9 months ago
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A housing market marked by relatively high interest rates and tight inventory — and punctuated by the practice of home inspection waivers to sweeten offers — are taking a bite out of business for home inspectors, who play a key role in the sales process by ensuring that buyers are not being sold a lemon of a house.
Legislation that is pending in Massachusetts, if enacted, would change at least one part of this equation for home inspectors in that state — and potentially in other states, if lawmakers elsewhere in the country also decide move in that direction. The pending Massachusetts legislation recognizes the key role that inspections play in the home purchase process and would ensure that buyers have the right to an inspection.
The working bill, S2474, is now pending in the state Senate’s Ways and Means Committee, according to Robin Frechette, chief of staff for Massachusetts State Rep. Brian Ashe, who co-sponsored the House version of the legislation. The bill essentially negates as a negotiating tool the waiving of the home inspection contingency, which makes an offer for a home contingent on the results of an inspection.
“Both the Senate and House bills [in Massachusetts, now combined as S2472] also require an offer to purchase a residential home to include a disclosure that a buyer has 10 days to have a home inspection done; and makes a seller violating the bill’s provisions liable for certain related damages as well as a civil penalty of the greater of 4% of the home sale or $10,000,” according a research report on the Massachusetts legislation prepared by the state of Connecticut Office of Legislative Research. “The [Massachusetts] bill makes certain exceptions to its provisions, such as for sales to family members.”
The Massachusetts legislation would grant buyers the right to a home inspection, but it does not mandate that one be completed.
“The legislation generally prohibits a residential home seller from (1) conditioning the sale on the potential buyer waiving or limiting an inspection; or (2) accepting an offer if they have been informed in advance that the prospective buyer intends to waive their right to an inspection,” the Connecticut research report states.
The purpose of the Connecticut legislative research analysis, prepared this past September, was to identify any bills proposed in Connecticut that are similar to the pending law in Massachusetts that would ensure the buyer’s right to an inspection. The research report found one such bill, which did not make it out of committee.
“It does not appear that any states [currently] require a home inspection as a condition of a residential home sale,” the Connecticut report stated.
Nick Gromicko is the founder of the International Association of Certified Home Inspectors, or InterNACHI, which has some 25,000 members in the U.S. and Canada. It also operates a home inspector training program that is accredited by the U.S. Department of Education.
Gromicko said the practice of dropping the home inspection contingency in order to “juice the offer” for a home “works well to get the house, but then that’s a potential grenade that can blow up [if major problems with a home exist].”
“And it blew up so much that states like Massachusetts … are seeking to pass right-to-inspect laws, which is going to make it hard to get that inspection contingency out of the contract,” he said.
Industry overview
Mark Goodman is a senior home inspector and territory manager for BPG Inspections, which is owned by title insurer Fidelity National Financial Inc. He is also the 2024 president of the American Society of Home Inspectors (ASHI), which has some 5,000 members and is one of two national home inspector organizations deemed “trustworthy” by the National Association of Realtors (NAR) — with the other being InterNACHI.
“A member of the American Society of Home Inspectors (ASHI) or the International Association of Certified Home Inspectors (InterNACHI) are trustworthy individuals to perform the [home] inspection,” a NAR report states. “They’ll generally charge about $300 to $500,” with the figure varying on the region of the country and the size of the home.
Goodman offered some insights into the the home inspection business and individual inspectors via the following datapoints.
• Inspectors rely heavily on real estate agents for job referrals, although they cultivate other referral sources as well, including real estate attorneys, past customers, and online reviews and marketing.
• Most inspectors come from the building trades, but there are many exceptions to that rule. “We have a member who is a former NASA engineer, and we’ve got CPAs, and there’s a member that formerly ran a scuba diving resort,” Goodman said. “…There’s a big percentage of full-time inspectors, but there are a lot of inspectors that are like Realtors and they’re part-time home inspectors.”
• A total of 36 states currently regulate home inspectors and/or their firms in some way. “And then you have non-licensed states, like Missouri, for example, where I am, where it’s really important to use an ASHI-certified inspector [or an InterNACHI-certified inspector] because we set a standard of practice,” Goodman added.
Gromicko estimates that there are some 27,000 home inspectors in the U.S., adding that it’s a second career for many.
“If you’ve been in the trades, that’s considered hard work — welding, plumbing or whatever —and then when they become an inspector, it’s almost like being semi-retired because it’s so much easier physically,” he explained.
Most home inspection firms are small mom-and-pop operations, according to Goodman and Gromicko. But there are some larger operators as well, such as BPG Inspections, U.S. Inspect, the WIN Home Inspection franchise and private equity-backed LaunchPad Home Group.
“Inspectors really look at every system in the house, but there’s some specialized ancillary areas [where additional training is needed],” Goodman said. “There’s mold, there’s infrared, termites, radon, and there’s lots of chimney inspections — so there’s a bunch of ancillary services that involve additional fees [for the client].
“… The home inspector is one of the few unbiased advocates for the consumer that’s solely looking after the consumer, and that home inspection is really important in protecting somebody’s investment.”
