly angry and let me know that home inspections create nothing but trouble. She said it was up to buyers to beware when buying a property. I can’t believe there are still agents who think like this and would appreciate your comments. Catherine

Dear Catherine: It is difficult to believe that an agent today could hold such long outdated views. Since the late 1980s, home inspections have been the focus of articles and seminars by the National Association of Realtors and by many of the state regulatory agencies that license real estate professionals. Home inspections have been promoted as an essential component of residential purchase transactions. The emphasis on legal liability, codes of ethics, and the need for disclosure has been unrelenting. Yet some agents remain unconvinced.

When agents advise their clients to forego a home inspection, the problem is two-fold: First is the issue of professional ethics. Some agents argue that they are not required to protect the interests of their buyers because sellers pay their commissions. That is a separate legal issue. Advising buyers to protect their financial interests is simply the right thing to do. It is the way that each of us wants to be treated in business. Agents who advise against home inspections should consider how the picture would look if they were the buyers and were being misled in this way.

For those who are not persuaded by moral arguments, there is a good selfish reason to recommend home inspections: the avoidance of liability. When undisclosed defects are discovered after the close of escrow, financial claims and lawsuits can result. A thorough home inspection reduces the likelihood of this kind of liability. Realtors who have no interest in protecting their buyers should consider this for their own financial wellbeing.

As for the “buyer beware” cliché — it is outmoded and unjustified. In essence, it declares that “I, your agent, am here strictly for the commission check. It is your job, as buyers, to protect your own interests; so don’t look to me for assistance in that pursuit. I’ll smile warmly, shake your hand, and give every outward appearance of working on your behalf, but as far as I’m concerned, you are totally on your own. If you discover major defects after the close of escrow, don’t call me. It’s not my problem. It was your choice not to hire a home inspector. Never mind that I advised you to make that choice.”

In another respect, however, the “buyer beware” policy has some validity. It should be invoked as a warning to beware of agents who say, “buyer beware.” Whether they realize it or not, they are jeopardizing the financial interests of their clients while exposing themselves to possible litigation.

The House Detective by Barry Stone, Certified Home Inspector

Dear Barry: I’m trying to sell my home and my agent presented an offer that sounds fishy. The proposal is to have the house appraised for more than I am asking. The buyer would get financing for the inflated price and I would refund the excess money to him after the close of escrow. What’s your take on this? Anne

Dear Anne: Don’t even consider doing this. It’s an old trick that allows a buyer to purchase a property with no down payment. The practice is totally fraudulent and could get you into serious legal trouble with the mortgage lender and the IRS. Any agent who would present an offer of this kind should be reported to the state agency that licenses real estate professionals.