There’s an interesting question. While most disputes surrounding home inspections primarily deal with allegations of negligence on the inspector’s part, what recourse actually exists for the defendant or plaintiff? Well, there are always the courts. Cheap you say? Maybe. Sure it only costs a couple of bucks to file the complaint, but what about costs thereafter? There are court costs, depositions, time lost, and more. Strong positions sometimes fade as discovery progresses. For the inspector, mounting a defense can be like proving a negative. And, what if the judge and jury is unsympathetic to either party, simply for the fact that they know nothing of the industry, its standards, and of realities often forgotten. Well, there’s always arbitration.
Arbitration and mediation are time-proven methods of alternate dispute resolution. A presumably knowledgable neutral third party hears each sides’ arguments, and looks at the evidence, then renders a decision. Simple, right? Well, that depends. There is still often lost time, and the cost of the arbitration can also add up. Some firms provide experienced neutrals who are often retired judges or attorneys, or “Professional Arbiters”. This is great, if you are arbitrating a case which is huge, with many complexities, and involving multiple millions of dollars. But, where does their experience benefit the inspector and plaintiff when it comes to inspection disputes?
That is the overarching question. One way to help ensure a combination of neutrality and knowledge is to choose an arbitration firm with experience in the home inspection process; one where the cost of arbitration is not out of line with the monetary realities of the dispute, including resources of the plaintiff and defendant, and of course where neutrals have experience and familiarity with the processes involved in performing a home inspection.
October 11th, 2009 in
Arbitration |
No Comments
Having “special knowledge” can actually be considered a pitfall. For instance, an inspector who also carries a pesticide applicator’s license may find himself/herself in a bind someday for failing to report conditions conducive to wood destroying insect infestation, even though he was not contracted to perform a WDI inspection.
Why you ask? Well, it is entirely possible that the argument could be made that the inspector had specific knowledge or expertise in a specific licensed area and that an obligation existed to inspect anyway. The concept of “special knowledge” is nothing new and has affected the conduct of Realtors for quite a while.
This concept may also apply to inspectors who are becoming “code certified”. In these cases, where the inspector has special training and certification with regard to building codes affecting a minimum safety standard, the ramifications can be great. Remember, the home inspector is supposed to be a generalist. The inspector is not the authority having jurisdiction. This is why the general rule of thumb is for the inspector to refrain from citing “code violations.” “Special knowledge” can come back to haunt you every time. Home inspections are not code inspections.
A code inspection is an inspection for compliance to minimal acceptable safety standards. A home inspection is not. While we make recommendations based on the code, we are not experts and should never extend ourselves as such. Codes are open to interpretation. “Special knowledge” and the way one markets their business and performs an inspection, where special knowledge is involved, are best discussed with competent counsel.
The home inspection process is one of the few occupations where the professional inspector purposely places himself/herself between a rock and a hard place. Think about it for a moment. There are pressures from all sides. The client expects a top-notch inspection, even though the inspector has no history of the property about to be inspected. The seller may have done their very best to try and conceal any or all defects, including recent repairs. The Inspector does not possess x-ray vision. The length of the inspection is somewhat limited and the reality of how much is being charged for the service also comes into play. The client is generally nervous and may not be paying attention to everything you say or even write; which may cause a problem if there is a difference in opinion. The realtor may have referred you and wants everything to go smoothly. The seller’s agent is constantly looking at their watch, wanting the inspection to be over. They may even be talking to the buyer’s agent and client during the process. Your reputation is on the line, along with the realities that come along if you market to realtors in the first place. Yes, a rock and a hard place.
Most experienced inspectors are used to this pressure cooker. You manage by doing the very best inspection you can, communicating effectively with your client, recognizing those defects you have found, and being the leader all through the inspection process.
More than this, the inspector needs to understand the pitfalls they face. There are typically lawyers involved all along the process. From a legal standpoint, the client already has counsel familiar with the property, the players, the process, and your report.
Your state may complicate the process, by having laws on the books, which extend the length of time that an inspector is liable for something missed during the inspection. It may have clauses, which specifically prohibit any limitations of liability, whether negotiated equally or not. Your own inspection agreement may have clauses in it, which though legal, may be deemed as unenforceable.
