QUESTION: I represented a Buyer on a sale that closed early last year. During his contingency period, my Buyer asked me to recommend a home inspector. I have always recommended a particular inspector who does a lot of inspections for Agents in this area because he is less expensive than the other inspectors in town. I thought he was a licensed home inspector and thus I told the Buyer to use him. A written report was issued, and a credit was negotiated with the Seller for $1,500 for the leaky windows in the kitchen.
After Close of Escrow, the Buyer discovered multiple leaks in the home and the garage. The Buyer had a licensed contractor check out the condition of the home; he found evidence of past water damage in several rooms and foundation cracks. The inspector I recommended had completely missed these issues in his inspection report. It turns out that the inspector I recommended does not have any type of license, had no insurance and is now out of business.
My Buyer is blaming me for recommending an unlicensed inspector to him and he is threatening to sue me. Do I have any potential liability for what the unlicensed inspector did or did not do?
ANSWER: Yes. Unfortunately, Agents and Brokers have been sued for negligently recommending a vendor (such as a home inspector) when that vendor does an inadequate job. The likelihood of whether or not such a lawsuit will be successful depends upon how the Agent/Broker made the recommendation to that third-party vendor.
There are no license requirements for someone to call themselves a home inspector in California and, unlike pest control operators, there is no state board to oversee home inspectors; as such there is no such thing as a “licensed home inspector.” In fact, the statute which regulates home inspectors, Business and Professions Code Sections 7195-7199, sets no minimum licensing standards, at all, for a person to hold him/herself out as a home inspector. Section 7195 defines a “home inspector” as “any individual who performs a home inspection.”
If the home inspector is not licensed as a general contractor, structural pest control operator, an architect or is not registered as a professional engineer, then the duty of a home inspector is to:
“conduct a home inspection with the degree of care that a reasonably prudent home inspector would exercise.” (Section 7196)
Buyers and Sellers rely on the information supplied by home inspectors to make their decisions about the condition of the Property and the sales price as well as what repairs and credits should be negotiated. To meet their fiduciary duties to their clients and to enable the clients to make informed decisions, Agents need to make sure that they recommend qualified home inspectors who are able to prepare a comprehensive, written report after conducting a thorough inspection of the Property, that the inspector will be financially able to stand behind their work and/or the inspector is properly insured.
PRACTICE TIPS:
- BROKER POLICY: Check with your Broker or Manager to see if your company has a policy regarding how to recommend vendors, including home inspectors, and follow that policy.
- RECOMMEND MORE THAN ONE: Regardless of what type of vendor or service provider you are recommending (e.g., home inspectors, painters, stagers, attorneys), it is best to always recommend more than one (preferably 3 or more) vendors to a client so that the client can make the choice. The Agent should not make the choice for the client.
- RECOMMEND QUALIFIED HOME INSPECTORS: In preparing any list of recommended home inspectors, the best practice is to only include home inspectors who are:
- Licensed general contractors and/or registered as professional engineers;
- Members of ASHI, CREIA, and InterNACHI, the three best known trade organizations for home inspectors. (See www.ashi.org, www.creia.org and www.nachi.org ). Members of organizations must meet certain minimum standards to become members. Members of these trade organizations subscribe to a Code of Ethics; and
- Have proof of Errors & Omissions (E&O) insurance, which the Inspector can obtain from their professional organizations and other sources. That way, in the event of a claim, there is an insurance carrier to stand behind the report even if the home inspector has limited assets and/or has gone out of business.
- VENDOR LIST DISCLAIMER: Since any type of vendor can potentially lose a license or cease having E&O insurance at any time, the best practice is to include appropriate disclaimer language in any list of recommended community resources or vendors (whether created by a Broker or Agent) that warns clients that they need to investigate the recommended vendors and choose the vendor that best meets their criteria. A sample disclaimer for Agents to use when recommending service providers follows this Weekly Practice Tip.
- KEEP VENDOR LISTS CURRENT: Anyone who has a list of community resources or vendors should make sure that the list is as current as possible by checking with the recommended vendors (at least annually) as to whether or not they are still providing the services specified on the list and whether or not they meet the qualifications for including that type of vendor on the list.
This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2020 03/13/2020
SAMPLE DISCLAIMER LANGUAGE FOR AN
AGENT’S LIST OF RECOMMENDED SERVICE PROVIDERS
[Insert name of Broker] and I are providing this list of recommended service providers as a customer service, only. You are not obligated to use any or all of these service providers; you can choose to use other service providers who may or may not charge the same amount for their services. Neither [Insert name of Broker] nor I have any financial interest in the listed services providers and we are not compensated, in any way, for providing this list.
You should only hire people who have appropriate licenses to perform the services that you request; you should confirm that the companies or individuals that you choose have adequate insurance coverage for your protection. You should also make sure that any and all repair work requested or undertaken by you complies with any relevant contractual agreements and is in compliance with all applicable governmental regulations.
[Insert name of Broker] and I have not and will not verify or investigate the licensing and insurance information supplied by any service provider. [Insert name of Broker] and/or I will not supervise the activities of any service providers and we will not determine if the services provided to you are done properly. Neither [Insert name of Broker] nor I can or will guarantee the performance, adequacy or completeness of inspections, services, products or repairs provided by any services providers.