Conflict of Interest with Sales Agents
Recommending Home Inspectors?
(Massachusetts) --- A
home inspector licensing law has been passed
in Massachusetts, signed by the Governor,
and became effective May, 2001. This law
prohibits real estate brokers and
salespersons from directly recommending a
specific home inspection company or home
inspector. Instead, upon request, the agents
must provide a complete list of licensed
home inspectors prepared by the Board of
Home Inspectors. (So far, Massachusetts is
the only state which has this provision.)
The prohibition does not apply if there is
written agreement between the buyer and real
estate broker/salesperson that the
broker/salesperson is acting exclusively for
the buyer as a buyer's broker. Here is the
actual language of the law which amends Chapter 112 section 87YY of MA Real
Estate Broker and Salesperson Licensing Law:
"At the time of
the signing of the first written contract
to purchase, real estate brokers and
salesmen, or the seller if no broker or
salesperson is involved in the sale, shall
distribute a brochure, published by the
office of consumer affairs and business
regulations, educating consumers about the
home inspection process. Real estate
brokers and salesmen shall not directly
recommend a specific home inspection
company or home inspector but may, upon
request, provide a complete list of
licensed home inspectors prepared by the
board. This prohibition shall not apply if
there is a written contractual agreement
or a written agency disclosure between the
buyer and the real estate broker
specifying that the real estate broker is
acting exclusively for the buyer as a
buyer's broker."
Dennis R. Robitalle,
Director of Independent Home Inspectors
of North America, a Massachusetts home
inspector influential in encouraging the
Massachusetts law, and, actively pushing for a
similar law in other states writes:
"This law, to some
degree, does address the potential
conflict of interest of real estate agents
referring home inspectors. The prohibition
does not apply if there is a written
agreement between the buyer and the real
estate broker that the broker is acting
exclusively for the buyer as a buyer's
broker. Potential buyers must still be
aware that regardless of who the real
estate agent claims to be working for, his
or her commission is still coming from the
successful closing of the sales
transaction."
Mr. Robitalle is very vocal
on this issue and has some very strong
opinions on this subject. Although his
opinions may upset you as a Realtor
(remember, my wife is a Realtor and I
consider many Realtors my personal friends)
because they question your ethical
standards, you should give serious thought
to his opinions and ideas. I will share some
of what he says. As you read his comments,
be honest, and, search your heart for your
honest criteria in choosing the home
inspectors you recommend. Could there be
some truth to what Mr. Robitalle has to say?
I will let you be the judge. Its not my
place to judge your heart.
"Unfortunately,
some real estate agents view a thorough and
non-bias home inspection as a threat to
their sales commission. Shouldn't a
prospective homebuyer have the
right to use an inspector of their own
choosing? A real estate broker or sales
agent who tries to get you to use an
inspector of the agent's choice is trying
to control the home inspector selection
process."
"Prospective home
buyers must keep in mind that the real
estate agents who receive commission from
the property seller, are working in the
best interest of their client, (the
seller.) As the prospective home buyer,
shouldn't the home inspector you're paying
for, be working in your best
interest?"
"The derogatory
phrase "deal killer" is often
used by real estate agents 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 their ability to generate income. They
view these "deal killers" as
foes and will use a number of tactics to
control the inspector selection process to
make sure that the prospective buyers do
not retain independent home
inspectors."
"There are many tactics used,
some subtle and some not so subtle. The
agent may discourage the potential buyer
from using a certain inspector by making
comments like: "That inspector is a
deal killer", "that inspector
takes too long", "we've had
trouble with that inspector",
"we don't allow that inspector to
inspect any of our listed
properties", "that inspector is
too expensive." A twist on the fee
tactic is to advise the prospective buyer
that they should expect a home inspector
to charge around $150 or $200. By advising
homebuyers to expect these low
(unrealistic) fees, agents are trying to
steer homebuyers to certain inspectors,
because the prospective homebuyers might
limit their search to the arbitrary price
range set by the real estate agent."
"The tactics used to encourage
a prospective buyer to use a particular
inspector include: "We've had good
luck with this inspector", this
inspector has the lowest fee",
"we use this inspector all the
time", "this inspector can
schedule an inspection on a day's
notice", "this inspector only
takes an hour and he gives you a report
right on the spot."
"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
with 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 "chooses"
an inspector the agent prefers; and C) The
buyer’s choice is limited to home
inspectors who will not hurt the
sale."
Pat Rioux of the International
Real Estate Digest wrote in May of 2001
about the Massachusetts law:
"The purpose of
this new rule is to help eliminate the
conflict of interest that occurs when an
agent who works for the home seller helps
the home buyer choose a home
inspector."
Blanche Evans of Realty
Times wrote:
"Does a conflict
of interest exist when a real estate agent
recommends a home inspector? Opinions vary
because of liability issues and collusion,
or the appearance of collusion, to gloss
over material facts to get a home
sold."
"Buyers,
especially first-time home buyers and
out-of-towners, rely on their real estate
agents to give them referrals and
recommendations of competent ancillary
service providers such as home inspectors.
But if they do, the real estate agents
could be held liable for any nondisclosure
of material defects, whether accidental or
intentional. That makes referrals an
interesting problem."
Ohio buyer's broker Tom
Early in the same Blanche Evans article
stated:
"The inspection
company I use has been blackballed by
several of the real estate companies in my
town because, in my opinion, he does too
good a job. He began to get the reputation
of a deal killer because of his
thoroughness, and the news spread like
wildfire. For exactly the reasons he has
been blackballed by others, he is now the
man I recommend. My buyers need to know
the condition of the property they are
purchasing, and he does a better job in
the area than anyone else I know."
"Real estate for
me will always be full of liability
because I will always act as a true
fiduciary. Why should I keep this a secret
from my own clients? The home inspector I
recommend has been in business for over 14
years and backs his own work. We have a
problem or two after purchase with one
thing or another the inspection may have
missed, and this company has taken care of
the problem every time."
So, where do you stand on
these issues? How do you determine what
inspectors names you give out, or those you
ignore? What are your thoughts and feelings
when the "deal killer" is
scheduled to inspect your sale or listing?
Can you honestly critique your own actions? Do
you ever say, "Oh, not that one."
Why?
Have I pushed your on
button? I sincerely hope so, but don't be
quiet about your feelings. This is my ninety
fifth newsletter, don't you think its about
time you expressed your thoughts and opinions?
Here is your chance. Just click on the words,
"Discussion Forum," below, and, you
will have the opportunity to express
yourself. Don't hold back, I dare you to
respond in my Discussion Forum.
When you get there, click on the topic,
"Conflict of Interest Agents
Recommending Home Inspectors?" Read
what it says and then click on
"Reply" at the top of the page.
Just to make this a little more interesting,
I am inviting a slew of local home
inspectors to participate in this discussion
as well as members of the State Home
Inspectors Licensure Board. Be sure to come
back and see what others have to say on this
issue; but, don't get lost and forget to read the
Education article below
