The following bulletin is provided as a service by Business Risk Partners, Inc. and its claims administrator, Wilson, Elser, Moskowitz, Edelman & Dicker, LLP. Please note, this bulletin is merely a general discussion of topical matters involving the home inspector profession and should not be construed as legal advice of any kind. Further, as laws differ from state to state and because the law related to the home inspection industry changes regularly, please consult with an attorney in the proper jurisdiction to obtain legal advice on any particular matter.
While it is always a suitable time to highlight new trends and issues raised by claims initiated against home inspectors, we would like to recognize an effect the downturn in residential real estate transactions has had on home inspectors and to discuss what measures you can take to better protect your interests.
Compared with last year at this time, residential real estate transactions have declined approximately 11 percent as a national average. Although recently sales have been increasing, it appears homeowners have yet to accept that the value of their homes continues to fall in today’s market. This disillusionment appears to be influencing homeowners to “recapture” this “lost” value. For those who have recently purchased homes and have since seen the appraisal value of their home on a continuous decline, a common perception is that there must be something wrong with the home and that those involved in the sale of the home are to blame. In this common situation, the property sellers, real estate agents and home inspectors become a likely target for the homeowners.
Typical allegations made against home inspectors are that not enough was inspected or disclosed during the inspection, or that the conditions or defects disclosed were not sufficiently detailed. Even if defects were disclosed, the claimants often allege that they were disclosed in a manner so as to “push” the real estate transaction to consummation. Of greater concern is that the judicial system appears to have grown more sensitive to these allegations and has been more empathetic to plaintiffs in ruling on these cases.
What to Do?
While there are obvious difficulties in defending inspection reports with word-boring, boilerplate disclosures, we recommend inspectors protect their interests by reporting conditions in great detail—even greater detail than in previous years. For instance, instead of simply indicating on a checklist “satisfactory,” “marginal” or “poor” — which, by the nature of a home inspection, is subjective — we recommend that inspectors describe the conditions, as fully as possible, in an effort to give their clients an idea of how the inspector views “satisfactory” or “poor.” For instance, “Marginal – The south gutters appear to be clogged.”
Similarly, to protect inspectors from allegations that disclosures were insufficient, we recommend they use scientific or objective measures in their reports to the extent they are not already doing so. For example, if paneling covers some of the basement walls, the inspection report should disclose which walls are covered and which are not covered. The report should disclose that the covered walls are concealed and state that any conditions that might exist on the concealed parts of the foundation are not within the scope of the home inspection. As another example, if there are cracks in the foundation, the inspector should measure or estimate as accurately as possible the length and width of the cracks and record the measurements or estimates in the inspection report. Identifying the location of the cracks, such as “northwest corner, under the master bath, running along the east wall,” will assist in confirming at a later time that the inspector identified the cracks that the claimant later alleges were not disclosed.
There are a number of good examples that reflect the importance of detail. For instance, we recently handled a matter where the inspector used a checklist and boilerplate disclosures. Even when reviewing this inspection report in a fair and objective light, the report appeared sloppy and created an undeniable impression that the home inspection was preformed hastily and without care. While the inspector maintained that various defective conditions were discussed (verbally) with the claimant during the walk-through inspection, the inspector was left without any solid defenses because the conditions were not disclosed in the inspection report. Had the inspector taken a few extra minutes to disclose the defects in the report, the claim likely would have been resolved for a small fraction of the amount ultimately paid.
In an alternative example, we recently handled a claim where the inspector took the time to make specific disclosures of numerous defects in a home. The claimant later alleged that the inspector failed to disclose the exact conditions that were disclosed in the report. Given this scenario, an impression was created that the claimant was desperate and reaching for “deep-pockets” just for the sake of reaching. The disclosures in the inspection provided the opportunity to strongly reject the claimant’s claims. The claim was not pursued.
In general, given the relatively small amount of time it takes to provide a detailed account of the conditions in a home, there is tremendous utility in home inspectors providing this account in the home inspection report, especially when homeowners find themselves in the desperate predicament of trying to “recapture” a “lost” value in their home.
We hope that these scenarios provide valuable lessons for all inspectors, thereby reducing their exposure to claims and litigation. While not all claims and litigation can be avoided, each inspector should appreciate that it is possible to sidestep certain obvious pitfalls pre-sented as the result of performing a home inspection.
Business Risk Partners, incepted in 2000, is ASHI’s endorsed E&O insurance provider. Please call 866-268-1327 or visit www.inspectorinsurance.com for a no-obligation “quick quote” today! Lower rates/deductible available now!