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How Agents Can Limit Their Liability by Utilizing Home Inspections

Am I at risk?

"In a world where litigation is the preferred method of resolving even the most minor conflicts, it should come as no surprise to real estate agents that they are increasingly finding themselves named as defendants in lawsuits wherein purchasers of residential real estate are claiming damages as the result of the alleged fraud and/or negligence of one or more of the participants in the transaction." - Nick Gromicko

As soon as a lawsuit has been filed with you named as the defendant, even if you are not to blame, you can say "adios" to your E&O deductible...

Keeping this in mind, your priority is to avoid being involved in the suit from the beginning. Thankfully there are a number of effective steps that, if put into action, can significantly reduce and even completely eliminate your exposure to being named in a lawsuit.

When Selecting a home inspector, you should keep in mind that the inspector is your first line of defense against a negligence claim!

Top Ten Ways You Can Sharply Reduce Your Professional Liability Exposure:

By: Joe Ferry, Esq., and Nick Gromicko

Supreme Inspections LLC and InterNACHI are so sure of its inspectors that it will indemnify any licensed real estate agent in an amount up to $10,000 if a third party successfully sues the agent for negligent referral of an InterNACHI inspector.  This protection is offered at no cost to agents who register.

"You have a fiduciary duty to your client and, therefore, must recommend the very best inspectors. If you recommend a patty-cake inspector, an inspector who indirectly pays for your recommendation, or a cheap inspector, you violate your fiduciary duty to your client."

Insist that your client hire a professional home inspector to inspect the property, and strongly recommend that the inspection also includes ancillary inspections.

Samples of ancillary inspections include: Home Energy Reports, Air Duct Scopings, Chimney Scans, Infrared Camera Inspections, Moisture Intrusion Inspections, etc.

Have the home inspected before the sale so that it is "MoveInCertified."  

MoveInCertified homes have been pre-inspected by Supreme Inspections LLC, and the sellers confirm that there are no major systems in need of immediate repair or replacement, and no known safety hazards.

Take the time to manage your clients’ expectations of what can reasonably be discovered by a visual inspection of a property.

Sometimes the home is full of furniture, carpets and stored items that can physically restrict the scope of an already limited inspection.

Be sure to carry your own Professional Liability Insurance

This is important to protect yourself from allegations that you should have independently verified that the property was defect-free.

Review the inspector’s Pre-Inspection Agreement

Make sure that it contains a Notice Clause that requires the buyers to notify the inspector within no more than 14 days of the discovery of any defect for which they believe he is responsible.

Avoid conflicts of interest.  

Never recommend an inspector who participates in preferred vendor schemes.  All major inspector associations prohibit participation in such undue praise-purchasing schemes.  You have a fiduciary duty to recommend the very best inspectors based solely on merit, not money.  And it goes without saying that you should never recommend any inspector with whom you have a close personal or blood relationship.

Recommend the high-value inspector, not the low-price inspector. 

Good inspectors charge accordingly.  Trying to save your client $100 on a home inspection could wind up costing them $10,000 in home repairs.

Only recommend inspectors who adhere to a strict Code of Ethics and Standards of Practice.

Only recommend inspectors who participate in InterNACHI's We'll Buy Your Home Back Guarantee.

If Supreme Inspections misses something during the inspection, InterNACHI will buy the home back from them at the price they paid for it. The Buy-Back Guarantee is valid for 90 days after closing.

Imagine if you could promote this deal to your clients, especially first-time home buyers.

Always attend the home inspection.

Many real estate agents have been advised never to attend a home inspection, allegedly by real estate attorneys. Agents who say that they have received such advice are never able to articulate its rationale.

You are no less likely to be named in a lawsuit by hiding during the inspection, and the reasons for attending the inspection are quite compelling.

First, your presence is a clear indication of your professionalism and concern for your client’s interests, two factors well-known to engender referrals.

Secondly, it affords a very cogent opportunity to refocus your client’s attention to the limited nature of the inspection. For example, you could note the numerous obstacles, such as furniture, carpets and appliances, that can obviously inhibit the inspector’s ability to see certain areas of the home.

Finally, should this transaction come to grief, your interests are usually perfectly aligned with the inspector’s, and your recollection of such limiting factors would provide powerful corroboration of the exonerating reasons that a defect was not discovered during the inspection.

Gerardo Angeles

Supreme Inspections LLC

(405) 868-8376

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