Truth About Real Estate Agent Referred Home Inspectors: *(*The opinions and views expressed on this page are those of Dennis R. Robitaille and do not represent the views of most home inspectors, nor do they represent the views of any home inspector organization, except The Independent Home Inspectors of North America. The views and opinions expressed here may not necessarily apply to true buyer agent relationships. These comments are based on personal experience, feedback from clients, conversations with attorneys and real estate agents and written correspondence from a former Massachusetts State Representative.)
What's Wrong With A Real Estate Agent RecommendingMost real estate agencies work on an average commission of 5% paid by the seller of the property. On a house selling for $400,000 there is a potential commission of $20,000. Sometimes an agent will recommend particular home inspectors to a prospective buyer, sometimes a list of three is given out or there might be brochures from a limited number of home inspectors on display in the real estate office. Who are these recommended inspectors? How did they "qualify" to get on the "approved" list? Is the agent recommending a thorough, highly qualified, non-bias inspector?
A Particular Home Inspector To A Prospective Home Buyer?
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. If a real estate agent insists that you use one of their "recommended" or "approved" inspectors, you should contact your attorney. In Massachusetts, real estate agents are prohibited from directly referring a home inspector. (Unless they have a contract with the buyer as a buyer's agent)
Prospective home buyers must keep in mind that real estate agents who receive a 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?
How Does A Real Estate Agent Control The Inspector Selection Process?
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", "that inspector is too picky", "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 $250 or $300. By advising homebuyers to expect these unrealistic low 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", or "we use this inspector all the time", or "this inspector can schedule an inspection on a day's notice", or "this inspector only takes an hour and he gives you a report right on the spot," or "all our customers use this company". 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" (inspectors who report all the findings without sugar coating them). 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.
*What Is A "Deal Killer"?
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 their ability to generate income. They view these "deal killers" as foes and will use a number of tactics to make sure that their buyers do not retain independent home inspectors.
If There Is A Potential Conflict Of Interest With Sales Agents Recommending Home Inspectors, Why Doesn't The Government Do Something About It?
A home inspector licensing law was passed in Massachusetts and became effective May, 2001. This law, to some degree, does address the potential conflict of interest of real estate agents referring home inspectors. The new law amends Chapter 112 section 87YY 1/2 of the MA Real Estate Broker and Salesperson Licensing Law. It prohibits real estate brokers and salespersons from directly recommending a specific home inspection company or home inspector. Instead, upon request, provide a complete list of licensed home inspectors prepared by the Board of Home Inspectors. The prohibition does not apply if there is a written agreement between the buyer and 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.
New Hampshire passed a home inspector licensing law in 2010, however, it does not address the potential conflict of interest issue.
Why Don't I Read About This Conflict Of Interest Situation In The Newspaper?
Very simple answer, money! Look at the real estate section of any local or regional newspaper, lots of houses being advertised by real estate agents. Those newspapers don't run those ads for free. How many home inspection advertisements do you see in the newspapers? None. Do you think a newspaper is going to bite the hand that helps feed it?
Why Don't Home Inspectors Organize And Change The Current Control Real Estate Agents Have Over The Inspector Selection Process?
You would think inspectors would want consumers to have a free choice when it comes to selecting a home inspector. Unfortunately many inspectors rely upon real estate agents to steer clients their way. This is especially true for large multi inspector firms. In response to this situation a new home inspectors organization was formed called the Independent Home Inspectors Of North America. Prospective home buyers can search for an independent inspector near them. In a free marketplace, companies that offer a poor product or provide a poor service eventually go out of business, but this is not true for some home inspectors when there is an artificial marketplace controlled by real estate agents.
What About Inspectors Who Claim They Have No Real Estate Agent Affiliations?
If an inspector claims to have no real estate agent affiliations it doesn't necessarily mean they do not solicit real estate agents for client leads. The best way to qualify the relationship is to ask the inspector whether he or she solicits real estate agents for client leads. If you find that the inspector or inspection company maintains brochures in real estate offices or if the inspector or inspection company is on the real estate agent's "recommended" list given out to prospective buyers, this should tell you something. A list of true independent home inspectors can be found here: Independent Home Inspectors Of North America.
Why Doesn't The American Society Of Home Inspectors (ASHI) Prohibit Or Discourage ASHI Inspectors From Soliciting Real Estate Agents For Client Leads?
ASHI, on one hand has stated that it does not want to dictate to its members, how they should obtain their client leads. However, ASHI several years ago also embarked on a "branding" campaign spending millions of dollars of membership money to get real estate agents to refer only ASHI inspectors. This is unfortunate for the home buying consumer. Do you want an inspector who "helps" the real estate agent earn a commission or do you want an inspector who is going to fully disclose the condition of the house?
What Can Be Done To Prevent This Potential Conflict Of Interest?
Do not ask the real estate agent for the name of an inspector. Do not accept any list or recommendations from the agent. In Massachusetts, selling agents are prohibited from giving out a list, unless the list contains the names of all the licensed home inspectors in the state. Do research and choose your own inspector. The best source for referrals will come from people who do not have a vested interest in the sale, this includes your attorney and past clients of the inspector. Remember, it's your money and your potential future home. Choose your inspector wisely.