Real Law Central
Issue Date: Nov. 10, 2008
http://www.reallawcentral.com
“If you kill this deal, I’ll make sure you never do business in this town again.” This not-so-subtle warning is not uncommon to hear from some real estate agents, according to one Missouri home inspector. Others say most real estate professionals are looking out for clients’ best interests. How prevalent is the problem and what do agents risk by asking for a good report?
As the housing market continues to look bleak, agents are looking for the best ways to close a sale. But are they taking the low road to get there?
As any real estate agent knows, there are myriad ways a home sale can fall apart. Most agents aren’t willing to risk violating their code of ethics to clinch a deal, but home inspectors are reporting that some agents are, and that they’re feeling pressure to give positive reports, or lose future referrals.
Agents can help their clients select a home inspector from various sources. Some refer to lists made available by their brokers, while others simply stick with inspectors they’ve worked with in the past, feeling satisfied with the results. Others make no recommendations or referrals at all, at the behest of brokers who insist on avoiding any potential conflict of interest.
A few home inspectors are reporting that they’ve encountered real estate agents who are feeling so pressured to close on a sale, they warn the inspector, “You’ll never get another inspection in this town.”
Applying subtle pressure
In most real estate transactions, pressure on a home inspector — either explicit or implied — is a rare occurrence. Regardless of the market, buyers only want to know what the major problems with a property are, and agents only want to ensure their clients are getting the information they need, according to Mark Nahrgang, professional building consultant for Kingdom Inspections in St. Louis.
Formerly a licensed real estate agent himself, Nahrgang now works from the home inspection side and believes that by and large, agents aren’t intentionally urging inspectors to give a thumbs-up on an inspection. He personally hasn’t been warned to give a positive report.
“I haven’t been threatened but I know people who have seen where the real estate agent says, ‘If you kill this deal I’ll never use you again,’ or ‘You’ll never work in this town again,’” Nahrgang said. Instead, he notices more subtle ways an agent may hinder an inspector’s work.
“Say he’s doing a home inspection and finds a defect, and as he’s talking to the client about it the agent is standing there and says, ‘Oh, we see that all the time, it’s not that big of a deal.’ You can’t really say much at the time when the agent contradicts you, you just go on. But in reality, what has happened is the issue you’ve reported maybe is not a big deal to fix, but it would be a big deal if you left it alone,” Nahrgang said. “That would be a thing I would see more often, (the agent) taking ownership of a problem saying it’s not really a problem.”
When Nahrgang first entered the real estate business as an agent, he said the brokerage where he worked had a list of inspectors and another salesperson would check off those who were recommended, and those who were not due to being too “nit-picky.” Now, as an inspector, Nahrgang teaches classes on home inspection basics to real estate agents, and advises them on how to make inspector recommendations. He suggests they select from a list of just a few, three or four, who are known to be thorough but fair.
Some agents, Nahrgang said, are barred by their brokers or attorneys from making home inspector referrals, but he said this doesn’t necessarily benefit their clients.
“I never did particularly agree with that. If you’re just picking out of a phone book, you don’t know what you’re getting. If you’re a real estate agent and sincerely trying to help your clients, you’re going to want to make a recommendation of someone who is going to do a good job for them. But, the agents have to do what their brokers say,” he said.
Motivated by desperation
Although the depressed housing market could be a factor in pressure on home inspectors, Nahrgang thinks it’s no more of an issue than any other time. But, he acknowledged, when business and the economy are bad, and people are desperate for work, he understands that a buyer walking away from a deal because of a poor inspection is certainly frustrating for the agent.
The risk for a home inspector facing pressure from an agent comes from both the business side and the legal side. There is the potential to be “blocked out” of future business if the inspector doesn’t give the kind of report the agent wants, or the possibility of litigation if a problem wasn’t noted in the report.
