Current Market Conditions
The Real-Estate market in Ontario has seen a recent phenomenon of the home being sold with multiple-bids and selling for astronomically high prices, sometimes 30% over asking. In this frenzied buying atmosphere, buyers are waiving conditions, usually the Home Inspection and often financing clauses.
This puts the buyer in a precarious position because they are totally at the mercy of the “Caveat Emptor” clause applied to real-estate purchasing. This is frequently translated to “buyer beware”. The Latin phrase is actually taken from a much lengthier Latin phrase “Caveat emptor, quia ignorare non debuit quod jus alienum emit” which translates literally to “Let a purchaser beware, for he ought not to be ignorant of the nature of the property which he is buying from another party”. What this means is, unless the Seller intentionally hides a known defect from the seller, the buyer is responsible for identifying any defects and ascertaining the condition of the property they are purchasing BEFORE they agree to purchase.
Buyers who have solicited a Realtor to work on their behalf to procure the home are protected somewhat by the Code of Ethics for Realtors established by the Real-Estate Council of Ontario (RECO). Two particular clauses in the Code are:
Services from others
8. (1) A registrant shall advise a client or customer to obtain services from another person if the registrant is not able to provide the services with reasonable knowledge, skill, judgment and competence or is not authorized by law to provide the services. O. Reg. 580/05, s. 8 (1).
(2) A registrant shall not discourage a client or customer from seeking a particular kind of service if the registrant is not able to provide the service with reasonable knowledge, skill, judgment and competence or is not authorized by law to provide the service. O. Reg. 580/05, s. 8 (2).
The first clause is pretty obvious in its intent. All buyers’ Realtors that are not able to provide the knowledge as to the condition of the home themselves, should advise their clients or customers (there is a difference in the Real-Estate world in Ontario) to obtain those services from someone who is qualified to.
The second clause puts the Realtors in dangerous waters in this type of frenzied market. It, simply put, says a Realtor shall not discourage (by any means) a client or a customer from seeking a particular kind of service. The fact we have heard stories from clients that the Realtors have stated having any conditions could lose the sale could be construed as discouragement.
Most Realtors then asked their clients and customers to sign OREA form 123 which is a waiver of Inspection, that releases the Realtor from any liability.
This is in addition to Clause 16 on the OREA form 101 (Purchase Agreement) which bizarrely states the negative towards Inspections:
16. INSPECTION: Buyer acknowledges having had the opportunity to inspect the Property and understands that upon acceptance of this offer there shall be a binding agreement of purchase and sale between Buyer and Seller. The Buyer acknowledges having the opportunity to include a requirement for a property inspection report in this Agreement and agrees that except as may be specifically provided for in this Agreement, the Buyer will not be obtaining a property inspection or property inspection report regarding the Property.
The main outcome of this market has been a lot of buyers that have been exposed to unnecessary risks when making, what is usually considered to be one of the most expensive purchases they will ever make. We are already seeing the fall-out of this in the Inspection Profession with more people requesting post-purchase inspections.
There are only two reasons for this type of inspection. Either the buyers are looking to understand what repairs and maintenance requirements they have purchased along with the home, or they are looking for leverage for a possible lawsuit against the sellers and agents.
A second outcome has been in the decision by some inspectors to offer Inspections that fall far below the standard expected of a Professional Home Inspector. Limited inspections, walk-through inspections and verbal inspections have been popping up across Ontario.
As OntarioACHI strives to work with the government of Ontario and Canada to improve the professional standard of Home Inspectors, we can neither support nor condone any action by a Home Inspector that places consumers at risk with respect the Home Purchasing process.
Any service offered by an inspector or anyone else, that does not start with a clearly worded contract, continue with a full and comprehensive inspection of the property according to the Standards of Practice and end with payment and a written report is not considered a bonafide home inspection.
These types of services do nothing to protect the consumer, and in fact, can lead to increased liability for both the Inspector and the Realtor.
The risks of limited scope inspections.
OntarioACHI created a standard of practice for a limited-scope inspection. This standard is based upon 5 main inspection points and still requires a contract, inspection and a written report. It is however designed to be used in a commercial scope for Insurance Companies or mortgage providers. It covers Roof & Attic, Foundation, Electrical, Plumbing and HVAC.
The problem with this limited scope is that it does not take into account safety concerns in areas other than those in the limited inspection.
Things like decks, stairs to the property, doors, windows, and anything external to the home are omitted.
