Home Inspector Ethics: Why Not Pay to Be on Brokers' Lists?

by Nick Gromicko, CMI® and Kate Tarasenko

"Your brand name is only as good as your reputation." 
                                                          ~ Richard Branson

InterNACHI® recently received this email from a member:

“Prior to joining InterNACHI, I worked as a contractor for an inspection company in Texas. Part of my job was to market the company to real estate offices in my area. The largest of the offices I visited was a Keller Williams Realty office, which had a few hundred agents in my area. The only way they would use an inspector was if the inspector paid them $300 per year to get on their inspector list.”

However, InterNACHI’s Home Inspector Code of Ethics clearly states:

6.  The InterNACHI member shall not:

[…]

c. offer or provide any disclosed or undisclosed financial compensation directly or indirectly to any real estate agent, real estate broker, or real estate company for referrals or for inclusion on lists of preferred and/or affiliated inspectors or inspection companies.

The member continued:

“I would like some justification as to why I should have to restrict my business because of the above clause. So long as I am abiding by my state’s SOP and InterNACHI’s Standards of Practice, my service will be of outstanding quality, regardless of whether or not I paid to get my business on a list that will be in front of a substantial number of buyers in my area. Paying for marketing does not affect my duty to my customer or the quality of my service. I do not understand the ethics behind this clause.”

Here’s our response:

“Many states have similar laws.  In some cases, a real estate broker may not take money from any inspector for referrals because the broker’s duty is to recommend the best inspectors, whether the inspector is paying for the referral or not. 

“A real estate broker who requires you to pay money to be on a list is actually putting himself at legal risk. If something goes wrong, you can be sure the unhappy customer will not only sue you, but will also sue the broker and claim that he was negligent in referring his customer to you. When the customer learns in the lawsuit that you paid to be on that list, it’s going to look very bad for that broker because it’s going to look like he did not exercise independent judgment in recommending you. Your broker is taking on a lot of risk for $300.  

“You may be absolutely right that it won’t impact your service, but our concern is also with public perception and maintaining the integrity of the profession. This is not unique to InterNACHI.  Even the ASHI Code of Ethics has a similar provision. It states:

Inspectors shall not directly or indirectly compensate realty agents, or other parties having a financial interest in closing or settlement of real estate transactions, for the referral of inspections or for inclusion on a list of recommended inspectors, preferred providers, or similar arrangements.

“Rather than paying to be on a list, which I believe is a clear violation by the broker, I suggest you inquire if you can pay the broker to advertise with him in some fashion, with an unwritten understanding that you will continue to get referrals from him.  Advertising is not a violation of the Code of Ethics.”

The full text of the relevant provision of InterNACHI’s Code of Ethics appears under "Duty to the Public" and states the following:

6. The InterNACHI member shall not:

1. have any disclosed or undisclosed conflict of interest with the client;
2. accept or offer any disclosed or undisclosed commissions, rebates, profits, or other benefit from real estate agents, brokers, or any third parties having financial interest in the sale of the property; or
3. offer or provide any disclosed or undisclosed financial compensation directly or indirectly to any real estate agent, real estate broker, or real estate company for referrals or for inclusion on lists of preferred and/or affiliated inspectors or inspection companies.
   
   

Similarly, the Code of Ethics also does not permit an inspector to perform or offer to perform repairs on any item covered by the Home Inspection Standards of Practice for one year for the same reason: It presents a conflict of interest. If the inspector with a construction or handyman background finds a defect and then offers to fix it for an extra charge, the consumer would, quite understandably, be skeptical of the inspector’s motives, regardless of whether the repair was necessary. As in any industry, there are plenty of inspectors out there who don’t care about their reputation or the public’s perception of them because they’re out to make a quick buck. 

Paying to be recommended by a broker poses the same problem. Consumers rightly expect that your reputation alone should be good enough to merit a professional referral. When money changes hands, your reputation is automatically tainted. You may believe yourself to be a highly ethical businessperson, but your reputation will always precede you. So, protect it by smart marketing, and by avoiding any appearance of a conflict of interest that could come back to haunt you.
 

Email your legal questions at [email protected],
or post your question on InterNACHI's Message Board in the Legal Forum.