You’ve heard the saying “There are no stupid questions.” Well, that’s as true for real estate agents as it is for anyone else. Agents should consider asking the simple but important questions listed below before referring inspectors (either home inspectors or home inspection companies) to their clients.

Referrals reflect the agent’s own professional judgment and may affect the most important pipeline of potential future business. Moreover, agents are fiduciaries: they must put the client’s interests above everything else, make the best possible recommendations, and avoid making an expedient or convenient choice when a better alternative may exist and should be evaluated for their clients. Referring your client to an inspector just because an office mate or friend says, “Oh, I’ve used them for years” is not necessarily the best strategy.

Consider the following simple questions each and every time you refer an inspector:

1. Know Your Inspector’s Background, Experience, and Credentials

All agents should take into account an inspector’s experience, including how many inspections they have performed, how long they have been in the business, and what certifications, licenses, and memberships they hold. Why? Because all inspectors are not created equal. Most inspectors are contractors, but many of the best are not. I’ve found that extensive training in the art of inspection or other code knowledge by far outweighs a contractor’s license. A well-rounded inspector will be properly trained and well versed in all aspects of residential construction.

Although some states now require licensing for home inspectors, California doesn’t. See California Business & Professions Code 7195 et seq. There are, however, professional organizations which require experience and training for membership. The two primary associations in California are the California Real Estate Inspection Association and the American Society of Home Inspectors. Consider referring an inspector who is affiliated with one of these organizations.

Don’t overlook the inspector’s relationship to his or her company. Is the inspector the owner or an employee? In my experience, owners of home-inspection businesses care deeply about their work and the reports they produce because they are concerned about potential liability and ongoing business. In some cases, an employee may not perform as well as an owner-operator because employees have less at stake.

2. Does Your Inspector Have Errors & Omissions (E&O) Insurance?

E&O insurance is an important consideration, as it may help resolve claims against the inspector for items they may have missed during the inspection after close of escrow. Inspectors are not required to carry E&O insurance, so there is currently no reliable data on the percentage of inspectors who actually are insured. I have heard that it is in the 50% range; i.e., one out of two inspectors is insured. Consider asking prospective inspectors for a current declarations page of their E&O policy. The declarations page will reveal whether the inspector has a “claims made” or per-occurrence policy and what the coverage limits and policy periods are.

Some agents even ask that the inspector include the agent’s and broker’s names as “additional insureds” on the policy. This added layer of protection for the agent and/or broker will also sometimes help resolve and settle potential claims which arise out of the referral. For instance, an agent may not have to pay his or her own carrier’s deductible if a claim arises and both the inspector and agent are asked to participate in resolution of the claim.

An inspector without E&O may have a broad range of reasons for not carrying insurance. Whatever the reason, consider referring an inspector who has E&O to provide greater protection and value for your client.

3. Does Your Inspector Use An Inspection Agreement?

Today, most inspectors have their customers (your clients) sign inspection agreements prior to the inspection. These agreements detail the ground rules, the inspector’s scope of work, and items outside that scope. I myself have reviewed hundreds of these agreements, and most of them are fair. However, some have clauses that attempt to circumvent statutory and current case law. Consider getting your clients a copy of the agreement well in advance of the inspection so that they have a chance to read, consider, and digest the terms before signing. If you or your client have questions about the terms, don’t sign until you get the answers you need.

It’s common for some inspectors to try and limit their monetary risk by stating that their total liability for negligence, errors, or omissions is limited to the cost of the inspection report. This maneuver is expressly prohibited by statute, but inspectors sometimes cleverly navigate around that fact by limiting their liability to two or three times the cost of the inspection. See California Business & Professions Code § 7196. Although there are as yet no appellate court decisions testing these type of clauses which tiptoe around the statutory limitation, it is imperative that agents know what the inspection agreements say so they can allow their clients plenty of time to digest this information and make a well-informed decision.

Another common tactic inspectors use to reduce their liability is a reduction in the statute of limitations to bring an action against an inspector. California Business & Professions Code § 7197 states that an action may not be brought against a home inspector four years after the date of the inspection; however, some inspectors’ agreements attempt to reduce this time period to one or two years. This tactic was addressed in the California appellate court case of Moreno v. Sanchez (2000) 140 Cal.App.4th 1315, which held that notwithstanding a contractual device to reduce the time period allowed in 7197, the delayed-discovery rule prevents an inspector from contractually reducing the four-year statute of limitations if the defect, error, or omission by the inspector was found or identified and the claim brought within four years of the date of the inspection.