The risks here are that the client, and the law, would rightfully consider that if an inspector is aware of such a safety concern, then they should, given the duty of care, report such a concern.
Additional to this, if the inspector declares the concern verbally but does not report it in written form, a “he-said-she-said” scenario arises. If something goes wrong, it will always be the inspector’s word against the clients. At best the inspector will get a bad reputation, at worst they may lose in a court of law if sued.
In situations where the only option is to provide a limited scope inspection, then providing one to a standard, such as the one developed here associated with a properly worded contract and advice as to the limitations, is better than having no inspection at all. It is also way better than to have a verbal inspection prior to decision making or a walk-through with no written report.
The risks of walk-through inspection with verbal reporting only.
- The client, if they are buying, cannot use verbal comments to justify their decisions to the seller.
- The seller, conversely, may choose not to disclose material facts presented to them verbally.
- There is no evidence, in the form of a written report, that categorically proves a seller was aware of the defect.
Additionally, Realtors may be putting themselves at risk.
If a Realtor refers, to their client, an inspector who performs these type of inspections, they are not acting in the best interests of that client.
Knowing there will be no written report means the Realtor is allowing their client to solicit services from an inspector they referred, who has performed a sub-standard service. It also means that, if defects are found, the client has no choice but to either accept the defects or back out of the deal. With no written report, evidence of the defect cannot be given to the selling parties to negotiate a price alteration or request repairs.
In both the above cases, even if the Inspector has what they believe is an iron-clad contract absolving them from liability with respect to failure to report, the outcome will again be, at best, a poor reputation, and at worst a lawsuit that will end up with the inspector in court, and possibly the Realtor being dragged into the suit because of a Code of Ethics violation.
A case showing how a Home Inspector was sued based upon verbal instructions at an inspection can be read about here. Once again it shows that the Realtor was dragged into the case, cleared but still had to defend. The main report was written, but the verbal portion was disputed and went against the inspector. For the small portion that was disputed the Inspector was found liable for over $18,000. Imagine, what might have been the outcome if the whole inspection had been verbal?
In hard times, a business person may choose to try to find alternative ways to keep the finances afloat. In the Inspection profession, straying from the Standard of Practice, which encompasses an unwritten duty of care, will only increase your legal liability. At the same time, it provides little or no protection for the consumer. In the case of verbal reporting, it also increases the liability to any referring Realtor, as their Code of Ethics requires them to act professionally, work in the best interests of their clients, and always use good judgement when making decisions that affect their clients or customers.
From the Real Estate and Business Brokers Act:-
4. A registrant shall promote and protect the best interests of the registrant’s clients. O. Reg. 580/05, s. 4.
Conscientious and competent service, etc.
5. A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgment and competence in providing those services. O. Reg. 580/05, s. 5.
Providing opinions, etc.
6. (1) A registrant shall demonstrate reasonable knowledge, skill, judgment and competence in providing opinions, advice or information to any person in respect of a trade in real estate. O. Reg. 580/05, s. 6 (1).”
- As a consumer would you choose to use an electrician, who worked to their own personal standard, ignored all the safety codes and used sub-standard tools, just to save a few dollars?
- As a Realtor would you recommend such an Electrician?
The Home Inspection service is important to the consumer. Choosing an inspector based upon their ability to provide a fast inspection at a rock-bottom price will not provide anyone with the protection a Professional Home Inspection would.
At OntarioACHI we ask our inspectors to provide a service to a higher level for the consumer. We strongly advise against ANY home inspector choosing to short-circuit the Home Inspection Standard just to keep the money coming in. While in the short-term this may seem like a good idea, in the long-term it will never pay off, for the Inspector, for the Realtor, for the Consumer or for the Profession as a whole.
We realise on the odd occasion a specific sale may require thinking outside of the box and using a limited scope inspection, but if you do, ensure:
- your contract is very specific
- you fully explain the limitations to your client
- you perform these inspections to the same standard
- you do not mislead buyers, deliberately or by oversight, into thinking a full inspection has occurred
- you are prepared to take many phone calls afterwards from clients who think they may have been short-changed
- that this is the exception to your inspection practice and not the rule
When licensing is finally enforced you may be prevented from even offering this type of inspection. Remember, the CSA A770-16 standard for Home Inspections would allow you, as a licensed Home Inspector, to increase the number of services you offer as part of a Home Inspection, but not decrease them to a level of a limited Scope Inspection.