December, 2007
Ethics
Inspection News and Views from the American Society of Home Inspectors



Inspector Working Under a Real Estate Agency

KEITH OBERG

The ASHI Code of Ethics Committee is charged with developing ethics education and awareness for ASHI’s membership and with answering Requests for Interpretation of our Code of Ethics. One Request Interpretation (RFI) within the last year is presented below. This RFI is a series of questions regarding the potential for conflicts of interest and violations of the Code when an inspector is employed by a real estate agency, or otherwise has financial ties to a brokerage.
In each of our monthly Focus on Ethics articles, we present one or more RFIs and the responses developed by the committee since the new Code of Ethics was approved. Our membership is encouraged to submit RFIs to the committee if serious questions about the intent and applicability of the Code should arise. Click here to download the necessary form.

– Keith A. Oberg, Chair, 2007 ASHI Code of Ethics Committee

Request for Interpretation
e70607  Inspector working under a real estate agency


Would it be ethical for an ASHI inspector to work for a company owned by an active real estate broker in the same area?

Would it be ethical if the inspection company refused to perform work on properties in which the real estate broker/owner had a financial interest?

Would it be ethical if a relatively large corporate parent purchased a real estate company and a home inspection company that work in the same geographical area?

Does an employee inspector automatically have a financial interest in the transaction if his boss does, in violation of 1.A? 

Response

The Society has long maintained that there is an inherent conflict of interest when practicing inspectors are active licensed real estate brokers or salespersons, whether or not such inspectors “inspect properties for compensation in which they have, or expect to have, a financial interest.” 

This is reflected in the Bylaws as a prohibition against being active in both professions.

In order to protect the interests of home inspection clients, professional home inspection services should be kept separate from the interests of real estate brokers or salespeople who derive their income from completed real estate sales.

If compensation for an inspection is not dependent on the sale of the inspected property and the company employing the inspector does not receive compensation due to the sale, a direct conflict of interest may not exist, even if an inspector is employed by a real estate company.

However, with typical split commissions, real estate sale contingencies and the complex interrelationships between agencies, segregating inspected properties from those for which the real estate company might receive a commission would be extremely difficult, despite the best of intentions, and would probably result in occasions of direct conflict of interest.

In addition, employees cannot realistically separate their self-interest from the interests of the company for which they work, since their income is dependent on the success of the company. If the company, in this case a real estate broker, benefits from the closing of real estate, then the inspector employee will benefit from the closing of real estate, at the very least in the form of continued employment. This would represent a potential conflict of interest and would result in a violation of 1.A of the Code if the company benefits in any way from the closing of an employee-inspected property.

The question of conflict of interest becomes more difficult to assess in the case of the corporate parent owning an inspection company as well as a real estate company operating in the same area.

Internal corporate policy would determine whether a direct conflict of interest occurs. However, a home inspector working for an active real estate broker or for a parent company with an interest in the closing of real estate in the same market would at least result in the appearance of a conflict of interest, and thus be in conflict with the Code.

In addition, this could often, if not inevitably, result in occasions of direct conflict of interest to the potential detriment of home inspection clients, and in violation of the ASHI Code of Ethics. The risks to the client are evident. The protection of the homebuyer (many of whom are inexperienced or unwary) is dependent on the impartiality and integrity of the home inspection and the avoidance of conflicts of interest.

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What are Requests for Interpretation (RFIs)?

ASHI members may file a Request For Interpretation (RFI) for either the Standards of Practice (SoP) or Code of Ethics (CoE) when an issue may seem unclear or undefined by the SoP or CoE. These requests will be reviewed by the respective committees and ASHI legal counsel.

Filing a RFI

The committees understand that you desire a quick response, but please be advised they have multiple requests and, because the SoP and CoE are vital to ASHI, interpretations must be performed with extreme care. Before filing an RFI, you are strongly encouraged to review past interpretations that are posted on www.ashi.org in their respective section, SoP or CoE. Go to Resources and then to Interpretations.

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