THE TRUTH ABOUT THE PROPERTY INSPECTION INDUSTRY

There are few Independent real estate inspectors in the United States.  The primary mission of the Independent Home Inspectors of North America is to help alert prospective homebuyers of the potential or inherent conflict of interest when a person / agent selling a house also recommends the person / inspector to inspect it for the prospective buyer. I, Al Austin, am as far as is known the only Independent inspector in the whole greater Houston Area who is willing to publicly sign a pledge of independence.

Many other inspectors often market their services to real estate agents, realtors and brokers.  There is an inherent conflict of interests associated this practice. You might wonder why marketing to agents is a problem. The conflict has an automatically implied quid pro quo related to referrals. If the inspector is working for the interests of the anyone other than their client, who is almost always the buyer in a transaction, then there is a very possible conflict of allegiance and loyalty. I consider it exceptionally unethical for any inspector to have diversionary allegiance to any third parties. That includes advertising to and soliciting of referrals to real estate agents. There is an inherent quid pro quo in the referral process where the "gate keepers" of the transaction aim to have control over the referral solicitors. The vast majority of inspectors in not, only Houston, and Texas but the whole US have shady entangling alliances with questionable third parties. 

The state of Massachusetts has passed a law the aims to eliminate bias in the referral lists that real estate agents often now hand out. The agent must hand out a COMPLETE LIST of inspectors. The actual law is included at the end of this article.

Here in Texas for example there is a well know security company that pays inspectors to put on a sales pitch to a potential buyer at the inspection. The buyer most often does not even know that the inspector is getting a kickback from the security company or that they will be subject to a security based sales pitch.  The security company also goes through a  minor property review  that is reported with the sales pitch. 

Real estate agents also often have their hands tainted with questionable kickback practices. They accept cash and gifts from a variety of sources including inspection, title, appraisal, and variety of loan and financing companies. The agents usually do not disclose the kickbacks to the buyer or seller until the closing. At that point the buyer and seller have already been manipulated by the sales force and the principals have little recourse except in filing a formal claim against the dirty agents. The Texas Real Estate Commission is tasked with controlling ethics violations but they actually allow kickbacks with a value of $50.00 per instance. Perhaps they are listening to fondly to the perceived needs of the real estate sales industry and their active lobbying efforts to keep the money flowing into the sales and management entities. If you don't believe me than call the Texas real estate commission at 1-800-250-8732 or 1-512-469-8732 and asks for the ethics - enforcement department. Then ask them how much of a "valuable consideration" referral bonus is allowed to be given to licensees for referrals. The answer is $50.00 per instance. That is the loophole that reeks with a conflict of interests. The loophole exists in TREC Rules at 535.20. The actual wording is attached to the end of this document. You can be a part of the solution by informing the TREC that any loophole should be eliminated. 

It is no secret that many real estate agents want to keep the kickbacks rolling in and their commissions as high as possible. Thus aim to maintain control of the real estate services market and auxiliary services. More than a few agents often intentionally try to disrupt or control the inspection process and results. Some agents intentionally have inspectors on their referral list who are very cheap and do quick and often incomplete inspections. Some agents like new inspectors because they will overlook a number of problems and the new inspector want to gain favor from the agents. The agent's objective here is to eliminate any inspector that might look TOO CLOSELY at any property and thus possibly kill a deal of a problematic money pit. The more competent and thorough inspector is labeled as a "deal breaker". Thus some of the better inspectors who work for the benefit of their clients only are considered by the dirty agents the ones to avoid and then never or rarely get Realtor referrals. The fact remains that many properties are problematic because they are not adequately built in the first place and secondly because the properties are rarely properly maintained.  So the time eventually comes when a money pit is placed on the market and it is the realtor's job to try and make the money pit look more like a palace that anyone would love to have for their very own. The fact remains that a  real dog of a property no matter how ugly and distress is made easily available to the unsuspecting buyer. If a property is very attractive and desirable or not, it is still the job of the agent to get the very top dollar for the property. This aids the buyer and the agent who work on a percentage via a commission.

