I recently presented (via Zoom) to a conference of insurance professionals about the liability for a real estate broker that signs a form that they have completed an inspection during the sale/purchase of a home. After the presentation concluded, one attendee asked a question about the involvement of inspection companies. I began to realize that if this insurance adjuster, who deals almost solely with liability claims on behalf of real estate brokers had a question about the interplay between brokers and inspectors, then the typical purchaser would be defenseless to the tricky ways in which liability insurance, the California Association of Realtors (CAR) Forms, and contract law limit the scope of what brokers and inspectors are required to inspect, and what they’re required to tell you when you purchase your next house.
What most people don’t know until they have to file a lawsuit because the other side didn’t disclose a material defect in the home they just purchased is that in most cases, the contract that you signed with the property inspector (who represents you and was likely recommended to you by your broker) contains a provision in it that limits almost any claim against that inspector to the greater of the contract amount or $1,500 in damages. I had a case a year ago where the cost to fix the problem with the house was $100,000, and yet the inspector was only liable for $1,000 (the contract price for the inspection), even though the buyer relied on the inspection to think that the house was one worth purchasing. The buyer in that case made every single fix that the inspector recommended, and still purchased a home that needed $100,000 of work before they could move their bedroom set in.
At this point, you’re probably (and rightfully) thinking, “Well then what am I paying an inspector for, anyway?” The answer is that they do provide a large service to you – they make sure there aren’t any easily identifiable problems, and if there are, they tell you what to do to fix them. The part that most homebuyers ignore though, is the part where they include in the report that they only looked at the home superficially, and that you may want to retain a specialist to look at certain aspects of the way the home was built, maintained, or added onto before going through with the purchase.
Your next thought is likely, “Doesn’t my broker do an inspection? At least that will protect me, right?” Well, the broker is only required to do a “diligent visual inspection of the areas of the property that are reasonably accessible” pursuant to California (and most other states) law. This means that your broker (who is also likely not a certified inspector or licensed contractor anyway) is only required to do a “walk-through” inspection. If they see a stain or a crack, they write it down, and they have complied with their obligations under the code. Therefore if the house has a large stain that evidences a leak, or the water heater is missing its straps, the broker will find it, but if there is a hidden condition in the attic or in a crawl space, they aren’t going to look for it, let alone be able to warn you about it.
At the end of the day, your broker wants to help you buy a house, and to make a sale. Your inspector is trying to get through the 3-4 inspections they have that day. The previous owner is trying to sell their house, and the owner’s broker is trying to make their commission from selling the house. So who is looking out for you? This is when the end of your inspector’s report comes in handy. You are allowed to do more than just the basic inspections – you can hire an electrician to look at the electrical in the home, a contractor to look at that addition that seems a little crooked, or a plumber to crawl under the house and really look at the plumbing situation.
This may make you feel like you’re going over the top, and your broker will likely tell you the same – but when you know that the burden to prove liability for a minimal inspection against the brokers or the inspector is so high, and that hiring an attorney to sue for failure to disclose is extremely expensive, those couple of hours of extra inspections may prove worth the time, money and ridicule when you’re still happy in your new home 20 years later.