Steven L. Smith, Bellingham, WA Home Inspector (King of the House)

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Washington State Real Estate -- Realtor Referrals, Business Relationships and Home Inspectors

Changes are taking place in Washington State real estate. These changes impact home inspectors, realtors, brokers and their firms. I am, specifically, speaking of the new section of the WAC that says brokers must set an office policy for home inspector referrals. Today's article is based on information that has been provided to me by the Washington State Department of Licensing and interested real estate related businesses. I am not smart enough to come up with these interpretations and guidelines. Therefore, I am writing this as pure journalism, not as an opinion piece. It is my goal to cite information that can be substantiated and was gleaned from reliable or official sources. 

Deciphering legal language can be a big job. This task is easier for attorneys than it is for the general public. The Attorney General's office and the Department of Licensing have staff that not only enforce the law but also help the public understand the rules. Being on the home inspector licensing advisory board, I have been contacted by inspectors and realtors who have asked me if I can explain the new language in the real estate law. This law went into effect the end of January and people want to know the practical impact of the law.  Due to the interest, among inspectors and realtors, I have tracked down and compiled applicable information. First, read the new section in the WAC. 

WAC 308-124C-050 - Home inspector referrals. (new section)

"Each licensed designated broker will establish a written office policy that includes a procedure for referring home inspectors to buyers or sellers. The policy will address the consumer's right to freely pick a home inspector of the buyer's or seller's choice and prevent any collusion between the home inspector and a real estate licensee.

If a licensee refers a home inspector to a buyer or seller with whom they have or have had a relationship including, but not limited to, a business or familial relationship, then full disclosure of the relations must be provided in writing prior to the buyer or seller using the services of the home inspector."

The goal is to force disclosure if there are conflicts of interest. So, what might consitute a conflict of interest? What is a business relationship that would require disclosure? Will this language stop realtors from referring inspectors who realtors believe do a good job for clients?

DOL, real estate division, has said that is not the intent -- "The fact that an agent has referred the inspector in the past, or has included the inspector on a list of recommended inspectors, DOES NOT  constitute a "business relationship" requiring disclosure."  The interpretation, from which that was taken, is below. It is edited slightly, but it is information that was provided by DOL.

"Business relationship" means an agent has done business with the inspector previously. That business might have been unrelated to inspection services.  For example, an agent might have personally hired an inspector to perform an inspection at a property; the agent might have been involved in buying or selling property to, or for, the inspector; the agent and the inspector might have had some other, unrelated to inspection or real estate, business dealings. The fact that an agent has referred the inspector in the past, or has included the inspector on a list of recommended inspectors, DOES NOT  constitute a "business relationship" requiring disclosure.

DOL gave more examples of relationships that would require disclosure (1) real estate firms, or agents, who refer clients to a preferred list -- where inspectors "pay" to be included on the list. That is different than a realtor giving out a name, or a list of names of inspectors, who are chosen for their ability, not by their having paid a fee; (2) Easy to fathom examples requiring disclosure would be family relationships -- the real estate agent who has a brother, a sister, a husband or a wife who is a home inspector.

As real estate companies formulate policies, in response to the WAC, some interesting scenarios can be created. I am aware of a reported instance where a broker's policy, formulated to meet requirements of the WAC,  has led to a number of questions and complications. The policy, as was described to me, includes requiring that agents refer from a preferred vendor list. Again, as stated above, DOL says that when agents refer inspectors off of a preferred vendor's list -- known in the industry as "pay to play" -- that act in itself creates more, and not fewer, disclosure requirements. As it stands now, with the new section of the WAC in force, DOL staff has told me that real estate agents who are referring names off paid vendor lists must disclose that fact --that the inspectors paid to be on the list -- to their clients. Those paid inspector "vendors" are the business relationship!  A paid vendor list does not distance a realtor from the inspector. The opposite happens. The money, paid out by the inspector to be on the list, makes the parties more related (requiring disclosure) than is the case when an agent gives out the names of a few good inspectors (not requiring disclosure) who do not pay fees for referrals. I have not heard of that happening in the Bellingham area, where I work, but I would be interested to hear from anyone, in any market in the state, where this practice is still going on.

