March, 2009
Ethics
Inspection News and Views from the American Society of Home Inspectors



Working for a Broker-owned Company

BILL LODEN

The ASHI Code of Ethics Committee is charged with developing ethics education and awareness for ASHI members and answering Requests for Interpretation (RFI) of our Code of Ethics.

When serious questions arise about the intent and applicability of the revised code, members are encouraged to review previous requests and responses on the ASHI Members Only Web site under Resources. If there has not been a request for an interpretation to a similar situation, please submit your question using the required RFI form, which can be found under Downloads/ASHI Forms & Documents. We will continue to provide the members with the committee’s response to the questions posed by their fellow home inspectors. This response is based on the new Code of Ethics, approved in June 2004.

— Bill Loden, chair, 2009 ASHI Code of Ethics Committee


Request for Interpretation

E070607 Working for a company owned by a real estate broker

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 a real estate company employs an inspector. 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-interests 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.