Unfortunately there are plenty of the mediocre unprofessional inspectors who will freely prostitute their ethics in favor of agent referrals. Some see no problem at kneeling before the agents "gate keepers" since the agents keep the money flowing into the corrupt inspector's pockets. A recent poll revealed that 80 percent of all inspection jobs come from referrals from real estate agents. A marketing funnel moves the unsuspecting buyers to the worst inspectors who are willing to "work with the agent" as one of "their people". Until the law (TREC) changes to eliminate all the conflict of interest loop holes that allows the kickbacks and the eliminate of the realtor referral lists, I predict that the common corruption and graft will continue unchecked. There is insufficient policing of the industry at every governmental level.

It is clear to many that real estate agents may try to keep quality inspectors away from "their" properties. They also want to make the inspection fees as low as possible. Some inspectors will work for very "unrealistically low" rates to please the agents and get the referrals. If order to make up the difference in cash flow some inspectors do 3 to 5 inspections a day. There is no way to do a proper inspection within a small time period. A good inspection should take at least 2 1/2 hours and additional time is also needed to generate a quality narrative report.  A shorter inspection time benefits the agent who wants the property to fly to closing without a hitch from a problem that would be found at a more comprehensive diligent inspection. Nickel and dime inspectors unfortunately are a dime a dozen.

What is also amazing is that many inspectors don't know building code or even have the proper code books. I have yet to meet any real estate agent that has any significant knowledge of building codes or repair costs. The agents consider their job to move properties from the listing category to the sold category. Anything that inhibits that goal is a problem for them to deal with technically. It is of small concern to them if the house is safe and complying with current building code. Obviously if the house is well maintained and to code it is easier to move.  Most homeowners don't know building code and often create problems with their own handy man work that quite often does not comply with the code requirements. Many builders also do not know or have the code books.

I have seen a number of other's inspectors reports. They are amazing incomplete, inaccurate and show a general lack of knowledge of the construction business. Some are so short and an incomplete that they are worthless. Short reports (under 10 pages) for a full inspection is just too brief to cover details accurately. It is clear from many reports that they have more disclaimers than helpful substance of a detailed nature focusing on needed repairs.

Some inspectors try to sell additional services to the clients. Some corrupt types are involved in repair services. Some are also acting as a real estate agent or broker. There is also a number of married agent , inspector teams. That brings a whole new meaning to the the "conflict of interest" issues. Other inspectors want to sell termite protection policies. The majority of inspectors who also do the termite inspection with the property inspection come from the pest control industry. Their education is often seriously lacking. The list of auxiliary services (such as carpet cleaning) can be long and sometimes controversial, such as with the past bogus mold scare. Not all auxiliary or ancillary services are bogus. You might want to have a mold collection or water quality test if you feel they are justified. It is my belief that some inspectors are far more interested in their own bottom line, than in the general public safety or the financial interests of their clients. That nasty diversionary policy is a part of our social system, which is based on cold hearted greed in the worst cases where the customer is just sold "a bill of goods". In that instance the quality of rendered services is a non-issue.

You might think that inspection associations would help weed out unethical inspectors with weak polices and reporting. The associations actually have no real power or ability to police the industry. One, the Independent Inspectors of North America, mentioned previously require members to have a clear separation between the agent networks and the inspector's marketing efforts. 

It is not uncommon for the associations to be actually small non-profit organizations  that depending upon membership fees to pay their overhead and payroll. Some of the associations need to keep new membership dollars coming in thus have very easy requirements for membership. Many inspector associations in fact heavily advertise to real estate agents and some franchise companies have given away Hawaiian vacations to agents that provide a significant number of referrals to "their people". This policy smells of a strong conflict of interests.

It is very important that the client gets an unbiased, untainted and unencumbered review and report of actual property conditions. The inspector's client can get left out in the cold due to the back door manipulations. If the agents don't have their hands out for free vacations or financial kickbacks, many definitely want control over the inspector selection, the actual inspection process, access to the property, inspection fees, the report results and repair estimates. Like some in the legal and used car industries the appropriate governmental entities and professional industries do little to actively elevate ethics in the industry.  Money and alliances reigns supreme at the bottom line. That gives the "anything for a buck" American Commerce a bad image. An informed consumer is one who knows the facts and then deals with the most honest people available. No amount of advertising, hype, marketing spin or any branding programs will ever make a unethical skunk smell like a blooming rose.  The difference between the two is integrity. 