There is another eventual outcome here. When the home inspector licensing standards of practice and ethics take effect, September is the scheduled date, any broker policy that requires referring inspectors from a paid vendor list will be a dead issue. The home inspection standards of practice and ethics, drafted by the home inspector licensing advisory board, slams the door on inspectors participating in paid or preferred vendor lists. It states that home inspectors may not participate in paid vendor lists. Period.

You can read another of my posts, on the topic of paid preferred vendor lists, here. Anyone wishing specific information on this WAC or paid vendor lists should contact the real estate division at the department of licensing.

  To see additional information on home inspector licensing in the state, click on George's head.

Steven L. Smith

Bellingham WA Home Inspections

Steven L. Smith

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Comment balloon 14 commentsSteven L. Smith • February 19 2009 06:07PM

Comments

Steve, I think one easy way for Agents and/or Agencies to help distance themselves from inspectors they are recommending, is to have the buyers contact the inspector themselves to set up the inspection.

Posted by Charles Buell, Seattle Home Inspector (Charles Buell Inspections Inc.) over 10 years ago

Charlie,

Many of them do that. But, based on what I can interpret here, most can continue doing what they have been doing, as long as they are not giving out names of family or those they have financial dealings with.

Posted by Steven L. Smith, Bellingham WA Home Inspector (King of the House Home Inspection, Inc.) over 10 years ago

This blog has a lot of good stuff in it for any state.  I didn't realize some brokers may expect to get paid for giving out a list of home inspectors.  I've never really liked the idea that agents get paid by the home warranty companies but they say it is common.  Some agents make a lot of money on them.  I think it best that we have a list and let the buyer call and interview for themselves but it is very nice for you guys to bring us some brochures or something for us to put in the hands of the buyers.

Posted by Barbara S. Duncan, GRI, e-PRO, Executive Broker, Searcy AR (RE/MAX Advantage) over 10 years ago

Thanks Barbara,

I think the vendor list is a scary idea when it means you pay to play. This can be hundreds of dollars a year. Any inspector, paying into a vendor list in this state is going to have a real rude awakening come September. He or she will have to cease participation or be in violation of licensing laws. That is the long and the short of it and I think that is only fair. Several members of the board, from Seattle, who have lived through these things are very strongly aligned against vendor lists.

Posted by Steven L. Smith, Bellingham WA Home Inspector (King of the House Home Inspection, Inc.) over 10 years ago

Steven, A list of licensed home inspectors from the State of Washington can be provided to all

the agencies and that's the only list that can be handed out to the public.

Texas law here say that no less than three names can be provided as a list. One would need to clarify what the magic number is there to be called a list. The state should have a list available to the public as to who is a licensed inspectors in your state.

Under what state agencies is this licensing going under, here in Texas it's under the Texas Real Estate Commission, TREC.

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Posted by Roy A. Peterson, P.R.E.I. (Domicile Analysis of Texas) over 10 years ago

Roy,

It is under the Washington State Department of Licensing, Real Estate Division. However, most of us are also controlled, as structural pest inspectors, under the Dept of Agriculture. Since the only license required here was from WSDA, many realtors made sure inspectors had that license. Others did not. Most realtors I know have a list of three but where the names come from is not usually dictated. I imagine, when licensing kicks in, that it will be mandatory to give names of licensed inspectors.

The thing to remember is that some large companies have different wings or divisions within the company. So they might have a vendor's list (maybe called some type of service company) which includes appraisers, title companies, inspectors, pest inspectors...you name it. Those vendors pay to be referred by the service company and that service firm and the parent firm, which could well be a real estate company, is making money off the vendors whose names it gives out. Pay to play. That is the kind of list that is giving some of the people in the state heartburn. As I hear, similar firms ran into similar problems in Oregon when their licensing kicked in a couple three years back. Same will happen here I think.

Posted by Steven L. Smith, Bellingham WA Home Inspector (King of the House Home Inspection, Inc.) over 10 years ago

Steve I think you guys have the right idea, but maybe didn't carry it far enough. The inspectors around here that are tied to one or two top producing agents have seen their income cut in half or worse lately.  I have to chuckle a little when I see them.

Posted by Jack Gilleland (Home Inspection and Investor Services, Clayton) over 10 years ago

Jack,

What is it you are suggesting be done? Demand lists of three or more names? If that is the case that is, pretty much at the offices I work with, what is being done now. I suspect that is the "rule" that most brokers came up with.

