Do home inspectors have liability insurance?

[stahleyp]

Sooooo, another house question. It's been several years since I last had an inspection. Do these guys usually carry liability insurance in case they miss something major?

[stahleyp]

7 hours ago, fareastwarriors said:

Wow...  While I think they do but I have not actually asked them for it. 

I've bought 12 houses... 

Dang, balla. 

 

Also thanks for the bogleheads link!

[rkbabang]

I don't know.  I had a home inspector do some damage to the last property I bought (my airbnb property) and almost killed himself.  He was up in the attic and fell through the celling with both feet.  He caught himself with his arms on the rafters and pulled himself back up.  He was above a stairway so he would have fell onto, then down the stairs if he had went all the way through.  He was all bruised up on both arms and his torso a little bit, but otherwise ok.   I hadn't bought the property yet, so he paid the owners to have it fixed before closing.   I don't know if he had an insurance policy that paid for it or if he paid out of pocket.

[Cigarbutt]

There are two advantages to using a home inspector: 1-to negotiate a lower price and 2-as an insurance-type of deal (pay a 'premium' in exchange for some protection).

For 2-, like all insurance 'deals', details matter.

In my area (for perspective), the home inspection business is quite loosely regulated. In the US, this is a state-by-state situation (see below) for the licensing and insurance requirements. Whether required or not by the state, you may want to ask if the inspector holds insurance coverage. What you may be interested in is not general liability but more the errors and omissions (E&O) protection and the level of protection.

In my area (for perspective), developing case law shows that buyers who did not perform or appropriately delegated the inspection performance lose a lot of credibility in courts even in cases where the 'problem' was not really detectable upon inspection (hidden or latent defect).

On my street (for perspective), there's been a fair amount of change in ownership (accelerating trend especially recently) and 'surprises' are starting to show up for new owners and it's not fun. Second-door neighbors have put their house for sale a few hours ago and it's likely that the buyers' main line of due diligence will have been a 3D virtual visit. Anyways, it seems like a solidly performed fundamental inspection still applies but who knows?

State by State Insurance Requirements for Home Inspectors - EliteMGA LLC (eiipro.com)

[stahleyp]

1 hour ago, rkbabang said:

I don't know.  I had a home inspector do some damage to the last property I bought (my airbnb property) and almost killed himself.  He was up in the attic and fell through the celling with both feet.  He caught himself with his arms on the rafters and pulled himself back up.  He was above a stairway so he would have fell onto, then down the stairs if he had went all the way through.  He was all bruised up on both arms and his torso a little bit, but otherwise ok.   I hadn't bought the property yet, so he paid the owners to have it fixed before closing.   I don't know if he had an insurance policy that paid for it or if he paid out of pocket.

haha wow man. you always have a ton of great stories! 

[stahleyp]

that was helpful, cigar. thanks!

[rkbabang]

1 hour ago, stahleyp said:

haha wow man. you always have a ton of great stories! 

Unfortunately sometimes.  I really should stay away from real estate altogether.  I've never bought or sold a house without something crazy happening.  The first home I owned when I was in my early 20's I built a beautiful field stone wall with my dad in the front yard.  When selling the house the buyers commented on how much they loved the stone wall.   So when I was selling the house they were putting sewer lines in our street and two weeks before closing they were blasting in front of our house.  Something went wrong and they blew up my stone wall.  I mean completely destroyed it in about a 30ft section.  The blast also put a big crack in my foundation.  The buyers were not happy to say the least.   I got the construction company to give me a document saying that they would fix all damage and the closing still went through on schedule.   Luckily  I seem to be able to buy and sell stocks without a disaster happening every time. <knock on wood>. 

[fareastwarriors]

1 hour ago, rkbabang said:

Unfortunately sometimes.  I really should stay away from real estate altogether.  I've never bought or sold a house without something crazy happening.  The first home I owned when I was in my early 20's I built a beautiful field stone wall with my dad in the front yard.  When selling the house the buyers commented on how much they loved the stone wall.   So when I was selling the house they were putting sewer lines in our street and two weeks before closing they were blasting in front of our house.  Something went wrong and they blew up my stone wall.  I mean completely destroyed it in about a 30ft section.  The blast also put a big crack in my foundation.  The buyers were not happy to say the least.   I got the construction company to give me a document saying that they would fix all damage and the closing still went through on schedule.   Luckily  I seem to be able to buy and sell stocks without a disaster happening every time. <knock on wood>. 

Lol... wow.

 

Here's a  clover for you for good luck...