“I believe the legal norm is, if something goes south, it’s not just the person who is at fault who gets sued, lawyers sue everybody, and they let the court work it out,” said Nahrgang. “If one of these unethical agents were to do something, they’ll drag me into court, and I don’t want that either. I’d rather not have the referral than to compromise my ethics.”
Most home inspector associations, like the International Association of Certified Home Inspectors (InterNACHI), with whom Nahrgang is affiliated, have a code of ethics that outline how the inspector is expected to conduct business. InterNACHI’s code of ethics prohibits its inspectors from accepting or providing referral fees. This, Nahrgang said, helps weed out potential problems.
“Unethical people don’t stay in business too long. That’s where the ramifications are going to come in. If one of my fellow brethren at InterNACHI discovered that I did something (unethical), I would lose my membership,” he said.
As seldom as Nahrgang sees issues with pressure from agents on home inspectors, another Missouri-based home inspector believes the problem is rampant. James Braun, owner and certified master inspector with Braun’s Inspection Services in Jefferson City, said he encounters unscrupulous agents regularly. According to Braun, “good” agents know that a thorough inspection is key to avoiding potential litigation. Crooked agents see it as a hindrance to a sale.
“It happens quite often, because you are basically ruining their sale, the way they see it,” said Braun. “They don’t see it as you are saving them from a potential lawsuit.”
Tarnished reputation
Home inspectors who buckle to pressure for a good report risk harming their reputation, which he said could be even more costly than a lawsuit.
“As soon as you get marked as an ‘agent-owned’ inspector, it’s pretty hard to beat that. You’re pretty well tarnished,” Braun said. “You’re just not going to have respect from colleagues and from other agents. But there are some honest agents out there who do a great job.”
Furthermore, if an inspector has already established himself as reputable and thorough, there is no need to worry about warnings from a dishonest agent who is only looking to close on a deal, according to Braun. The main objective for any inspector should be to follow one’s code of ethics and treat all parties in the transaction the same way.
“I have buyers who want me to write down a lot of nit-picky stuff that doesn’t matter, just to get the price down. Well, you have to explain to them the reasons why you cannot do that. You have to think about the seller. If you lived in his place, how would you feel about this being written on the report when it’s really nothing to worry about? The way I feel I do a job right is, I want the buyer not to experience any financial loss. That’s the main thing. I don’t want him to move into the house and have to spend thousands of dollars he doesn’t have,” Braun said.
Real estate agents don’t deserve any more of a bum rap than home inspectors do, says Robert Jenson, a Realtor with The Jenson Group in Las Vegas. Regardless of the condition of the market, he said there are too many inspectors who attempt to justify their fees with a “laundry list” of items on a report.
“Sometimes (the reports) are 40 to 60 pages long, which is ridiculous. You’d get this inspection and there would be certain things that are noted that aren’t a concern, like random non-issues. It’s almost like they had to put all these things in a report to make it look like they did a good job,” Jenson said.
Rather than agents pressuring inspectors to give a report they want, Jenson said, they are probably urging inspectors to “come up with what’s really a problem” like plumbing and electrical issues.
For Jenson, the best way to ensure an inspection goes smoothly is to choose someone with whom the agent has worked with in the past and does an accurate job, and then be sure the buyer, agent and seller attend the inspection. Jenson said he prefers to appear at the end of the inspection, simply to hear what the inspector recommended so that there are no surprises later in the transaction.
Unethical actions will backfire
Even if real estate agents are suggesting to home inspectors that they must give a positive report, Jenson said it is not in the inspector’s best interest to do so, and it wouldn’t take long for it to come back and bite the inspector.
“There’s no doubt that if the home inspectors are not fully disclosing issues because of an agent’s concern, if there are major issues (with the property) they will show up pretty quickly,” he said. “I doubt there’s much of it going on. It is possible things can get missed, but in general, home inspectors are licensed and bonded and have a list of things they need to follow, so it all gets addressed.”
