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For the Home Buyer or Consumer
How to find an Independent Home Inspector Below is an excerpt from Chapter One of the book "100 Major Item Home Inspection Checklist for Home Buyers and 10 Point Criteria for Choosing an Independent Home Inspector" authored by Stanley C. Hardback. The table of contents and some general information on the book includes: Table of Contents
Forward Most home buyers are unaware of what occurs behind the scenes during the purchase of a home—typically the biggest investment of their lifetime. I have taken time off from training home inspectors and conducting home inspections to provide home buyers with detailed information on what actually occurs the home purchase process with respect to home inspections. This informative book helps home buyers better understand the concerns they should regarding the real estate agent/home inspector relationship. Through checklists and tables, this book helps buyers evaluate a home they are considering purchasing, as well as home inspection firms. It is my hope that this book will help home buyers be smarter consumers in purchasing a new home, or in purchasing their next home.
Notice that the book includes some helpful items for homebuyers, including numerous checklists of items you can check for in homes in different age ranges and all age ranges, photos to accompany the checklists for some of the items that may be more difficult to know what to look for, a weighted evaluation form for analyzing which home inspection firm to choose, a list of home inspectors for the U.S. and Canada that have, in some way, been identified as likely to be more independent than others, information on what you probably should or shouldn’t be able to expect from a home inspection, and what makes an inspector independent or dependent. To purchase a copy of the entire book (including the checklists, form, and photographs) for only $9.95 call toll free: (888) 466-4447 Chapter 1 Why You Need an Independent Home Inspector Most home buyers are overwhelmed with the time and effort involved in buying a home. I typically tell friends and relatives that the time they will invest in purchasing a home is comparable to taking on a part-time job. Filling out documents, running papers from one place to another, juggling appointments between real estate agents, banks, title companies, home insurance companies, etc. is not an easy task. This explains why many homeowners, although they are making the biggest investment of their lifetime, simply choose the inspector recommended by the person, the real estate agent, the kingpin of the real estate transaction. The Question Isn’t Just Quality When it comes time to choose a home inspector, most buyers balk at the task of spending hours rummaging through the Yellow Pages searching for the most qualified inspector. However, there is a larger underlying issue than the quality of home inspectors that makes the selection process even more difficult and time consuming. In addition to the question of the training or experience of a home inspector, there is a question of whether real estate agents have demanded an inspector’s allegiance as part of their ongoing "working" relationship. If so, the home buyer’s interest is no longer the priority. Thus, instead of working to help identify existing problems in a home, the inspector works only to bring out certain defects which are presented in a light that will not discourage the buyer from purchasing the home. "Deal Killers" The derogatory phrase "deal killer" is often used in the real estate industry to describe independent home inspectors who give buyers objective information in an inspection report, which may lead the buyer to renegotiate or to look at other properties. Many real estate agents view independent home inspectors as a challenge to ability to generate income. They view these "deal killers" as foes and will use a number of tactics to make that their buyers do not retain independent home inspectors. For instance, in the first stage of discussion about having the home inspected, the real estate agent may recommend to the buyer a "good" home inspector with whom they have worked for several years. Some agents may have a list of three inspectors who have been carefully screened not to be deal killers. The list, however, will be long enough to protect the agent from any referral liability should the buyer want to blame the agent for any inspection mistakes. This gives the agent the perfect combination of: a) no liability for the referral; b) the buyer ultimately "chooses" an inspector the agent prefers; and c) the buyer’s choice is confined to dependent home inspectors who will not hurt a sale. Real Estate Agent Recruitment Some agents are so intent on controlling the home inspectors on the list, that some, if not all, of those inspectors may have been recruited initially to the home inspection industry by real estate agents. A large number of individuals from around the country have told me that they have been approached by a neighbor or friend who was a real estate agent. The agent said he or she needed a home inspector because they just couldn’t seem to find a good one. The real estate agent would ask the friend or neighbor if they might be interested in becoming a home inspector to help them out. I believe that this is an excellent technique for "wrapping the home inspector around the real estate agent’s finger" from the very beginning. Under such circumstances, the dependent inspector will be very tied to the real estate agent’s goals, not to yours as a buyer. Agents May Push For A Warranty or FHA/VA Inspection If you notify the agent that you are arranging for the home to be inspected by an inspector of your choice, some real estate agents will recommend the purchase of a warranty. In fact, some real estate agents recommend that the seller provide a warranty. If a buyer wants to arrange for a home inspection, the real estate agent suggests there is no need for one since a warranty already comes with the house. Unfortunately, none of the warranties on existing homes cover existing problems with the breadth of a thorough home inspection conducted by an independent home inspector. In