 

Luckily my RE transactions have been drama free. 

[LC]

I have never treated home inspectors as liable for anything. They should all carry insurance in case they damage something in the course of an inspection, but if they “miss” something which turns into a huge deal, I would never expect to have any course of action against them. Caveat emptor.

[Pedro]

in CDN it's common for inspectors to have CGL insurance (covers third party injury or damage) and  professional liabily coverage (errors and omissions cover) that would pick up anything they should have reasonably been expected to detect. 

The E&O can be an endorsement in their CGL. You'd need to get a cert or a copy of their policies to confirm.

 

Good luck!

 

 

 

 

 

 

 

 

[Cigarbutt]

11 hours ago, LC said:

I have never treated home inspectors as liable for anything. They should all carry insurance in case they damage something in the course of an inspection, but if they “miss” something which turns into a huge deal, I would never expect to have any course of action against them. Caveat emptor.

Are you American? 

Construction defects issues are common and rarely end up in Courts, but sometimes do.

2009bcsc1515.pdf (canlii.org)

TL;DR version: The Caveat Emptor doctrine is alive and kicking in our Common Law world but contracts (about prudent risk sharing) sometimes come in the way. Caveat Emptor is matched with a high burden but can be overcome and then you (the buyer) can spread the action to the seller, the real estate agent or the home inspector (in this case, or the home inspector's insurer).

[KJP]

In addition to the insurance coverage issue, your contract with your home inspector may have a limitation of liability clause that limits damages to a specific sum, often the amount you paid the inspector.  Whether and to what extent those types of clauses are enforceable is a matter of state law.

More broadly, those types of clauses can be found in many types of professional services contracts, such as IT support, architecture, etc.  In some cases they are negotiable and in some cases not. 

[TwoCitiesCapital]

It seems others are more knowledgeable here than I am, but it was my understanding they were NOT responsible for anything they missed.

My own anecdotal experience - we discovered that both the HVAC systems were not functioning just 2-months after we bought our condo. Ambient heat from surrounding units, and those beneath us, generally kept the apartment ~68 degrees through January/February so it was hard for us to tell on some days that they weren't working. But on some cold nights we would get down into the low 60s no matter how high we set the heat. We thought maybe we had set up the Nest thermostats wrong, but when we called someone out to look at them the narrowed it down to both units being entirely empty of Freon and riddled with leaks making refilling pointless.  

Ultimately cost us ~15k to replace both units with the home warranty company only picking up like ~4k of the tab. It was my understanding from talking with the realtor and reading the fine print of the contract that the home inspector was not liable for any of the cost despite having explicitly signed off on the HVAC system pre-closing. Didn't even get refunded what the fee that I paid...

Edited April 5, 2021 by TwoCitiesCapital

[Ross812]

On 4/5/2021 at 4:50 PM, TwoCitiesCapital said:

It seems others are more knowledgeable here than I am, but it was my understanding they were NOT responsible for anything they missed.

My own anecdotal experience - we discovered that both the HVAC systems were not functioning just 2-months after we bought our condo. Ambient heat from surrounding units, and those beneath us, generally kept the apartment ~68 degrees through January/February so it was hard for us to tell on some days that they weren't working. But on some cold nights we would get down into the low 60s no matter how high we set the heat. We thought maybe we had set up the Nest thermostats wrong, but when we called someone out to look at them the narrowed it down to both units being entirely empty of Freon and riddled with leaks making refilling pointless.  

Ultimately cost us ~15k to replace both units with the home warranty company only picking up like ~4k of the tab. It was my understanding from talking with the realtor and reading the fine print of the contract that the home inspector was not liable for any of the cost despite having explicitly signed off on the HVAC system pre-closing. Didn't even get refunded what the fee that I paid...

This happened to me as well. I advise my friends and family to hire an HVAC technician to hook up gauges and check pressures. A good home inspector will check the temperature drop between the return and supply, but this will miss a low refrigerant issue (leak). You will discover the low refrigerant issue months later when the unit isn't cooling/heating effectively or freezes up. 

[Castanza]

Inspectors are the weathermen of the trades industry. 

[TwoCitiesCapital]

On 4/7/2021 at 1:45 PM, Ross812 said:

This happened to me as well. I advise my friends and family to hire an HVAC technician to hook up gauges and check pressures. A good home inspector will check the temperature drop between the return and supply, but this will miss a low refrigerant issue (leak). You will discover the low refrigerant issue months later when the unit isn't cooling/heating effectively or freezes up. 