Liability and protections
Geoffrey Binney, managing partner at Gauntt, Koen, Binney & Kidd LLP in The Woodlands, Texas, is a former FBI agent turned attorney who has been defending home inspectors for the past 15 years.
The most prevalent types of lawsuits lodged against home inspectors, he said, involve claims over foundation, roof or plumbing issues that were missed, as well as claims involving termites or mold — even though the latter two are not part of a standard home inspection.
“If it’s just a home inspection, they’re not responsible for mold or termites,” Binney said. “I can’t tell you the number of times I’ve taken depositions of plaintiffs and asked, ‘What did you think he [the inspector] was going to do?’
“And the response is something like, ‘I thought he was going to tell me everything that was wrong with the house.’”
Binney stressed that home inspectors are generalists who know enough about a range of areas to get licensed or certified, “but they’re not experts in all of those, unless they happen to have experience from a prior job.”
“They’re only supposed to look and report on things that are present and visible,” he added. “If it isn’t there that day, then they can’t report on it.
“If it’s under the carpet, behind a wall, or if it’s in a crawlspace that you can’t get to; if it’s covered by laundry … I mean, some of these houses that are for sale are just cluttered and that significantly hinders the inspection. … Oftentimes, the homebuyer should be angry with the seller for not disclosing something, like if there’s evidence of a roof leak that was painted over, but they might sue the home inspector and say, ‘You should have caught this on the site.’”
Instead, Binney said, the buyer should blame the seller “who painted over the problem.” He added that he has handled cases where “my guy just screwed up,” with the inspector missing an issue that was clearly present and visible.
In these cases, he said, inspectors will often “fall on their sword” and admit their error because they’re good, honest people. “And I’ll tell the insurance carrier, ‘You’ve got to pay this one.’” Binney said.
In addition to purchasing professional liability insurance, another protection that inspectors need to employ is smart contract language. Binney explained that a “limitation-of-liability clause” in a contract is enforceable in most jurisdictions nationwide. He recommends setting the limit for exposure to the amount of the inspection fee — adding that it’s not fair for an inspector to charge $500 for an inspection “and then be liable for $250,000 in damages.”
“That just doesn’t make economic sense, so we’re going to agree that if you sue me, the most you can get is the amount of the inspection fee,” Binney said. “… One of the biggest problems I’ve had is convincing [inspectors] to do written agreements,” because many mom-and-pop inspectors still do business with a handshake.
Conflict of interest
Gromicko stressed that the threats of lawsuits and reputational damage also serve as checks against another concern that exists in the market with respect to home inspections — that is, the perceived conflict of interest between real estate agents seeking to close a sale and the home inspectors they refer to their clients.
“Some worry that when a real estate agent provides a referral for an inspector that he or she will be a patty-cake inspector who’s going to just make the house look glowingly beautiful,” Gromicko said. “… But the real estate agent [and home inspector] don’t want lawsuits, and they don’t want bad word of mouth, because they have to work in the community.”
In fact, Gromicko said, some prospective buyers may actually want the inspector to find problems with a home — not to kill the deal but to use the inspection report as a “negotiating tool.” He added that inspectors must learn to deal with the politics and pressures of the job, and they should become good communicators in both spoken and written word.
“A lot of new inspectors go in, and they do the first two or three inspections, and they’re like, ‘Eff this!’” Gromicko added. “‘I’m not going to be in this position of pressure, where I have the seller on one side and the agent and buyer on the other, with the kids running around sticking their fingers in things, and I have to get on this roof, and I have to generate a report, and they want it today.’”
Excelling as a home inspector requires a skill set that is rare — and for a relatively modest income that typically short of six digits, even for the most successful of inspectors.
“A guy who fixes plumbing is not normally a guy who can stand on a podium and talk, and then there’s the challenge of needing to distill it all into writing,” Gromicko explained. “The ones that survive [and prosper] normally have that unique blend of skill sets.”
Consumer protection
In addition to the unique skill set required to excel as a home inspector, there’s the equally daunting challenge of surviving as an inspection business in the current climate of tight inventory and higher rates that are working to suppress home sales. That’s in addition to the ongoing trend of waiving the inspection to sweeten an offer.
“The last couple of years, because of the condition of the housing market … home Inspections are down, on average, in a lot of areas in the country, but not every place, because there are some really booming markets,” Goodman said. “And so, many are having a rough time because of the costs of running a business, and there’s only so much in your overhead that you can really cut out, so you have to either raise your prices or do more inspections.
“If that doesn’t work out, then maybe it could cause a little bit of a shift to move more of the small proprietorships toward multi-inspector firms [industry consolidation]. That’s just the nature of the beast — the cyclic nature of the home-inspection profession.”
Goodman agrees that the legislation now pending in Massachusetts, which calls for mandating the right to an inspection for nearly all sales, would arguably help to bolster the home inspection industry in that state. He also stressed, however, that the legislation creates an important safeguard for consumers.
“The New England ASHI chapter is pushing the bill in Massachusetts that mandates [a right to] an inspection,” he said. “If that bill is successful, I think you’ll see a wave of similar legislation across the country.
“That legislation is not so much about the home inspector and the home inspection, but rather it’s more of a consumer protection.”
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