fact, many warranties primarily cover the appliances in the home. Buyers involved in FHA or VA transactions state that when they mentioned getting a home inspection, the real estate agent explained that there was no need for an inspection because FHA and VA inspect the home anyway. FHA and VA inspections are currently so cursory that they probably cover fewer than 5% of what is covered by a good independent home inspection. "Prodding" By the Real Estate Agent Other real estate agent techniques exist that help the agent. If the buyer insists on selecting his/her own inspector, the agent might mention that he or she thinks or knows there are several "backup offers" for the home waiting in the wings, and, as a result, the seller is not going to consider any reduced price as a result of the home inspection, regardless of what might be discovered. The agent may also caution the buyer on being careful about the choice of a home inspector, in the hope that the buyer will go with the agent’s choice. If the buyers have found their own inspector, the real estate agent might ask who they chose. The agent might then try to set up the appointment in hopes of exercising some "referral power" over the inspection company, ("I gave you the inspection, you make sure the buyer doesn’t walk away from buying this house") even though the inspector was not his/her choice. The agent may also attempt to talk the buyers out of attending the inspection to help keep them from having second thoughts about the purchase. Attending the entire inspection often gives buyers the chance to become more familiar with the house they are about to buy. In any event, the buyer should attempt to attend at least the last half hour to an hour of the inspection to get a report of the results and ask questions. Sometimes the agent may attempt to attend the inspection him/herself in the hope that he/she can influence the inspector on the results, or "properly color" the problems the inspector finds in the home in the event the buyer does show up. Even though our company has been able to keep the inspection results confidential, some real estate agents only create distraction to the inspector by going along on the inspection and maintaining vigorous conversation with my clients. The conspicuous distraction that resulted convinced me that we needed to change our company policy and no longer allow any agents to go along on the inspection at all. Access to the Report Many agents require the home inspector to first provide them with the report so that they can color the findings while handing it to the buyer. In fact, it is not unusual for some agents to negotiate having first access to the report. They call a home inspector to say that the agent would be willing to add the inspector to the agent’s list of recommended home inspectors if only the inspector would agree to automatically provide the agent with a copy of the report first. Yet, other agents go so far as to ask the inspector to change things on the report before it is delivered to the buyer, usually to the disadvantage of the buyer. Agents are known to threaten home inspectors with loss of referral business if they do not yield to all the agent’s wishes. In my mind, giving up the objectivity or interpretation of the report is not negotiable. Because the buyer is paying for the inspection, inspection reports should be treated as confidential information for the buyer. No one else has a right to read the report without the buyer’s approval, even a so-called "buyer’s agent." Even though I believe attorneys working for the buyer (but not for both the buyer and seller) are far more likely to fulfill their fiduciary responsibility to the buyer and not the real estate agent, it remains the buyer’s prerogative to approve the release of the report to their attorney. This holds true even if the attorney provided you with a referral. Real Estate Agents Have Much at Stake with Each Sale No matter who delivers the report to the client, agents may try to explain away some of the problems found in the home. For many agents, having to renegotiate the sales contract or show more homes to the buyer means earning a lot less per hour than they would have received had the sale gone through without any snags. Many home buyers do not realize how much money agents receive as compensation since the seller pays the commissions. In a typical sale, it is not unusual for both the buyer’s and seller’s agents to receive about $3,500 each. A real estate agent can make up to $7,000 on a similar property if he or she is the only agent involved in the transaction. "Buyer’s Brokers" and Disclosed "Dual" Agents Buyer’s brokers and exclusive buyer’s brokers are not exempt from attempting to control home inspections and their results, as was discovered during a recent Dateline NBC investigation (see web page at http://www.msnbc.com/news/164249.asp or order a copy of the tape from (212) 206-8600 extension 237). Although not broadcast as part of this very revealing undercover project on home inspector/real estate agent relations, virtually all the real estate agents that said they worked as buyer brokers or exclusive buyer brokers also indicated they did not want home inspectors to "kill deals." This would be entirely contrary to their fiduciary obligation as a buyer broker, but completely consistent with their economic incentive to receive the seller’s commission upon sale of the home. Most buyers are not aware that they can, under many state laws, cancel a buyer’s broker contract when the agent is accepting commission from the seller. I believe the policy reason behind this is the risk that buyer’s brokers will not appropriately fulfill their fiduciary responsibility to you, the buyer. Thus, in a number of states, the law allow buyers to revoke or void the buyer’s broker agreement if they feel the buyer broker is not acting in their interest. This may upset the real estate agent. However, if the buyer does not want to purchase a home which an agent is pressuring him to buy, the buyer may have no choice but to "fire" the agent. Perhaps an even more complicated real estate agency arrangement is the so called limited or disclosed dual agency where the real estate agents claim no