There are many legal theories, which surround inspection agreements, and the inspection process itself. Every jurisdiction is different, and every situation is unique. For these reasons, it’s always advisable to seek legal counsel for legal matters.
Some basic things to remember start with truth in advertising. That is, the need to always be truthful, regarding your services and qualifications. Also, vague wording and unsubstantiated claims can come back to bite you in the end. Be careful with the claims, especially on your website. Disclaimers are also something to be careful with. While some disclaimers are useful others may be viewed as unconscionable. It is virtually impossible to disclaim everything.
Useful tools in avoiding litigation include mediation and arbitration. Any judge will tell you that he or she would rather have the sides settle out of court, rather than clog the court calendar. This is what settlement conferences are all about. But what if there was a way to avoid the lawyers, and the courts altogether. If one thinks about it, prior to a trial beginning, the judge may direct the plaintiff and defendant to sit down and try, one last time, to work things out. This resembles mediation, in that both sides sit with their attorneys and try and reach an amicable settlement.
by Thomas E. Miller and Rachel M. Miller, The Miller Law Firm
http://www.constructiondefects.com/pr_nondisclosure.asp
The Leko decision is interesting in that it not only holds the inspector liable for discovery of defects, it fails to frame what constitutes reasonable duty. The inspector may not arbitrarily conclude there is a defect, if following the Standards of Practice of a home inspection does not reveal said defect during the course a non-invasive/non-destructive inspection.
Further, the Leko decision transfers liability for the inspector by stating that the report may be used by another, without the expressed written consent of the inspector. Typically, the inspector’s duty is to the client. If the client walks away from the deal, and sells the report to another prospective buyer, the inspector unknowingly has a new client, and remains responsible for the content of the report.
I personally believe this was a terrible decision, with a level of liability unfairly placed on the inspector. First they say that the inspector is responsible for finding defects the seller knew about but failed to disclose. They then decided that the inspector has a duty to a party they have no contractural relationship with.
NEW YORK (This Old House) – Charles Bellefontaine found out the hard way the value of a good home inspection. In 1991, Bellefontaine and his wife, Loretta, signed a contract to buy a three-bedroom, one-bath Georgian-style house in Elmhurst, Illinois.
Read the article from CNN Money.com
http://tinyurl.com/5a2lt
Charles has become a great inspector in his own right. It is interesting to hear of his own experiences. But, in the example of a leaking tub, I wonder how any competent inspector would be expected to find it if there was no evidence of a leak at the time of the inspection.
As to costs, I would submit that another important factor in the determination of piece is the extent of the inspection the client has bargained for. There are all kinds of inspections, from 4-point to ones which include ancillary services including wood destroying insect, mold, septic, well, and radon to name a few.
The article is absolutely correct in the amount of time it takes for a decent inspection, and Charles’ comment regarding a home inspection for $99 is also correct. Unfortunately, many clients shop by price as a deciding factor.
As to liability, the interestng thing is that the inspector is the sole disinterested party in the real estate transaction; he or she receives the same fee regardless of whether the dwellng sells or not. On the other side of the coin are the realtors (buyer and sellers agent) the brokers, the attorneys for both sides, the lender, and the seller. All these folks make money based on the sale; no sale no compensation. Yet, despite all this, the inspector is liable for failing to discover any defect in the three hours or so he has spent in the home. By the way, the inspector is prohibited from disassembling anything or destroying anything during the process; the inspective is non-invasive and non-destructive. So, the inspector has a daunting task… all for around $400 or so for a basic inspection.
Do inspectors have limit of liability clauses in their contracts? Typically, unless prohibited by law (as in Massachusetts). Does arbitration guarantee lower court costs? Maybe. Often, when inspectors carry E&O insurance, the carrier may limit what happens after a claim is tendered. Even when arbitration is permitted, sometimes the cost to arbitrate far exceeds the limits of liability (where the clause is not deemed opressive), or costs several thousands of dollars.
