Real Estate Professionals
Liability Avoidance and Referring Agent Insurance
Addressing Liability
Legal liability is one of today's realities. As professionals, both Realtors and home inspectors must deal with this. Often due to deep pocket theory and shotgun litigation, anything an inspector does to address these issues necessarily helps real estate professionals avoid them, too.
So, what is the number one thing an inspector can do to minimize getting a letter from a client's attorney?
Perform a quality inspection.
A complete, comprehensive, well documented inspection report that accurately captures the condition of the home at the time it was inspected goes a long way to provide the services clients want and deserve.
The next important aspect centers largely on
Communication.
A client's grasp of identified issues depends on their previous experiences, technical expertise, etc. Explanations to a poet may be completely different than explanations to a civil engineer. Additionally, context and how issues are described are also important.
Context
Understanding what is being addressed is often best approached by ensuring issues are put in context. Many clients are unfamiliar with the technical aspects that an inspection demands. So, when items are pointed out, it is frequently difficult for buyers to comprehend if these are big things, or little things. Competent inspectors should convey a sense of spectrum or scale of concern to clients, for any particular issue.
How versus What
How items in a report are described can be just as important as
what is identified. Too often, unnecessary alarm is raised when context is missing. A good example of this is when new regulations are instituted and suddenly thousands of previously "OK" homes are now "not OK". It's important to advance safety and health issues, but when those factors are not in play, moving goalposts can make it difficult to achieve a score. By simply stating that an issue was "within regulation at the time the structure was built", can go a long way to settle nervous buyers.
Stay within your area of expertise
This is true for both real estate agents and inspectors alike. Speculating, for example, as to why a crack is present, without the proper training or experience, can only add to the liability factor. Whenever reasonable, defer to those with the expertise to address the concern. Realtors can respond to clients' observations on property issues by saying something like, "Good point. The inspector will be here tomorrow. I'll make sure it's pointed out." Inspectors may also transfer this liability when it's beyond their area, for example, when a foundation is suspect.
E&O Insurance
In the summer of 2007, the Texas Real Estate Commission (TREC) instituted a requirement that licensed home inspectors carry Errors and Omissions insurance policy. Proof of insurance must be presented to the State upon license renewal. No policy, no license . . . kind of. Inspectors are not required to carry E&O until they are up for re-licensing. Because an inspection license is renewed every two years, there are many inspectors who are deferring that cost until renewal time, or simply folding up shop and getting out of the business when they have to pony-up for insurance.
Does carrying E&O by an inspector mean agents should have less concern about inspections adversely affecting a deal? Not at all, but not carrying this insurance may say volumes about the inspector, their approach to their profession, and whether they intend to be in for the long haul. Think of it as a sort of Darwinism for home inspectors.
Referring Agent Insurance - When Avoidance Doesn't Work
Simply put, if a home inspector is sued by a client, the real estate agent associated with the transaction is often named in the suit. The inspector's insurance will pay to defend the inspector and if there is a Referring Agent clause in the policy, it will also defend the referring real estate agent. This doesn't mean agents now have a bulletproof leotard and can leap tall buildings in a single bound, but it does add another layer of protection to help insulate third parties in such situations.
If liability avoidance is high on your list, it may be prudent to ask your home inspector if they carry Referring Agent insurance.