allegiance to either seller or buyer. This is ideal since the agent feels they owe no fiduciary obligation to act in either party’s interest. At the same time, they have the same economic interest in obtaining the commission from the seller since they receive the commission only if the home sale "closes." Don’t expect them to act any differently than when they are working as a seller’s agent. Some Real Estate Agents Can Go To Extremes To give you an example of just how far some real estate agents will go to make sure you use their inspector, let me relate a story from a home inspector. The inspector was in the process of conducting an inspection on a home when the seller, who was standing in the kitchen, told him she was impressed with how thorough he was being in conducting the home inspection. She said she wanted him to be the one to inspect the home she was buying. A real estate agent, sitting in the dining room nearby, apparently overheard what she had said. When the inspector hadn’t heard from the buyer for a few days, he decided to call to find out when she wanted to have him do the inspection. She told him that the agent had recently called to tell her she didn’t have to worry about an inspection. The agent had already arranged for one with an inspection franchise, which was scheduled the same day. On short notice, the buyer found out when the inspection was going to be and showed up at the appropriate time to go through the entire inspection, only to find that the franchise inspector was just finishing. When asked if he would go over the inspection results with her, the franchise inspector simply explained that she would get a report within the next day or two and that there wasn’t time to go over any of the report with her since his next inspection was to begin shortly. At this point in time, the original inspector told her that in the apparently short time the inspection took place, it was unlikely that the inspection was of a very good quality and he offered to do a comparison inspection on the home for free just to see how his service compared with the franchise. She called her agent and found out that she could not have a second inspection because her contract to purchase only allowed her to have one. After reporting this back to the original inspector, he offered to do just a licensed termite inspection since that normally is not part of a general home inspection. When the buyer called her agent again, she was told that the franchise inspector had already conducted a termite inspection. After relaying this information to the original inspector, he asked her to check if the franchise inspector was licensed for termite inspections in the state. She checked with her agent again and found out that the inspector was not licensed for termite inspections. By now she was worn down. After relaying this additional information to the original inspector, he offered to call the listing agent to find out when he could do the termite inspection. She gave him the number, and when he received the return call from the listing agent, the agent told him he could come in and do the termite inspection, but that he could not schedule the termite inspection until after the deadline for completing all inspections under the purchase contract. In other words, anything he would find would not be information the buyer could use to void the contract. When he told the listing agent that he would relay what she told him to the buyer, the agent said that she would deny ever having said those things to him. Unfortunately, in the end, the buyer indicated that she was just too tired to struggle with the situation any more and didn’t have the time or money to fight the real estate agents. Both she and her husband worked full time. This is a clear example of just how far real estate agents may go to prevent independent inspections of the properties they are selling. Real Estate Agent Fraud Then again there are real estate agents that will resort to fraud in dealing with the result of the inspection. Once when our company conducted some inspections, the real estate agent called us to get some "clarifications" on the inspection results. We, of course, told him that we could not talk to him about the inspection without approval from the buyer who paid for the inspection. After getting this approval from the buyer, we "stood our ground" on the results of the inspection, only to get a call from the buyer a few days later asking us if we really told the agent that there wasn’t a problem with the termites we had found, etc. We explained that we had stood our ground on those issues when the agent asked us about them. The buyer was shocked that the real estate agent had lied. Shortly after some of those incidents, we changed our company policy so that even after getting approval from the buyer, we do not discuss the results of an inspection with any agents unless the buyer is also present. We also have a company policy of keeping our contact with agents to a minimum, usually to get the name and phone number of the buyer, if necessary, and let them open the door to the house at the time of the inspection. Interestingly, at the door we usually get an offer from the real estate agent to distribute our cards to the rest of the real estate office where they work. Threats From Real Estate Agents Don’t think that real estate agents aren’t willing to go even further in controlling inspectors. Some agents have used veiled threats directed at home inspectors to get what they want from the inspectors. While working as an undercover expert and after asking a real estate agent essentially what would happen if an inspector "killed a deal," the agent joked that he "killed home inspectors before they killed deals." There are numerous other examples of veiled threats or attempts at intimidation that I have heard from other inspectors. Some Of The Extremes Some real estate agents have even made sexual advances in an attempt to obtain favorable reporting in the inspection. I don’t mean just flirting, unless of course she was just trying to read Braille on the inside of the inspector’s thigh. The Double Standard It is very common for some of the "deal killer" inspectors to be shunned by the real estate