4. How Does Your Inspector Handle Callbacks?

Callbacks are a fact of life. The first call or email you receive from your client stating that the inspector you referred “missed something” will probably be a frightening moment in your career. It can be a lot less disconcerning if you know the inspector is a stand-up business person, has a procedure to deal with these situations, and has E&O insurance. Make sure you know the procedure that your inspector has in place to deal with this situation. A smooth and simple callback procedure can calm nerves and get any necessary repairs underway before tempers rise and attorneys are called in.

Conclusion

In an ideal world, your clients would never have any difficulties with the inspector you refer them to, but, as an agent, you know that a trouble-free transaction is a rarity. If you want to demonstrate and improve your professionalism, add significant value to the services you already provide your clients, and significantly reduce potential risks for your clients, yourself, and your broker, keep these issues in mind and get answers to these key questions before you recommend an inspector. Doing your homework in this regard will give you a certain peace of mind, as you can be confident that you are recommending a high-quality inspector based on due diligence and professionalism.

David S. Roberson, Esq. is an associate at the law firm of Rossi, Hamerslough, Reischl & Chuck, 1960 The Alameda, Suite 200, San Jose, CA 95126, http://www.rhrc.net, daver@rhrc.net, 408-261-4252.

For Answers to Any and All Construction Questions Go To http://www.ConstructionQandA.com.

If you are hoping to purchase a house on the cheap by buying a foreclosed property here in the Santa Barbara area, you are not alone? It is a natural instinct to want to look into this as an option as the market has slowed and the constant bombardment of negative media news regarding real estate continues.

There are some good deals out there here locally, but the process can be complicated and risky and you need to be educated on what you are getting into.

Here are a 2 Quick Points you need to know firsthand with regards to foreclosures here in the Santa Barbara area.

1) There simply are not as many here locally in Santa Barbara as perceived, based on the national news. Also, Santa Barbara often gets bundled into statistics that include Lompoc and Santa Maria (Santa Barbara County) where there are much more foreclosures to be had.

2) Most of the foreclosures here in Santa Barbara tend to be in the condo market roughly in the $250,000 to $700,000 price point, or in track homes around the $500,000 to $800,000 price point. Additionally, most of the foreclosures here locally are in Goleta and Carpinteria as of now. There certainly are others, they are just fewer and farther between.

Stages of Foreclosures: There are three different stages of foreclosure for real estate, each of these presenting different opportunities for you to buy.

1) Pre-foreclosure

When a borrower has unfortunately fallen behind on their monthly mortgage payments, the home will go into pre-foreclosure. Active buyers can find pre-foreclosures by spending lots of time diving into the delinquency notices that lenders file with the county courthouse here in Santa Barbara when a borrower has missed their payments.

Now with potential prospects in hand, you can go drive-by these homes on your own. If you see a home that you potentially would like to pursue, you could contact the owner directly to see if they want to sell.

NOTE: You will read articles here and there that this is a good way to make a profit of sometimes 30% from such places as foreclosure.com etc. Simple fact is…from what I have learned, this reality will be difficult with the current “owners” being in a very emotional state and often angry. Most likely these people will be trying to hold onto their homes and would look harshly at anyone they consider might be “sniffing around”. Granted there will be some who want relief from bad mortgages, but it can be a fine line and a way to put yourself in some stressful and potentially scary situations.

Many of these homeowners in this situation will also opt to try a short sale which at a minimum buys them time…often many months. More and more banks are seeming reluctant to many short sales with some stats showing only 15-20% of short sales ever closing.

2) Sheriffs’ sales

After a home reaches default, one option is to try and auction the home off on the county courthouse steps here in town. These homes can offer some real bargains, but the process takes a serious affinity to risk.

If you are bidding on a property, you can not inspect the property beforehand and therefore there is no telling how much work it needs. You also do not know what kind of liens there are against the home, if any, due to unpaid taxes, a contractor’s lien etc. All of this makes it very difficult to establish value. Lastly, you as the buyer need to have ready cash, sometimes 10%-20% down on the spot, and be able to come up with the rest in a matter of days.

For me, I would rather simply wait until a bank owned property is officially listed and work with a seasoned Realtor who knows the value of homes. Additionally, you will be able to inspect the property which is as important as anything.

3) Post-foreclosure

Once a lender finally takes back a house, the property will go on the market as quickly as possible and be listed as an REO (real estate owned) or Bank Owned property at a very good market value or below market value. These homes then in effect become ordinary sales, listed with a broker. Here in Santa Barbara, homes that are in foreclosure that are perceived as bargains are often getting multiple bids. If a home has been on the market for longer than a week, you as a buyer can offer a much lower price and negotiate. Generally the lender has a lowest dollar amount they will accept. If you are willing to meet this price, the home is yours. If not, then the home will stay on the market to hopefully attract other buyers.

Kevin Schmidtchen – Thank you for reading. I hope you find Santa Barbara Real Estate Voice informative. Please feel free to comment below with any thoughts.

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