Nahrgang said he falls smack in the middle of a spectrum of inspectors — those who are too detailed and report minor issues like scratches on the walls, and those who are too vague and give “light” reports to endear themselves to real estate agents. Now he teaches other agents what they should expect from home inspectors.
“As a Realtor, I didn’t want either one of those guys. I wanted somebody who was going to do a great job for my customer, and actually do a thorough job, but on the other hand I didn’t want him intentionally scaring the buyer over stuff that wasn’t necessary to be scared of,” Nahrgang said. “I educate agents, teaching them what to expect in a home inspection. A thorough inspection protects everybody the best. I’ve had good results from that.”
Although there are agents who are the exceptions who are so desperate for a sale they are willing to risk their client’s best interests, Nahrgang said most are more concerned about the client than the deal dying.
Thursday, January 1, 2009
Tuesday, December 30, 2008
Buyers Beware of the real estate agent "Recommended" home Inspector
We are strong believers that people looking to buy a home should hire their home inspector who is independent of their real estate agent and mortgage company. These people want you to buy the house so we feel there is a bias towards achieving that goal.
Most real estate agencies work on an average commission of 6% paid by the seller of the property. On a house selling for $350,000 there is a potential commission of $21,000. Sometimes a selling agent will recommend particular home inspectors to a prospective buyer, sometimes a list of three is given out. Who are these recommended inspectors? How did they "qualify" to get on the "approved" list of the agent? Is the agent recommending a thorough non-bias inspector or is the agent recommending someone who will help protect the potential $21,000 commission? 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 tells you that you cannot use an inspector of your choosing, or insists that you use one of their "recommended" or "approved" inspectors, you should contact your attorney. (You should also wonder why they don't want you using an independent inspector of your choosing.) A real estate broker or sales agent who tries to get you to use an inspector of the agent's choice is trying to control the home inspector selection process. 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?
What Is A "Deal Killer"?
The derogatory phrase "deal killer" is often used by real estate agents 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 control the inspector selection process to make sure that the prospective buyers do not retain independent home inspectors.
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", or "that inspector takes too long" or "we've had trouble with that inspector" or "we don't allow that inspector to inspect any of our listed properties" or "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 $150 or $200. By advising homebuyers to expect these low (unrealistic) 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" or "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." 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. 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.
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 has been 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 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, the agents must provide a complete list of licensed home inspectors prepared by the Board of Home Inspectors. (So far, MA is the only state which has this provision.) 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.
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 inspector advertisements do you see in the newspapers? Almost none. Do you think a newspaper is going to bite the hand that helps feed it?
Most real estate agencies work on an average commission of 6% paid by the seller of the property. On a house selling for $350,000 there is a potential commission of $21,000. Sometimes a selling agent will recommend particular home inspectors to a prospective buyer, sometimes a list of three is given out. Who are these recommended inspectors? How did they "qualify" to get on the "approved" list of the agent? Is the agent recommending a thorough non-bias inspector or is the agent recommending someone who will help protect the potential $21,000 commission? 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 tells you that you cannot use an inspector of your choosing, or insists that you use one of their "recommended" or "approved" inspectors, you should contact your attorney. (You should also wonder why they don't want you using an independent inspector of your choosing.) A real estate broker or sales agent who tries to get you to use an inspector of the agent's choice is trying to control the home inspector selection process. 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?
What Is A "Deal Killer"?
The derogatory phrase "deal killer" is often used by real estate agents 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 control the inspector selection process to make sure that the prospective buyers do not retain independent home inspectors.
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", or "that inspector takes too long" or "we've had trouble with that inspector" or "we don't allow that inspector to inspect any of our listed properties" or "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 $150 or $200. By advising homebuyers to expect these low (unrealistic) 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" or "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." 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. 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.
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 has been 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 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, the agents must provide a complete list of licensed home inspectors prepared by the Board of Home Inspectors. (So far, MA is the only state which has this provision.) 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.
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 inspector advertisements do you see in the newspapers? Almost none. Do you think a newspaper is going to bite the hand that helps feed it?
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