The Inspection Agreement

Dear Barry,

During a recent home inspection, I had to review and sign the inspector's contract that was filled with so many limitations and so much legalese that it forced me to question the quality and thoroughness of the inspection itself. I checked with two other inspectors and found their contracts to be slightly different but just as detailed and complicated. Could you please discuss the various clauses in these contracts and why the contract is needed at all? -- Val

Dear Val,

A primary business concern among home inspectors is exposure to general liability and the likelihood of eventual litigation. Least among these worries is the expectation of being called to account for professional negligence, such as failure to disclose a significant property defect. The more ominous fear, however, is the specter of a frivolous lawsuit, arising from the unreasonable expectations of a misdirected buyer or the baseless demands of an over-zealous attorney.

Today's business environment is commonly recognized as a wild litigious jungle, where predatory ambushes in the dense legal underbrush are to be anticipated. For home inspectors, exposure to attack and demise is a dreaded fear to be avoided, defined, and limited as much as possible. Hence, the lengthy and laborious legal clauses of the typical home inspection contract.

Although home inspection agreements vary widely in their specific contents, there are some denominators common to most. Among these are four categories of liability limitation:

1) Defining the scope and limitations of the inspection:

Most home buyers have a vague concept of the general scope of a home inspection. The exclusions listed in the inspection contract can dispel uncertainties in this regard. For example, in most states, home inspectors do not inspect for termites and other wood destroying organisms, as this practice is usually reserved by law for licensed pest control operators. Other common limitations involve engineering standards, geological stability, environmental hazards, zoning designations, lot line placement, low voltage electrical equipment, product recalls, and many more. Chief among home inspection disclaimers are conditions that cannot be seen because they are concealed within the construction, buried beneath the ground, hidden behind personal property, or otherwise unobservable. These and many other conditions are listed in contracts as being outside the scope of the inspection.

2) Setting a monetary limit on liability:

Many inspection agreements state a specific dollar maximum on liability, commonly a refund of the inspection fee or a multiple thereof. In some states this limitations has been upheld by the courts; in others it has been rejected. Some inspectors have no such limits in their contracts because the deductibles on their errors and omissions insurance policies provide a reasonable ceiling for liability.

3) Establishing a means of dispute resolution (usually arbitration or mediation):

Courtroom litigation and the discovery processes that lead to trial are among the most lengthy, costly, and frustrating means of conflict resolution. Even the winners are losers, when the financial and emotional costs are tallied. To avoid such ordeals, inspectors often prefer the less protracted processes of mediation or arbitration, as set forth in their contracts.

4) Shortening the statute of limitations:

In many states, there are no laws defining the time limit on home inspector liability. In others, statutes of limitations can expose an inspector to potential litigation many years after the inspection. Some inspection contracts address this by limiting liability to a specific time frame, such as one year. Enforcability of such clauses can vary from one state to another, and in some areas, from one court to another.

The cautious structures of home inspection agreements, in most cases, should not arouse concern as to the quality of the inspection being performed. These contracts are simply a reflection of the conflict oriented business environment in which we live, a marketplace where every adverse event is "someone's fault;" where someone, somehow, must be held accountable. Home inspectors, along with the rest of us, are caught in this regrettable tangle.

To ensure that you receive a thorough and competent inspection, check the inspector's qualifications and reputation beforehand, and read the contract carefully before you sign it. You can also request an advance copy the contract for review by your attorney.