agents when an unrelated client is involved as the buyer. What is particularly telling, however, is that when the agent, a friend or relative is buying a home, the agent insists on ordering a home inspection from the "deal killer." After the inspection is done, the independent home inspector isn’t likely to hear from the same agent again until another friend or relative buys a home. In the meantime, the agent continues to recommend that all of their other clients use the dependent inspectors on their referral list. Even experienced home inspectors who have been in the business for a while can fall prey to the real estate agent’s demands. Over the years, real estate agents seem to have become more and more aware of this referral power when it comes to home inspectors. One agent called an inspector, out of the blue, to tell him he had several homes of friends or relatives he wanted the inspector to inspect and that if the inspector did a good quality inspection the agent might put him on his referral list. The agent first asked if the inspector could give him some discounts on these inspections. The inspector explained that he could not. On one of the homes the inspector inspected, he discovered a fairly significant problem. The real estate agent praised him for having discovered such an important problem. Later, he called the inspector to see if he could do an inspection on another home of a regular client. The inspector agreed, and, as part of the inspection, discovered a similar potential problem in this home. This time, however, the agent questioned him about why he would bring up such a problem and whether it was really that important. In other words, the agent was happy to have found out about it when the inspector was inspecting a home for him, but he wasn’t pleased when the inspector had discovered it in the home of a regular client. Needless to say, the agent never called the inspector again to do another inspection. Real Estate Agents Are the Kingpin Of The Home Purchase Real estate agents act as a "kingpin" to the real estate transaction and, as such, control much of the information the home buyer gets. For example, in one case, a woman’s offer on a home was accepted and she began jumping through the hoops to get to closing. An appraisal of the home came in at the same price as her original offer, although the appraiser had apparently not included one of the bathrooms in his analysis. Her first offer was signed by both parties. After the appraisal was done, and after she had discovered some problems in the home through an inspection, the earnest money agreement was renegotiated to be $3,000 less. The buyer notified the appraiser of the bathroom he had forgotten in the original appraisal. The appraiser was not aware of the renegotiated sales price, but when told about it, he worked to revise the appraisal to match the new offer at $3,000 less. The buyer was furious, since she had fully expected the value to go up, not down, after having notified the appraiser of having missed the extra bathroom in his original analysis. The appraiser refused to raise the price and stuck to his lower revised price. She seemed to want only an objective appraisal to tell her what the house was really worth before she bought it. She became frustrated enough with this situation that she called the real estate agent and told her if the situation was not straightened out she was going to back out of the deal. The real estate agent was unsuccessful in convincing the buyer otherwise. However, within minutes after talking to the agent, the buyer was barraged with calls from other ancillary services (e.g. lender, title company, the escrow company, etc.) to convince her that either she should, or that she is legally required, to buy the home, and that nothing could be done for her. She was told that she should just go ahead and go through with the closing. I believe the real estate agent had called the other ancillary services to tell them to call the buyer to help convince her not to back out. Thus, you can see, that perhaps anyone whose payment is based on a commission or fee due on closing, may have the same economic drive as the real estate agent to support the agent’s cause. Remember, too, that it is unfortunately very common for most of the ancillary services (lenders, title companies, escrow services, etc.) to depend heavily upon real estate agents to obtain their clients. As a result, they are not likely to stray from an allegiance to the real estate agent, not only for fear of losing future referrals, but for fear of losing fees on the same transaction. Real Estate Agents As Owners of Inspection Firms Needless to say, using an inspection firm involved with a "one stop shopping" program with a real estate firm will be a high risk at best. In these cases, the real estate firm or an affiliated company (e.g. a subsidiary of the real estate firm) hires the home inspector directly as an employee of the company. You therefore pay the real estate company or its affiliate for the home inspection. This "time saving" device involving "one stop shopping" should be avoided at all costs since it gives the real estate agency more direct control over the inspector. Size May Be A Predictor As a general rule, virtually all franchise and large inspection companies (e.g. more than several inspectors) solicit referrals from real estate agents. As a result, expect allegiance to the agents, not to you the buyer. For instance, many of the largest inspection firms in some of the largest cities in the United States rely primarily on agent referrals. Also, some newly established contractors for a large well-known national department store chain appear to be relying primarily upon real estate agent referrals to market their service. In addition, some franchise or franchise-like companies in the United States have even recommended that inspectors who receive a referral from a real estate agent give the agent a $50 "rebate." Some home inspection firms pay for some of the real estate firm expenses (e.g. Yellow Pages Ads, Saturday TV Real Estate Firm Home Shows, etc.). These represent violations of the Real Estate Settlement Procedures Act (RESPA), a Federal law that prohibits kickbacks for