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Inspectors-Appraisers: Line Blurring?
by David Brauner, Editor
In a recent Working RE story, Appraiser: I’m No Home Inspector (WorkingRE.com, Library, Issue 24), appraiser Tony Bamert says he is asked to do work that he is not qualified for- namely that of a home inspector. Several home inspectors say they know how Bamert feels.
With 17 years experience, five as the head of his own firm, Bamert is fully familiar with standard procedures, and feels these requests are pushing him beyond that norm. “As an appraiser, my job is to go through the house, take notes and use comparables to come up with a value for that property,” he explains. “That’s completely different than the role of a home inspector. Now they are asking the appraiser to test some of the mechanical systems and give a statement if they are in working condition.”
Bamert says he’s not comfortable with such requests, nor does he have the expertise to make such an evaluation. “On an FHA inspection, our job is not to make a determination on whether something is in good working condition or not.” he notes. “When something doesn’t look right, we advise to hire a home inspector to take a look.”
Home inspector Chris Temple says he’s been there but did something about it. “We California home inspectors were faced with a very similar circumstance several years ago. When homeowner’s insurance companies started getting hit with mold claims, one of their reactions was to have the home inspector complete a one-page questionnaire about the property. The questionnaire did not fall within our home inspector standards of practice, and in fact was way outside of our scope.”
Temple says he and other inspectors put an end to it. “The home inspection community was generally united in rejecting this pass-along liability. Most home inspectors simply refused to do it. I believe the reason we actually got away with not doing it is because of our professional associations (CREIA, ASHI) and a lack of government regulation. The real estate appraisal associations (and insurance providers) need to unite their membership in their opposition.”
Inspector Jon Rudolph has experienced similar “cross over,” when working for lenders. “I have seen a trend in the last six months or so where my (buying) client’s lender and even the mortgage insurance company have asked for my professional opinion on the physical condition of a subject home, stemming from the appraiser’s comments,” said Rudolph.
“I have no problem doing this as it helps my client in the home purchase process,” Rudolph said. “After all, I am in the service business. I obtain permission from my client to respond and discuss the home inspection with the lender or related parties on their behalf. My statements are qualified, limiting my liability with no guarantee or warranty to the home’s condition and they reference the initial inspection report, as the case should be. I understand why these questions are being asked of the inspector. I also think it’s a testament to the value and credibility of the home inspection industry and service today.”
Here are some questions Rudolph raises:
- Fee: “Should inspectors charge clients extra for the time and added liability exposure for these services? If so, what is an appropriate fee?”
- Unintended Consequences: “So far the requests appear to have been based on the appraiser’s stated observation(s), raising concerns with the underwriter who needs a better understanding of the apparent physical condition and risk- as it may affect the loan’s collateral asset,” Rudolph said. “My home inspection observations are more comprehensive; the ‘expert’ opinion. Apparently the underwriter knows the appraiser is not a qualified home inspector. Consequently, each case has come with the risk of opening a new can of worms for the buyer in obtaining the loan or obtaining the loan with the initial terms, as my observations may reveal bigger and unknown concerns for the underwriter that were not identified by the appraiser.”
- Possible Conflict of Interest: “My client, the buyer/borrower, has a different objective and perspective than the lender/mortgage insurer,” Rudolph said. “So, a home inspection for a buyer may inadvertently cause problems with the financing because of the more comprehensive assessment of the home’s physical condition and the lender/mortgage insurer are now expanding the physical condition into the lending process. Under some scenarios, I could see a buyer foregoing a home inspection if it would conflict with the loan. If that’s the case, would the lender ‘require’ a home inspection? What if the buyer doesn’t want or approve the disclosure of the home inspection to the lender? What if the buyer, by a chosen option, pays for a home inspection only to have the inspection be the basis for denying the loan or modifying terms that won’t work for the buyer? They could incur some considerable out-of-pocket expenses (home inspection and appraisal) for information benefiting the lender and not them.”
About the Author
David Brauner is Editor of Working RE magazine and Senior Broker at OREP, a leading provider of E&O Insurance for appraisers, inspectors and other real estate professionals in 49 states (OREP.org). He has covered the appraisal profession for over 16 years. He can be contacted at firstname.lastname@example.org or (888) 347-5273. Calif. Insurance Lic. #0C89873.