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.
"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