Posted by Steven L. Smith, Bellingham WA Home Inspector (King of the House Home Inspection, Inc.) over 10 years ago

Roy,

What if you only have two inspectors - that's the situation that we find ourselves in out here in the boonies - a total of two SPI licensed inspectors and I don't hold out hope that anybody else will join us when full licensing takes place.

Steve - a question for you.  I pay for advertising in Realtor folders for a couple of agencies.  No guarantees of work, none expected.  I do it for exposure - though I've done personal inspections for 2/3 of one of the companies which will trigger disclosure.  Anyway, is that a disclosure issue.  My contract is with the provider of the folders, not the agency, there is no obligation on either side.  My guess is yes but an informed opinion would be nice.

Also, it not just the law for Realtors - the SOP has it as part of it's ethics section as well.  Disclosure runs both ways.

Posted by Paul Duffau, Caring for People, Educating about Homes (Safe@Home Inspections, LLC in SE Washington) over 10 years ago

Paul,

I better not do too much interpreting for you. That is for the AG and DOL staff. I will give you some gut reactions. First, yes, we have similar language, mirroring this WAC, in the SOP's. I will be writing more on that when I do the blog describing how the ethics and SOP's should slam the door on vendor lists.

If there are only two inspectors in your area, then I think the realtors will probably just be referring the two who would be licensed. Certainly it is not anyone's job to import inspectors.

The intent of the law, this I am sure of, is not to limit your marketing and advertising choices. That is part of the free enterprise system. If you take that too far, you could not do yellow pages, pay for localism ad placement here at AR, etc. The point is to stop those who "guarantee" they will be referred by paying those who would refer. The membership fee, to get the referral, is pay to play. The fact your ad ends up in a flyer for a realtor firm does make it more murky of course. You might want to ask DOL on that one. It does not seem, however, that because of that the agents are referring you exclusively, or only referring those in the flyer.

If you had a realtor sell a house for you, or you did an inspection for a realtor who was personally buying a house, sounds like that should be disclosed. Of course, personally, is it really a negative when the realtor says:

"By the way, when I bought a house I had Paul Duffau inspect it for me. He is one of the guys on your list."

That might be the strongest selling point you got.

Posted by Steven L. Smith, Bellingham WA Home Inspector (King of the House Home Inspection, Inc.) over 10 years ago

Thanks Steve.  I'll check with DOL on the flyers but noone is under any obligation to use me - wouldn't want it that way, don't work that way.  Anyway, I'll check.

And, yeah, it breaks my heart to tell prospective clients that their realtor used me buying or selling their home. I did 17 inspections for agents last year (not sure of the year before) and most of them, if not all, are high producers for our region.

I've already started talking to those agents about it - since they have similar issues, the discussions have been very productive.

Posted by Paul Duffau, Caring for People, Educating about Homes (Safe@Home Inspections, LLC in SE Washington) over 10 years ago

Paul,

I know of several agents who give a list and will disclose:

"This is the guy I recommend to my family members".

I am all for disclosure like that, any type really. I am going to soon write more on the vendor lists...those, in concept, I think we all have troubles with.

Posted by Steven L. Smith, Bellingham WA Home Inspector (King of the House Home Inspection, Inc.) over 10 years ago

I had my realtor hand me an inspectors business card and said he has used him and his family has used him. The day I moved I had a major roof leak and came to find there were 4 layers of roofing on the house that were visible from the ground and without removal of anything. Does that constitute a prior business relationship?

Posted by Ryan Slater over 2 years ago

Ryan, I cannot really be giving you legal advice. My gut reaction is it's probably not a biz relationship in that referring an inspector is not considered a business relationship in itself. And if the agent in question referred the inspector to relatives that is still a referral. Most agents refer inspectors by supplying names or a list. You could call the real estate division of DOL and see what they think. Also, when it is possible to make the determination, the state standards of practice call for an inspector to cite multiple layers of roofing. He need not state the number of coverings, it can be hard to tell for sure, but he should reference multiple layers. You should look at your report, see if this matter was referenced or not. Also, you should check roof exclusions in the report. For example, if the inspection was done during heavy snow conditions the roof may have been not visible and excluded. I hate it, but over the years i have had a few winter inspections where, no way around it, I had to exclude the roof, gutters downspouts and all decks due to deep snow obscuring my view.

Posted by Steven L. Smith, Bellingham WA Home Inspector (King of the House Home Inspection, Inc.) over 2 years ago

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