From the Publisher Readers Respond4 4

Sharpening Your Pre-Inspection Agreement

by Isaac Peck, Editor

As a professional home inspector doing your best to manage your risk, limit liability and avoid lawsuits, your pre-inspection agreement is unquestionably your first line of defense. Here are a few ideas on how yours may be improved.

First, realize how vital your pre-inspection agreement is to your business: it is your opportunity to clearly set expectations and outline exactly what your home inspection is, and what it is not. As I probably don’t need to explain, most of your clients will have unrealistic expectations about what a home inspection is and what it covers. Many confuse a home inspection, which is a snapshot in time, with a home warranty, which is designed to “fix” covered items that turnout to be broken.

Homebuyers sometimes see a home inspection as an “insurance policy” or “guarantee” for the home they are buying, when in reality, it is neither. A home inspection is a non-invasive visual observation of a home’s condition at the time of the inspection. It’s not a guarantee nor a prediction of the future.

The old adage that a home inspector “can’t see through walls,” is often said in jest by those of us in the inspection community, but it needs to be said—in writing! Your pre-inspection agreement is your opportunity to do so. It should clearly define the purpose, scope, and limitations of the services you are providing to your client.

Here are some things to know about pre-inspection agreements.

Scope of Work and SOP It’s important to identify the scope of work of your home inspection as well as which Standards of Practice (SOP) you are inspecting to. If you are conducting your inspection according to the American Society of Home Inspectors (ASHI) standards, you must say so. You don’t need to list all of ASHI’s SOPs in your inspection agreement, but you could include a link to it in your agreement. In a world where most reports are digital, you might consider including whichever SOP you follow as an appendix in your inspection report. Just as important as having a clear scope of work outlining what you are inspecting and what you are responsible for, it is equally vital to state which home systems are not included in the inspection report. If you are not doing sewer scoping or inspecting for mold, then that should be clearly stated in your agreement. All of this adds to your protection. Having a separate line item where the client initials and affirms their understanding of each of these points is recommended. Wording that the home inspection is not a “guaranty” or a “warranty” also is advisable.

Isaac Peck is the Editor of Working RE magazine and the Vice President of Marketing and Operations at OREP.org, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 50 states. He received his master’s degree in accounting at San Diego State University. He can be contacted at isaac@orep.org or (888) 347-5273. Consider an Arbitration Provision There are pros and cons to including a binding arbitration clause in your pre-inspection agreement. (Find the story Binding Arbitration: What’s the Deal? at WorkingRE.com, search “Binding Arbitration.”) One of the benefits of having an arbitration clause is that it can help get you dismissed from a “catch all” multi-party lawsuit, in which anyone involved in the transaction is dragged in—whether they have liability or not.

Many inspection claims involve multiple parties, with the homebuyer filing suit against everyone involved. In these cases, if you have an arbitration clause, it can force the claimants’ attorneys to either remove you from the lawsuit or litigate the case in two separate forums (court and arbitration). Sometimes where the home inspector is dragged in without any legitimate liability, the attorneys may find it wiser to dismiss them rather than go to the additional expense of arbitrating.

A sample home inspector arbitration clause from California reads: Any dispute concerning the interpretation or enforcement of this Agreement, the inspection, the inspection report, or any other dispute arising out of this relationship, shall be resolved between the parties by binding arbitration conducted in accordance with California Law, except that the parties shall select an arbitrator who is familiar with the real estate profession. The parties agree that they shall be entitled to discovery procedures within the discretion of the arbitrator. The arbitrator shall manage and hear the case applying the laws of the State of California to all issues submitted in the arbitration proceeding. The award of the arbitrator shall be final, and a judgment may be entered on it by any court having jurisdiction.

One of the downsides of arbitration is that it can be very costly. So if you decided on this route, be sure you screen the arbitration provider in advance and weigh the costs. Some arbitrators charge several thousand dollars just to open up a case. A claims adjuster from OREP’s primary insurance program advises inspectors: “If you require mediation/arbitration make certain the provider is in business and is cost effective. Some of the contracts I have seen require AAA arbitration and it costs two or three grand just to get the process rolling.”

Statute of Limitations Including a provision that limits the statute of limitations to 12 months is another approach to help reduce claims. For example, in California the default time period is four years—within which a client would have to bring a claim against a home inspector. By contractually limiting the statute of limitations to 12 months, your client is agreeing that they have no grounds to bring a claim against you after 12 months from the date of the inspection. You want to be careful to make sure your wording is compliant with your state law, so do your research or consult with attorney beforehand.

