What You Need to Know About Pre-Sale Inspections

Reader Gary Baldridge writes: “I have heard many comments on the pros and cons of pre-sale home inspections and what liability may differ from doing a buyer inspection.”

Now that sellers are being encouraged to obtain professional home inspections prior to listing their properties for sale, a development that I not only applaud but also believe will become increasingly popular and commonplace, home inspectors need to be careful of potentially exposing themselves to liability to non-client third parties.

Normally, actors are only potentially liable to individuals to whom they owe a duty of care. Motorists, for example, owe a duty of care to their passengers, other motorists and their passengers and bicyclists and pedestrians. They fulfill that duty by obeying traffic laws and conventions, maintaining their vehicles in a safe condition, maintaining adequate insurance and driving carefully.

When performing a service for a client pursuant to a contract, a service provider would normally owe a duty, and thus be potentially liable for professional lapses, only to her client. She fulfills that duty by performing her duties in a professional manner.

However, a service provider could also be held liable to third-parties if her negligence could foreseeably cause harm to others as, for example, when an auto mechanic’s negligence causes the unexpected failure of her client’s brakes resulting in injuries to an innocent third-party. That potential for being sued by unknown third-parties is why bartenders will refuse to serve obviously intoxicated customers, take away their car keys and call taxis for them.

When performing a home inspection for a buyer, a home inspector normally would only owe a duty and thus, be potentially liable, to his buyer-client for issues that she “unreasonably” fails to discover and/or report – that is, she failed to discover them but should not have – and that failure – that unreasonable professional conduct – caused her client damages. That’s certainly fair enough. I don’t know any professional home inspectors who have a problem with that.

A potential problem arises, however, when someone with whom the home inspector does not have a contract claims to have been harmed by the alleged negligence of the inspector. I recently had a case in Philadelphia involving an inspector who had performed an inspection for a young husband and wife in their twenties who were buying their first home. Some eighteen months later he got served with a lawsuit by the father of the wife claiming that he had conducted a negligent inspection that had caused this man damages.

The couple had apparently failed to qualify for a mortgage and so a new Agreement of Sale was drawn that listed the wife’s father as the sole purchaser and more than a year later, this purchaser, a stranger to the home inspection contract, was claiming that the inspector had failed to discover certain issues that were causing him damages.

Pretty ridiculous, right?

Sure but the problem is quite common and generally arises when the home inspector’s client exercises his right to terminate the Agreement of Sale based upon the inspector’s findings. When the property goes back on the market, the real estate agent will often hand the inspector’s report to a new prospect who does buy the property and then wants to sue the inspector some time down the road when problems inevitably arise.

The problem can be muted somewhat by prominently noting that only the individuals who hired the inspector may rely on the inspector’s findings and that anyone else who relies on his report does so at their own peril. The inspector may still get sued but will easily be able to demonstrate that the subsequent buyer’s reliance on the report was “unreasonable.”

And that brings us to Gary’s question regarding pre-listing inspections conducted on behalf of a seller. The purpose of these types of inspections is to make the seller aware of issues that he either needs to correct or disclose to a potential buyer or perhaps both. The idea is to reduce the seller’s exposure to suit, not to reduce the buyer’s anxiety.

Hence, to avoid any surprises, Inspectors should make sure that their pre-listing inspection clients know that this report is for their information only and that they may not use it to allay their buyers’ anxiety. Pre-listing inspection agreements should also stress this point and include a provision requiring the seller to defend and indemnify the inspector should a buyer subsequently claim that he relied on the inspection report to his detriment. This is an important home inspector tool to put in your tool belt.