Friday, November 20, 2009

Home Inspectors' Rotting Frames

A potentially significant ruling in the BC courts was released last week that could have some significant implications for home inspectors. The ruling is not long by legal standards but still pretty dry. Don't read it if you have a life. I read it twice. You can read the briefer press coverage here.

The suit was between a home owner (the plaintiff) who made an offer on a property in North Vancouver subject to inspection and hired an inspector (the defendant) for $450 to inspect the home, and write and present a report on his findings. This is pretty standard practice, especially with older homes, and especially especially with older homes with significant structural and leaking issues, which this particular property had, and was evident even by a cursory walk-through.

Long story short, the home inspector lost the case and was ordered to pay over 192 fat ones to the owners, covering the the majority of repair costs to the house. The house had significant structural deficiencies that cost significant money to fix. The fixes included compacting soil holding the foundation, rebuilding two decks, and reinstalling supporting post and beam members that had significant rot.

A few things were made clear by this case -- and it may still be appealed, not necessarily on the bill of the home inspector -- and I'll highlight a few points that we all should take seriously when buying a property.

1. The inspector was recommended by the Realtor

The first thing to note was that the inspector was recommended to the buyers by their Realtor. Certainly the Realtor purports to have his clients' best interests at heart yet the Realtor only gets paid if the sale completes. The inspector undoubtedly was recommended by this Realtor in other transactions so there is potential for conflict of interest. The judge did not us this fact in issuing the final decision. Still, ensuring the chances of a conflict of interest are minimized could have saved this case from happening at all.

2. Seeing what you want to see

While the blame was put solely on the inspector, I am suspicious the judge ruled against him partly because of his conflicting testimony under oath. The judge made, in my opinion, a slightly bizarre determination that the buyers put significant faith in the inspector's report, enough to believe the repair costs were on the order of $20K, not the eventual $200K. I'm not a lawyer so cannot comment on how the buyers' state of mind would influence whether negligence occurred.

If we think back to 2006 and the overall sentiment of the market, prices were increasing at close to 20% year-over-year. The house was purchased in the late spring, a typically strong month for sales. In those heady days, it was not uncommon for buyers to attend scores of viewings, make several offers on several properties, and if they're lucky have one accepted. With that as the backdrop to this particular purchase, I am suspicious the buyers put significant pressure on themselves to complete. Often we put blame on Realtors, inspectors, lawyers, and others in the industry, claiming they influence buyers to complete so the food chain gets paid. Well sure, but there still needs to be the obvious precondition to influence: the buyers allow it to happen, and some buyers' emotional states make influence all the simpler.

3. Will this change anything

I don't want to over hype this particular case -- it may have been a case of negligence without further implications. In the extreme we could imagine home inspectors, now wary of the chance of successful litigation against them, start hedging on the side of caution when writing a report. It could mean fewer sales as buyers get cold feet.

There is little in the way of standards for the home inspection industry. There are some standards and codes of conduct, however there does not seem to be wide acceptance they are adequate for all inspection scenarios. In this case, an "expert" home inspector testified how the baseline guidelines of one such association are considered inadequate for a proper inspection. To properly set up home inspection standards is a huge effort and, given the variance in homes across the country, it would be difficult to write down in standards form that completely encapsulates common sense and competence. I would expect such a standard is years off.

In the meantime we as potential buyers are stuck relying on ourselves to make a call on whether a house inspection makes sense. From what I've read in this case, it did not. In the heat of buying frenzies -- and we are in the midst of one now -- it is important to be extra cautious when we know our emotions are involved. It also highlights the risks involved in home purchases and why carrying costs, on average, should have a healthy margin of error.


Student said...

Safety is the over-riding concern of the home inspector – both for the inspector and the customer. Some home inspectors will open up electrical panels to look at wiring, others will not, but all should inspect the panel(s), the wiring, distribution system, grounding, load, and other visible bits and pieces.

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