While the majority of claims occur within the first year of the home inspection, a fair number are later than that, with some even arising many years later. Having a clearly defined limit or waiver of the statute of limitations is a good way to reduce these late-blooming claims.

Get It Signed It should go without saying that it is vital to get the agreement signed! We know it is not always easy, but this is a discipline that should be adhered to if you want to decrease your chances of trouble. A rushed home inspector often will perform an inspection and deliver the report before and without getting a signed pre-inspection agreement from the client. But because your pre-inspection agreement defines the purpose, scope, and limitations of your home inspection, it is a vital part of your defense, should your client bring a claim down the road. This is why getting a signed agreement for every inspection should be routine. With many insurers, having a signed agreement is a condition of the E&O policy. So failing to get your agreement signed might jeopardize your coverage. If you can get it signed before the inspection, that is even better, in terms of your defense, because it shows that your client knew and agreed to the limits of your report before engaging you. Don’t you want to know what you’re buying before you buy it?

Limitation of Liability If you live in a state where a limitation of liability clause is enforceable, it is potentially one of the most important aspects of the pre-inspection agreement. Typically, this section of your pre-inspection agreement seeks to limit the amount of damages to the inspection fee or some other nominal amount.

One example of a limitation of liability is the following: The Inspector’s total liability in the event of any breach of this Contract or of its obligations imposed by law or for any losses, damages, claims or demands arising out of the work and services performed under this contract, SHALL BE LIMITED TO THE AMOUNT OF THE FEE CHARGED FOR THE INSPECTION.

Some agreements limit the liability to the inspection fee, others to 1.5 times the fee, and still others use an arbitrary number, such as $2,000, or $5,000. In any case, the goal is the same: limiting the amount the home inspector is liable for in the event of a dispute with the client later on.

These clauses are not a substitute for E&O insurance, nor are they a fool-proof way to get out of trouble, but when they are enforceable, there is often no better way to put an end to a lawsuit.

Enforceable—Maybe For those home inspectors who live in a state where a limitation of liability (LOL) has been upheld in court, or at least is arguably enforceable, the LOL is an excellent defense against potential claimants. The presence of this clause in your agreement can not only discourage disgruntled clients from bringing a claim in the first place, but it can also mean the difference between the successful defense of a claim and a large claim payout.

In states where LOLs are permissible, they are enforceable unless they are found by the court to be (1) against public policy or (2) unconscionable. Ultimately this comes down to state law and the state court’s particular interpretation of the law. And while precedent is typically followed in these types of rulings, the enforceability of these provisions is subject to change under a different set of circumstances.

Some states, like Wisconsin, have restrictions on the use of LOLs in inspection agreements, while others like Massachusetts and California, prohibit them altogether. California law says that “contractual provisions that limit the liability of the home inspector to the cost of the home inspection report, are contrary to public policy and invalid.”

Precedent already exists in most states about how these clauses are handled. State courts have different interpretations of what makes a contract “unconscionable,” but it’s widely understood in the legal community to refer to terms that are substantially unfair and one-sided. For example, South Carolina defines unconscionability as the “absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms that are so oppressive that no reasonable person would make them and no fair and honest person would accept them.”

In the New Jersey case of Lucier v. Williams (366 N.J. Super. 485, 841 A.2d 907), for example, the court held that the LOL was “unconscionable, in contravention of public policy, and is therefore unenforceable.” The New Jersey court explained why such clauses are unenforceable in that state: “To be enforceable, the amount of the cap on a party’s liability must be sufficient to provide a realistic incentive to act diligently… We can assume that the contract price here, a little under $400, is typical of fees

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charged for this service. If, upon the occasional dereliction, the home inspector’s only consequence is the obligation to refund a few hundred dollars… there is no meaningful incentive to act diligently in the performance of home inspection contracts.”

Header, Bold, and Initial For an LOL or any other vital clause to stand up in court, it helps that it be in a larger, bolder heading, and that an additional initial next to the line item be required. Even better is to put it in a separate box, with an extra-large, bold header, and require an initial next to it, according to the OREP risk management team.

This may seem trivial and over-the-top but the importance can’t be overstated. Lawyers frequently attack vital contract clauses, especially ones between a “trained professional,” such as a home inspector, and the consumer-public, as being concealed or “hidden amongst unrelated clauses,” when the text for such clauses is not highlighted and distinct from the rest of the contract.

For example, courts in Texas require that any provision in a contract “used to exculpate a party from the consequences of its own negligence” must be “conspicuous,” which under Texas law, means that “something must appear on the face of the contract to attract the attention of a reasonable person when they look at it.”