Now any reasonable person would agree that honesty is the best policy and that it follows that impartially is an essential element when dealing with any transaction where trust is necessary. The fact remains that reasonable people can at times be few and far between when the less founded section of the populace bends to larceny and greed. You just can't trust everyone and some times you can not trust real estate agent or inspectors who are supposed to have a high ethical standing and a fiduciary obligation to their clients.  The Texas Real Estate Commission has repeatedly noticed the violations and there is now some minor effort to making formal disclosures of kickbacks to the principals in the transaction and the client must sign off on the kickback. This is just a proposal. It is not law yet. It won't stop the kickbacks and the loophole will still exist until strong constitutions are discovered in the appropriate legislative parties. Until the loophole is closed and the referral lists are permanently eliminated it is far too easy for real estate agents to try a fool the unsuspecting public into thinking is the process is legit. Often the reality falls far short of the ethical goals, and certainly is far more corrupt than the public assumes.

The Texas Real Estate Commission (TREC) has proposed amendments concerning dishonest conduct as grounds for disciplinary action.  This proposed amendment would require that licensed inspectors disclose to all parties to the transaction and obtain the written consent of the client that the inspector intends to receive a fee or other valuable consideration from a person other that the inspector's client.  The amendment would also require that the licensee disclose to and obtain the written consent of the client that the inspector is paying a fee to a service provider or a participant in the transaction.  The amendments propose to adopt by reference a Fee or Other Valuable Consideration Disclosure Form for required use by licensed inspectors to comply with the disclosure requirements. The disclosure should also apply to real estate agents.
 

Texas Administrative Code

TITLE 22 EXAMINING BOARDS
PART 23 TEXAS REAL ESTATE COMMISSION
CHAPTER 535 GENERAL PROVISIONS
SUBCHAPTER B DEFINITIONS
RULE �535.20 Procuring Prospects

(a) Referring a prospective buyer, seller, landlord, or tenant to another person in connection with a proposed real estate transaction is an act requiring the person making the referral to be licensed if the referral is made with the expectation of receiving valuable consideration. For the purposes of this section, the term "valuable consideration" includes but is not limited to money, gifts of merchandise having a retail value greater than $50, rent bonuses and discounts.

(b) A person is not required to be licensed as a real estate broker or salesperson if all of the following conditions are met.

  (1) The person is engaged in the business of selling goods or services to the public.

  (2) The person sells goods or services to a real estate licensee who intends to offer the goods or services as an inducement to potential buyers, sellers, landlords or tenants.

  (3) After selling the goods or services to the real estate licensee, the person refers the person's customers to the real estate licensee.

  (4) The payment to the person for the goods or services is not contingent upon the consummation of a real estate transaction by the person's customers.

 


Source Note: The provisions of this �535.20 adopted to be effective January 1, 1976; amended to be effective October 21, 1997, 22 TexReg 10316; amended to be effective April 14, 1998, 23 TexReg 3682; amended to be effective August 25, 1999, 24 TexReg 6487


 

GENERAL LAWS OF MASSACHUSETTS

PART I.

ADMINISTRATION OF THE GOVERNMENT


TITLE XVI.

PUBLIC HEALTH


CHAPTER 112. REGISTRATION OF CERTAIN PROFESSIONS AND OCCUPATIONS


REGISTRATION OF REAL ESTATE BROKERS AND SALESMEN

Chapter 112: Section 87YY 1/2 First signing of purchase agreement; distribution of home inspection brochure; prohibition of specific recommendations; exception

  Section 87YY1/2. At the time of the signing of the first written contract to purchase, real estate brokers and salesmen, or the seller if no broker or salesperson is involved in the sale, shall distribute a brochure, published by the office of consumer affairs and business regulations, educating consumers about the home inspection process. Real estate brokers and salesmen shall not directly recommend a specific home inspection company or home inspector but may, upon request, provide a complete list of licensed home inspectors prepared by the board. This prohibition shall not apply if there is a written contractual agreement or a written agency disclosure between the buyer and the real estate broker specifying that the real estate broker is acting exclusively for the buyer as a buyer's broker.

 P.O. Box 891333 Houston TX 77598 (281) 480-3388 Al Austin

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