At last week’s Closing and Settlement CE program, taught by Linda Kody, she referenced a matter where the REALTOR involved was named as a defendant in a lawsuit stemming from a home inspection.  Guess what??  The home inspector had limited liability and paid a small fee $300 to get out of the matter.  The REALTOR?  Well, she ended up in front of a jury.  Here’s the case that Linda was referring to:

At her buyer clients’ request, Joan went to the inspection. “She was our agent, and we thought she should be there,” the buyers would later testify.  Occasionally, just to make sure the inspection was done properly, Joan would point something out that she felt the buyer or inspector had missed. The buyers were grateful.

After the inspection, the buyers, the inspector, and Joan discussed what had been discovered. An amendment to the contract was prepared and executed, setting out what the buyers wanted the seller to accomplish as a condition of the purchase. Joan made sure the amendment didn’t say, “buyers request that seller . . .” and instead said, “seller shall, on or before           , obtain a building permit, use licensed contractors, and make the following repairs up to code.” Joan knew to have the inspector do the second inspection, but she went along to make sure it was done properly.

Three weeks after closing, Joan got a call from the buyers. In a heavy storm, water had come in through a gap between the fireplace and the wall and had ruined the carpet and the flooring beneath it.

Joan got bids for the repairs, talked to the seller, and tried to find a solution.

When the seller and the inspector refused to pay, the buyers asked Joan to cover the cost. Joan explained that she wasn’t inspector, and didn’t “guarantee” the house.

The lawsuit named three defendants: Joan, her broker, and the inspector. The claim against the inspector was dismissed immediately, as his contract limited his liability to $300 and he gladly paid it.

At the trial, the buyer’s attorney questioned Joan:

Attorney: You do care about your clients, don’t you? 

Joan: Of course. I worked hard and found them a great home at a good price. I was there for them throughout the transaction.

Attorney: Yes, you were. And we all heard from the plaintiffs, the buyers, your clients, how much they counted on you and how valuable you were, right?

Joan: Yes.

Attorney: When you accompanied the buyers through the house with the inspector, if you saw something that the buyers missed, you would point it out, correct? 

Joan: Yes. I wanted them to know all they could about the property. I told them all I knew.

 Attorney: If you saw something that the inspector missed, would you point that out?

 Joan: Of course. As I said, I wanted them to know everything.

 Attorney: Thank you, Joan. You’ve been very truthful.

 In his closing statement, the buyers’ attorney summarized Joan’s conduct:

Ladies and gentlemen of the jury, this case isn’t about willful misconduct. Joan didn’t conceal the defects that caused the damages. This case is about negligence and reliance. Joan demonstrated that she was someone upon whom the buyers should and did rely.

Joan was not only inspecting the property right along with the buyers and the inspector, but she was also supervising the inspector. She testified that if she saw something that her clients or the inspector missed, she would point it out.

Yes, her clients hired her to act as their agent, and were justified in relying on Joan to check the house out during the inspection. She obviously missed the fireplace crack – not intentionally, but she was negligent.

Joan cared about her buyers and she let them down. She shouldn’t have gone on the inspection if she didn’t want to be responsible. My clients relied on Joan to their detriment.

As a buyer’s agent, you want to provide every possible service to your clients. But sometimes that’s just the problem. Don’t be tempted to provide a service that’s outside your expertise. You’re not an inspector, so don’t confuse your buyers by acting like one.

In sum, to limit your liability:

1.  Don’t go through the house with the inspector.  Explain to your clients that you sell real estate and the inspector inspects it. If you’re looking for language to explain this concept, here are some ideas:
   “Our policy is to encourage buyers to attend inspections with the inspector. We simply don’t do inspections.
   ”We like to allow our clients to have time with the inspector as they go through the house.”
   “I see the inspector has already arrived. I’ll be here in the kitchen making some calls and will meet you right here after the inspection to see what the inspector has determined are the defects.”
   “I’m not an inspector; that’s why you’ve hired an expert to do the inspection.”

2. Encourage buyers to hire well-qualified inspectors-licensed in your state.  To be even safer, recommend hiring an inspector who’s an engineer.
3. Encourage buyers to have the property reinspected after work is completed.  Competition among inspectors is high; it shouldn’t be difficult to find someone willing to come back.
4. Don’t let the final walkthrough become another inspection with only you there.  Do your job and let inspectors do theirs, especially on a new home.
5. Don’t recommend a specific inspector. Instead, provide a list of several qualified inspectors, along with references from people who’ve used them before.

Reprinted from REALTOR® Magazine http://www.realtor.org/realtormag February, 2002 by permission of the NATIONAL ASSOCIATION OF REALTORS® Copyright 2002. All rights reserved.