In many cases, it is relatively easy for home inspectors to modify their pre-inspection agreements to make the vital clauses conspicuous, including the LOL. In so doing, you may greatly improve your liability defense. The importance of this point should not be underestimated. Here at OREP we have seen several cases where this was a critical factor in an inspector’s defense.

OREP includes risk management services and pre-claim advice with its broad-coverage policy, specifically written for the unique needs of home inspectors. For more, call OREP toll free with expanded hours of 8 a.m. – 8 p.m. EST at (888) 347–5273 or visit OREP.org for a quote in under five minutes (most insureds). WRE

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Adding Sewer Scoping to Your Inspection: Part 2

by Mark Raumikaitas, InspectorCameras.com

Self-leveling Camera Head Rotate so picture view is always right side up

In part one of this series, I explained how adding a sewer scope evaluation to your home inspection business is a good way to generate additional revenue. A sewer scope inspection will reduce liability for the buyer, property owner, real estate agents and most importantly, for you as the inspector. Additionally, adding sewer scope services will add $150 to $300 to your inspection fee. You should always recommend a sewer or drain line inspection in your home inspection report, even if you do not offer a sewer scope as part of your services.

In this article I want to touch on contracts/inspection agreements, inspection limitations as well as camera options and features.

I recommend that you always use a separate contract or inspection agreement when performing a sewer scope inspection, just as you would for the regular home inspection. Any contract or agreement should be reviewed by an attorney, of course. The contract protects the inspector and defines the limitations of the sewer inspection. Your contract should indicate the fee for your standard sewer scope service and show added fees, if any, for unusual conditions. You should indicate if there is a minimum service fee in the event the sewer scope inspection cannot be fully completed, due to site conditions such as restricted access due to a lack of cleanouts, inoperable cleanouts and/or damaged or deteriorated pipes where access will cause damage to the system.

As experienced home inspectors, you know how to define and set expectations for your regular home inspection clients; you should do the same for your sewer scope inspection clients. The sewer scope inspection is performed on the accessible portions of the system, typically the drain line, starting at the foundation and going out to the city, municipal or community system. A typical sewer scope inspection does not include the interior drain, waste or vent pipes.

Mark Raumikaitis is a retired New Hampshire licensed Home Inspector and Septic System Evaluator who started inspecting residential and commercial buildings in 2000. Mark has earned InterNACHI CMI and ASHI ACI status and has been a speaker at ASHI Inspection World. He now represents septic and sewer cameras perfect for Home Inspectors, Plumbers and Drain Cleaners through his company InspectorCameras.com. Sonde Locator Visual and audio locate response

Home inspectors are trained to conduct visual inspections only. You typically remove covers and access panels for your visual inspection, but a home inspector does not dismantle equipment or perform repairs during a home inspection; you inspect and report what you see. If a system or component is not accessible, you report it as such. I recommend the same standard be used for a sewer scope inspection. Removing a toilet to access a drain is beyond a standard inspection and in many jurisdictions requires a plumber’s license. Cutting open a pipe riser to install a cleanout is beyond what should be done during a sewer scope inspection. If access is not possible or restricts what you can see or inspect, then report what is inaccessible and recommend access be provided.

I am often asked, “what if I cannot get beyond a defect such as a blockage or collapsed pipe, how do I inspect the rest of the sewer line”? The simple answer is you do not. You document and report what you see. You have finished your inspection—discovered a problem and will recommend that a professional drain cleaner, plumber or sewer professional evaluate and repair as required. Your job is not to clear the line or remove the blockage. Your camera system is a precision visual instrument that should not be used as a drain cleaning device! Plumbing contractors, drain cleaning and pipe lining companies have specialized equipment designed to clear and open drains. High pressure jetting equipment, root cutters, pipe bursting and pipe lining equipment are used to clear lines and provide permanent repair as required. This specialized equipment costs tens of thousands of dollars and requires specialized training and experience to operate. Leave the cleaning and repairs to the professionals.

Scoping Equipment I want to shift the discussion to camera equipment—the desirable features, and some available options you will need to consider when purchasing a camera system. There are different types of camera heads to choose from. Camera heads are available with a fixed lens, where the camera head’s internal lens does not rotate. With these, the picture you view will be sideways or upside down, depending on camera orientation within the sewer pipe. Typically, this is not a problem for a trained operator, but may make picture or video viewing more difficult

for a client or real estate agent. Self-leveling camera heads are more popular. These camera heads have an internal precision bearing and counterweight system that rotates the internal lens by gravity, so the picture view is always right side up. Pictures and video provided to clients are then easier to understand and interpret.

