Buyer Beware: Limitations In Residential Inspection Reports

Limitations in Home Inspection Reports. Home inspectors and home inspection reports are an essential part of the standard due diligence protocols of most homebuyers today. And while these reports are generally very good, they are not the equivalent of insurance. The concept behind insurance is that if a loss occurs, the insurer covers it. Not so with home inspection reports; the accuracy of the information is not guaranteed.

Most home inspection reports are not only limited in scope, but they also contain limitations on the inspector’s liability should he or she be wrong. Here is thumbnail summary of what I’m getting at:

  • If the inspector cannot see it, e.g. the wood floor under a carpet, or the wall behind a bookcase, there is no duty to uncover the area for further inspection;
  • Areas that cannot be accessed, e.g.  a locked and abandoned stairwell from an abandoned garage, are not going to be inspected;
  • Lack of compliance with the local building codes will not be called out – even the most obvious, such as steps with no handrail;
  • Efficiency measurements for heating and cooling systems will not be taken[1];
  • The presence of toxic materials such as asbestos, lead based paint, or formaldehyde, etc. will not be called out.

This is not to say that the above items cannot be separately inspected; they can. But it will take a specialized type of inspection, and at a separate cost. Such issues should always be vetted quickly either before or after the inspector’s report is issued, since the inspection contingency period also includes the time for negotiating any price reductions or seller concessions. If more time is needed, buyer agents need to get a written extension from the listing agent.

And lastly, if the inspector makes a mistake, say they failed to identify the presence of significant water in the crawl space, or a water leak in the attic, the report will likely contain a limitation on the inspector’s liability for the oversight. While the limiting language can take various forms, they most commonly provide that the inspector will refund the cost paid for the inspection, i.e. a few hundred dollars.

These contractual limitations of liability have been judicially tested in Oregon, and so long as the disclaimer is conspicuous, and free from ambiguity, it will be upheld.

What Should Homeowners Do To Protect Themselves?  First, read the fine print – not just the inspection results. Remember the adage: “To be forewarned is to be forearmed.”

Secondly, always provide the inspector with a copy of the Seller’s Property Disclosure Statement, so negative answers can be addressed.

Thirdly, when reviewing the information, be alert to anything that is identified as “inadequate”, “in need of repair”, or words to that effect.  Just because the text doesn’t scream “Danger! Danger!”  does not mean that it should be given less attention. Why? Because home inspectors depend upon repeat business – which comes from Realtors®.  If an inspector gains a reputation as a “deal killer”, it can hurt referral business. Accordingly, most inspection reports will used more benign terms to designate whether a particular item is unsatisfactory. Buyers should read every negative evaluation with the same level of close attention, regardless of the absence of hyperbole.

Lastly, in order to adequately evaluate the significance of a defective condition called out in an inspection report – especially if it deals with health and safety – it should be separately inspected by an expert.  Once the inspector has identified the condition, he or she has met their responsibility. Thereafter, it is up to the prospective buyer to follow-up with a specialist.

Realtor® Liability. The OREF Sale Agreement provides in multiple places that you are not experts or specialists – so don’t act like one. Never downplay any health or safety issues called out in the home inspection report, or the probable cost of repair. To the contrary, always encourage your buyers to follow-up on conditions identified in the report that could either be costly to repair, or involve health and safety issues. In today’s world of electronic mail and text messaging, a few proactive keystrokes to your client “papering the file”, could prove invaluable should a problem arise in the future. ~Phil

[See, also: The Professional Inspection Conundrum, here.]

[1] Although now, in the City of Portland, homes listed for sale must have an energy audit.