There is no simple formula to all this. Concentrating on the experience and education of your inspector is the most important piece of the selection process. There are many quality home inspection associations out there, including InterNACHI, ASHI, NAHI, and others. Some even prohibit soliciting busness from Realtors (IHINA). Make sure the inspector indicated which standard of practice they follow. Some states, like Texas, have a mandated SOP for inspectors to follow.
Know the facts, and realize that a home inspection is the best chance a buyer has at determining how a house has “lived” and its readily apparent condition on the day of the inspection. Participate wth your inspector, and be sure and ask questions along the way. Remember, the inspector works for YOU. He or she is MORE than an inspector; they are your consultant. Leverage their knowledge and experience to the max.
DID YOU KNOW…
…that it is important to have a client sign your home inspection agreement PRIOR to the start of the inspection? It’s true. In fact, it is a best practice to make your client aware of your written contract, and to try and provide a copy to the client for review 48-hours in ADVANCE of the inspection time and date. Often, Clients seeking damages from Home Inspectors rebuke the terms and conditions of the inspection agreement, and claim that they were under duress when they signed, or that they had no choice, or that they didn’t have time to review all the terms and conditions. Similar to when one purchases a car or refinances a home, there is a 48-hour cooling off period for the client to review what they signed, and walk away from the deal. The problem for home inspectors is that most times, the client and inspector meet at the inspection, and the engagement begins. Though a common business practice for the industry, it can work against the inspector should there be trouble down the road.
September 28th, 2009 in
Tips |
No Comments
DID YOU KNOW…
… that one of the most frequently seen electrical defect has to do with the wiring of electrical sub-panels? It’s true. A majority of sub-panels, which are secondary electrical panels wired to the main electrical panel, require four-conductor feeder cables. Once these conductors reach the sub-panel, the grounded (neutral) conductor and grounding (bare-ground) conductor must be SEPARATED. In fact, the neutral conductor must be on its own termination bus bar, which is not in any way connected to the panel case, or housing. The ground conductor must be connected to the case. In addition to this, each individual branch circuit cable’s neutral and ground conductors must also be separated, and correctly terminated onto the corresponding terminal bus bar. Often, inspectors see these wired co-mingled and terminated on a single terminal bus bar. This is a common electrical defect, which related directly to safety, and which must be corrected via re-termination. Sometimes, the feeder cable has an insufficient number of conductors (four are needed) which makes correcting this defect more costly and complicated.
September 28th, 2009 in
Tips |
No Comments
“The standard of care owed by a home inspector is that of a reasonably prudent home inspector, and these standards are codified in the standards of practice of the profession’s regulatory bodies, based on Canadian Association of Home and Property Inspectors standards.”
http://www.nelligan.ca/e/pdf/Lawyers_Weekly_Aug2007_COBrien.pdf
http://tinyurl.com/yc9gyeb
Where the law dictates a statute of limitation, said statute can typically not be negotiated away. In this case, the state specified four years, and the agreement limited it to one.
A better way to protect oneself is to negotiate a much less inclusive Scope of Work. Where statute fails to mandate what is included in a Standard of Practice for a home inspection, writing a smaller Scope of Work, where items are conspicuously excluded and agreed to by the parties, is superior. In order to help make this more binding, the Client should sign the Agreement and be given 72 hours to change their mind prior to performing the inspection.
This is not legal advice; just my two cents…
http://forum.freeadvice.com/other-real-estate-law-questions-11/home-inspection-litigation-proper-notice-210659.html
Most inspectors include a requirement to immediately notify them (the inspection company) when a defect is discovered that the inspector has failed to find. Depending on any number of factors, including whether the client had a clue what they agreed to in the contract, this provision may or may not be upheld. the problem for the Client often occurrs after they went ahead and had the defect repaired, but prior to notification to the inspector.
Arbitration clauses are useful, providing that said clause is not opressive or unconscionable. If the cost of arbitration out-strips the cost of the inspection (with a limit of liability clause) or the value of the repair, it may be thrown out. The other danger of arbitration is that you may not get a neutral that specialized in Inspection-related disputes.
IAS specialized in fixed-cost arbitration and mediation affordable to everyone. The service is subscription-based, and specializes in inspection arbitration exclusively.