Mechanical articulating camera heads are also available. These camera heads use small internal motors to rotate and orient the lens for a “side view.” Camera systems with this type of camera head are more expensive and often cost more to maintain and repair over time. These articulating camera heads also have a larger overall exterior diameter that may make movement through smaller diameter pipes more difficult. In our opinion a self-leveling camera head is the best choice for home inspectors performing sewer scope inspections.

Your camera system should have a meter or foot counter so that you can report to your client “how far out” the defect or issue is. The counter typically displays on the viewing screen and shows how many feet or meters of push rod cable has unwound from the reel. Always remember to subtract any length of cable not actually inside the pipe. The distance to the defect is from your entrance point or foundation wall. The cable length “on the floor” does not count. Some cameras have a “zero” feature allowing the counter to be reset to zero and start when the camera head is at the foundation wall or pipe entrance point.

Many inspectors choose to “locate” or show the client where the defect is out in the yard or driveway. This additional information is optional and not required as part of the sewer scope inspection. The decision to locate the problem is really a business decision regarding the level of service you want to provide. Locating requires optional equipment and adds time to your inspection process, so should be factored into your fee structure.

To locate the blockage you will need an optional “sonde” and a “receiver.” The sonde is simply a radio transmitter built into the camera head. This transmitter broadcasts on a fixed frequency, often 512hz. The radio receiver is called the locator. The inspector performs a patterned walking search of the exterior using the locator. The locator device has built-in circuitry that interprets the incoming radio signal and gives the inspector visual and audio feedback allowing him/her to find where “X” marks the spot. Some locators provide estimated depth information but it should be understood that locator accuracy may be affected by many factors such soil type, moisture levels and even outside electronic interference—like an electric dog fence or nearby florescent lighting. When reporting location, it is wise to include a clause indicating that all location and depth information should be confirmed by the professional hired to perform repairs.

The decision to offer locating services is up to each inspector. Inspectors purchasing the camera systems we provide are evenly split 50 – 50 on the sonde option. If you know you will never provide location services, there is no need to have the added expense of including a sonde transmitter with your camera system. Cable Length Finally, a few words about which cable length is best. In short, every cable has compromises; there is no perfect cable length. One company, Ridgid, provides multiple cable reels to fit a variety of their camera monitors. Each reel choice is designed to satisfy a narrow set of conditions. This concept works well if your budget allows. Plumbing contractors may own multiple reels and monitors and use the appropriate setup as required on a job site. These contractors also have large work vans to carry the equipment and higher budgets than is typical for a home inspector.

A home inspector typically has one camera system, so their system must perform adequately across a wide range of conditions. A balance must be achieved between cable flexibility and stiffness also. A stiff, 200-foot cable will not perform as well in a two-inch pipe with tight elbows. A flexible cable designed for smaller pipe diameters will not push out extremely far into a larger pipe. Our experience has found that equipment designed for pipes between one and a half and four inches with a minimum cable length of 100 feet is a good starting choice for home inspectors. Try to keep the camera head diameter as close to one inch as possible to allow use in smaller pipes. If the camera head is one-and-a-half inches, it is difficult to use in one-and-a-half or two-inch pipes. Once your business grows you can consider adding a larger system that will go out to 200 ft. WRE

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Training Certifications and Value-Add of Infrared

by Christopher Casey, CEO at Monroe Infrared

A few years ago, I wrote an article for Working RE entitled IR for Home Inspectors Today, which focused on the three top misconceptions inspectors had at the time regarding Infrared (IR) inspections: that it is too expensive, that customers won’t pay more for IR, and IR will increase liability exposure. (Visit WorkingRE.com to find the article.) All three of these objections discussed in that story seem to be a thing of the past.

Today, the real focus with respect to Infrared and other Value-Added Services (VAS) is that they help you differentiate yourself from your competition. When you add more services, you stand apart from prospects and those ever-so-valuable affinity clients called real estate agents. The path to adding VAS is earning training certificates. The number of training and certification classes available for home inspectors today is truly huge! Here is but a partial list of what is available, and to one degree or another, recommended or expected:

• Stucco Inspector Certification • Mold Inspector Certification • Lawn Irrigation System Inspector • Wind Mitigation Inspector • Indoor Air Quality Inspector Certification • And there are many more!

Many value-added services (VAS) that home inspectors embrace today can provide real value to clients and generate tangible revenue to the bottom line. Most VAS help to alleviate fear of the unknown for your clients regarding such issues as moisture/ water leaks and mold, air quality problems, structural and sewer integrity, radon and the potential for health issues, and termites that are silently damaging the home, to name a few.