referrals of this type. If you think that something of value (not necessarily money) has changed hands between real estate agents involved in the transaction and the home inspector, whether you can tell if it was directly tied to your purchase or not, call the RESPA office at (202) 708-0390, 4560, or 1550. Because I believe that this "I’ll scratch your back if you scratch mine" approach between many real estate agents and home inspectors represents an exchange of something of value under RESPA, I have forwarded a copy of the Dateline tape to RESPA along with a request for an advisory opinion on whether the HUD RESPA office believes such a relationship is a violation of RESPA. I hope to hear from them soon. If these relationships do not violate RESPA, a law should be passed to completely prohibit real estate agent referrals of home inspectors. Legislative Activity of Real Estate Agents, Associations, and Lobbyists —the Texas Example. Do not expect any law prohibiting referrals to be passed easily. Control over home inspectors is clearly high on the agenda of real estate agents. In Texas, for example, the real estate lobby has made sure that the home inspector is firmly in the grasp of the real estate industry. The inspectors were required to be licensed a number of years ago and at that time their regulation was placed under the jurisdiction of none other than the state real estate commission, whose majority of members are real estate agents. Thus, real estate agents have and continue to control the destiny of the home inspection profession in Texas. And Texas has shown symptoms of this in the process. For instance, it has not been uncommon in the past to find home inspectors wrangling with the real estate commission over issues relating to what a home inspector can and can’t inspect, what type of form can be used, or whether a commission comprised primarily of real estate agents should be the entity to regulate home inspectors. Consumer group lobbyists have also been unable to challenge the power of the real estate agent lobby in Texas in their attempts to change the real estate commission. The consumer groups also have had to fight to keep real estate industry sponsored changes in the Texas standard earnest money agreement from: 1) requiring all homes to be purchased by the buyers "as is" (making an inspection less valuable because the buyer is less likely to negotiate); and 2) requiring the buyer to pay an "option fee" to be charged by the seller to the buyer for approval to get an inspection done. This could make inspections too expensive when you add in the fee the seller sets for the "option fee." Although tension seems to have calmed between real estate agents and inspectors since the showing of the Dateline program, no guarantees exist that the inspectors will ever leave the grip of the real estate commission in Texas. California Legislative Events Inspectors in other states have tasted the effects of the power of the real estate lobby as well. In California, for instance, a recent attempt was made by the real estate lobby to flood the home inspection profession with unqualified inspectors. At one point, a legislator who was vital for passing a version of the bill out of committee, felt drawn to go to a different committee meeting where one of his own bills was being considered. When he arose to leave the real estate committee meeting to go to the other committee meeting, one of the real estate lobbyists abruptly stood up in the gallery, apparently to get his attention, at which time the legislator sat back down to stay for the important vote the lobbyist wanted him to sit for.
Wisconsin Legislative Events In Wisconsin, a report by a consumer-oriented watchdog group documented the progress and end result of an effort by the real estate lobby to get a number of laws passed, including one involving the licensing of home inspectors. This law helped reduce the liability of real estate agents to home buyers. The watchdog group noted the many campaign contributions that were made to various Wisconsin legislators, including sponsors of the various bills, and to the Governor by the real estate lobby. I concluded from the report that the real estate lobby in Wisconsin, as in many other states, gets its way with the legislators and the Governor virtually whenever it wants, as a result of a widespread and well funded campaign finance and lobbying strategy. While the extent to which each state real estate lobby controls members of the state legislature may vary, it should be obvious that, in comparison, the sheer numbers, amounts of money, and campaign finance that the real estate industry wields is far beyond that of the inspection industry. As a result, do not expect laws relating to home inspectors in your state to protect the consumer. Rather, expect the real estate agents to want to shift liability to the inspectors, even for problem items the agents may have been aware of. Also, expect that the agents will attempt to limit the items or issues that a home inspector might address or state in the report, in order to better assure that fewer deals are killed in the process. The Ethical Inspector Is Forced Out I am confident that at least hundreds, if not thousands, of potentially ethical home inspectors in the United States and Canada have been pre-empted in their businesses by the actions of real estate agents like the ones I have described here, whether in the business or legislative arena. A home buyer should never expect any real estate agent to make work for themselves. Rather, expect them to do exactly what you would expect a commission-based sales system to foster—agents try to make their work the shortest distance between the time they first meet the buyer and the time they "close" on the property at the escrow or title company and collect their commission check for thousands, and sometimes tens of thousands of dollars. Always make the choice of a home inspector yourself. Before we jump into talking about the criteria that determines the quality and independence of inspectors, let’s talk about the things a home inspector is expected to do to help the real estate agent and not you, the buyer.
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