I didn't even think of that. It's possible the prior homeowners paid the $500-600 to refill them just so that it would work "well enough" for the inspector to be fooled and not have to pay the 15k to replace themselves...

Who knows. All I know is the entire experience made me hate home warranty companies and how difficult they are to work with and how little responsibility home inspectors take. 

[stahleyp]

Thanks again for the feedback, everyone.

So, the house I'm thinking about is a little different. I guess this thing sat for 8 years (empty for most of that that from my understanding) with no gutters and had a french drain installed (probably about 8-10 years after construction). It looks like the current owner tried to flip it (he has contracting experience) but ended up living in it for almost 10 years.

So, is there a way to more or less make sure there is no  former water intrusion? Infrared maybe? I'm considering hiring an hvac guy, plumber and possibly electrician in addition to the general home inspector. 

[Ross812]

3 hours ago, stahleyp said:

Thanks again for the feedback, everyone.

So, the house I'm thinking about is a little different. I guess this thing sat for 8 years (empty for most of that that from my understanding) with no gutters and had a french drain installed (probably about 8-10 years after construction). It looks like the current owner tried to flip it (he has contracting experience) but ended up living in it for almost 10 years.

So, is there a way to more or less make sure there is no  former water intrusion? Infrared maybe? I'm considering hiring an hvac guy, plumber and possibly electrician in addition to the general home inspector. 

I am a little confused by "sat empty" for 8ish years and the last owner lived there for almost 10 years. If the place needs significant work then your plan will tell you what needs to be fixed, but it doesn't sound like a situation where the seller is going to pay for repairs. The real estate market is pretty hot where I am, and I would tell a buyer to pound sand if he asked for several high $ repairs. A good home inspector will catch electrical issues at the panel, reverse polarity sockets, and missing GFCI/AFCI. Idk what value a plumber will provide. With the no gutter situation, check that the soffits and tail facia are not rotted. You probably won't be able to detect water intrusion with infrared unless you are there as a thunderstorm is pouring a lot cold rain into a wall; I have a camera and it is good for air sealing, that is about it. You are not allowed to rip off siding to check for water intrusion, you can push on the siding and drywall and feel around for moisture or soft spots. Check the last few rows of siding at the bottom. There are several things that make a house more resilient - and exposed concrete foundation, 2 ft + overhang on the eves, house wrap with a rain screen (siding fired out off the walls to leave a airspace for it to dry out, siding will have a hollow sound). I'm sure there is a list somewhere. If you are talking intrusion in the basement, I wouldn't worry about it, gutters will probably fish the problem.     

[Ross812]

15 hours ago, TwoCitiesCapital said:

I didn't even think of that. It's possible the prior homeowners paid the $500-600 to refill them just so that it would work "well enough" for the inspector to be fooled and not have to pay the 15k to replace themselves...

Who knows. All I know is the entire experience made me hate home warranty companies and how difficult they are to work with and how little responsibility home inspectors take. 

Yeah, If someone is trying to defraud you then they could probably do it. I think in most instances homeowners don't know their charge is low. If you can catch it (usually about $100 to have a HVAC tech check the unit), you can stipulate a leak check and charge/replace. Home warranties are pretty awful. In addition to making it difficult to file a claim, they instruct their approved contractors to do the minimum to remedy the situation like just charging the leaking HVAC instead of repairing the leak. A good home inspector can catch or call attention to a lot of problems, but they can't see through walls. You have to make sure you find a good one though, never use the inspector recommended by your realtor! If you have any real estate investor friends, find out who they use. On the investor side, home inspectors have the incentive to provide a good punch list of what needs to be fixed and allow their client to make a good financial decision. Home inspectors serving residential real estate have the incentive to not torpedo a deal and keep the real estate agents happy.  

[stahleyp]

So what do you guys think I should do to find a good inspector? Any questions to ask or experience I should look for?

 

Ross, the house was a foreclosure so I believe it sat vacant for a long time. From my understanding, it went about 8 years with no gutters and they also had a french drain installed (which tells me there was a lot of water sitting there). Thanks for the tips on what to look out for!

[SharperDingaan]

If you think there are issues, you offer a lower price - alternatively, you add estimated repair to the purchase price. If net of the price adjustment, it still makes economic sense, you either buy it - or walk away. You pay the home inspector for 'piece of mind', not 'guarantees'; 'cause the risk of 'missing something' remains yours.

There is a reason for 'cheap', and it comes with its own risks. Nothing wrong in that, so long as you are realistic about the risks and their mitigation.

SD