There are classes and related certifications offered by national and state associations as well as private training organizations like ours. How do you pick? The key is to choose the ones that will produce the greatest impact, value and differentiation for you and your business. Focus on return on investment (ROI) with respect to your own situation and do your homework on your competitors! Is the service being offered by inspectors in your marketplace? What is the cost to begin offering it: how much to get trained and certified and to get the word out? Are inspectors charging for the service or simply adding it free? If they are charging, how much? How comprehensive is the inspection and report? The pen and clipboard days of home inspections are long gone. Those of you reading right now already realize that if you’re not embracing technology, you are rapidly falling behind your competition and the expectations of your clients. Today’s homebuyers, sellers and the agents who represent them are savvy technically with high expectations that nearly all information be made available digitally for review. Technology is both respected and expected. And technology is noticed when it is absent or when an inspector fails to meet high expectations. All of which can lead to a prospective client calling another inspector or an agent recommending a different home inspector.

Infrared Inspections Infrared inspection is one VAS that is relatively new to home inspectors. An infrared camera is a powerful tool in the hands of a well-trained, competent and thermography-certified home inspector. Monroe Infrared has worked with and trained home inspectors for nearly 10 years. Monroe’s Certified Residential Thermography (CRT) class was developed for home inspectors, by working closely with the national associations. In 2012, most home inspectors considered infrared too expensive, not wanted by clients and a liability risk. Those objections are history, as I mentioned at the start of this article.

Interest in infrared began in movies and television where thermal imaging capability was, to be honest, a bit overstated. As the technology advanced and interest developed, so too did the

Christopher Casey is the President and CEO of Monroe Infrared Technology, a 36-year young Veteran Owned Small Business specializing in infrared certification training, IR camera and related equipment resourcing and commercial & industrial thermal inspections. He holds a Bachelor’s in Mechanical Engineering from West Point and a Master’s in Business Administration from St. Martin’s University.

Figure 1: Water infiltration into Stucco by Christopher Stinnett, Foresight Property Inspections, LLC

miniaturizing of thermal detectors in conjunction with lowering of the costs of IR cameras. Today’s home inspectors have an array of thermal imaging cameras to choose from that will absolutely improve their visual inspections. And to those inspectors who enhance their knowledge and fine-tune the nuanced skills of thermography (which are no different than other skilled trades such as electrical, plumbing, HVAC pipefitting, etc.), the spoils of business growth and increased profitability await.

Today the use of IR cameras by home inspectors is reaching 50% penetration across the country; in some areas it is closing in on 75% or higher. This means the use of an IR camera as part of a comprehensive home inspection is becoming the norm. Many home inspectors have told us they need to begin offering infrared or real estate agents will not continue recommending them because clients expect the added value perceived with infrared.

Training & Certification The home inspection industry has recognized that buying an IR camera doesn’t make you a qualified and confident thermal camera operator any more than buying a scalpel qualifies someone to be a surgeon. Identifying the training and recognized certification associated with successful completion of class provides benefits to you and your business.

The CRT certification and logo are earned by home inspectors by completing the course and successfully passing a final test. The use of a certification should be made available to graduates and used in their marketing and sales efforts to establish their credibility and differentiate themselves from competitors. The education of your customers is KEY to maximizing the value inherent with earning a certification because too often inspectors assume that clients understand.

Being certified for thermography means you’ve made the investment in technology and training to enhance and improve the overall quality of your non-contact, non-invasive, nondestructive visual home inspection. Be sure to talk confidently about thermal imaging as a value-enhancing capability that your business provides—and talk about it upfront not as an add on!

CRT graduates frequently share success stories as well as images like these (Figures 2 and 3, Page 14). In every case the CRT designation has helped them gain business while the knowledge gained and refined through practice helps them continue to impress clients and grow their business.

ROI To touch on return on investment (ROI) briefly, if your total up-front investment in Infrared Certification Training and Equipment is between $2,000 to $4,000, and your income from the

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Figure 2: Electrical Hot Connection by Bradley Scott, CBS Inspection Services Figure 3: Water infiltration into Stucco by Christopher Stinnett, Foresight Property Inspections, LLC

service will exceed $1,000 per month after 12 months, the decision should be immediate! So too may be the case for other certifications you do not yet possess, such as radon or sewer or mold. So the bottom line here is to evaluate what VAS you are offering today and which can be added. What measurable income will those certifications provide to boost your bottom line?

We know that what we do today defines our tomorrows. As we enter a new year, now is a great time to take actions to move yourself forward and up onto the next level. WRE