Home Insepction Update

A new meeting took place, on Monday 10th, December, at the offices of the Ontario Ministry of Government and Consumer Services to discuss the potential costs of regulation and licensing. 

It was attended by Len Inkster from OntarioACHI as well as representatives from CAHPI, PHPIC, the NHICC, the CMRAO, OAHI and members of the MGCS and Ministers Office.

Background

The Home Inspection Act, 2017 was passed through the Ontario Assembly, with all-party support, in May of 2017.  Although the received Royal Assent, it does not come into effect until the government has completed drafting regulations to implement the details of the legislation and then proclaim the Act.

The primary goal, from the Government’s perspective, after implementing greater protection for consumers, is to implement any new regulation at a net-zero budget cost.

 This means that ongoing running costs for the Home Inspection Regulation should not be at the expense of the public purse.   This means that the cost of licensing and any regulatory compliance charges will have to 100% fund the administration of the DAA and its operations.

It was realised back in 2013, during the expert panel meetings, this was going to be a difficult hurdle.  At the time there were an estimated 1200-1500 inspectors operating in Ontario.   Following two years of aggressive marketing by the Real-Estate profession and many houses sold without inspections.

The primary Professional Home Inspectors Designations capable of being earned by inspectors in Ontario (CCHI, RHI, NHI) are self-regulated and require standards compliant to or in excess of those recommended for licensing, Membership of the Association and adherence to their Code of Ethics and Standards of Practice was seen as an indication of bonafide operation as a Professional Home Inspector.  

The Profession – By the numbers

As many Inspectors with membership in the NHICC, PHPIC, ASHI, InterNACHI or CAHPI were also recognised to be members of either OntarioACHI or OAHI,  it was suggested that registration figures between OntarioACHI and OAHI should be able to provide the closest figures of how many Professional Inspectors exist in the province.

Identifying Inspectors in Ontario

At OntarioACHI, we have three means of measuring Inspectors, those that have registered access to our web-services, those that have subscribed to our newsletters and those that have applied for a paid membership in the Association and are listed in the public search directory.

Following a recent clean-up of member data, we have 792 registered users, of which 673 are considered active.   We have 800 subscribers to our newsletters, and as of the last newsletter sent out (October) through tracking we determined 551 recipients actually received the emails and 35% of those clicked through into attachments.  As of writing, we have 163 memberships from operating Inspectors.    The OAHI representatives to the meeting suggested that the Current OAHI membership is around 480.

Allowing for a small number of inspectors who do not belong to either of these two associations and those that might be counted in both registries, the current number is estimated to have been cut to between 750 and 900 inspectors operating in the Province.

When Licensing was implemented in B.C. and Alberta an initial drop of inspectors of around 30% happened. 

If the above estimates of numbers of inspectors in Ontario are accurate then this would mean a loss of between 250 and 300 inspectors when licensing is introduced into Ontario.

Sticker Shock

The cost of operating the Home Inspection regulation is estimated at around $1.5m per year, meaning the cost burden would have to be supported by those still in the business.

A quick calculation would show that $1.5m divided by 500 would come out to around $3,000.  If we took the upper end of the estimate of culled inspectors (600), the number is $2,500.   Again, looking at the figures from B.C. and Alberta, we can see that the number of inspectors rose again following a period of 2 years to recover to slightly more inspectors than immediately preceding licensing.

This would reduce the apportioned cost of licensing in Ontario again using the estimated annual figures.

If the numbers of Inspectors were to rise to the levels of 2013  (around 1,500) the apportioned price of funding the regulation would be $1,000.   

Discussions about introducing a type of trickle fund were discussed, and licensing costs of between $700 to $1,400  were discussed to gauge the pain-points to the profession.   Obviously, a number of around $700 seems more palatable, and even $1,400, although at the upper end of any licensing program, would be certainly more preferable to a figure of $3,000 per year.

Benefits of Regulation

Segregation of Realtors from home Inspection Decisions.

Segregation of Realtors from home Inspection Decisions.

Discussion about the benefits of regulation to the Profession was discussed.  The group was reminded about the OREA statement to the Standing Committee on Social Policy on the Home Inspection Act that in their opinion 75% of all homes sold in Ontario were subject to a Home Inspection.  In 2016, when the Standing Committee on Social Policy was addressed, the number of Homes Sold in Ontario was 226,000 (CREA Stats).  If OREA Stats were accurate, this would have meant 169,500 homes were Inspected in 2016.

A quick calculation shows that if this were the case, then if the Inspection were apportioned over the (2016 figures) 900 estimated Inspectors in Ontario, each inspector would have performed around 4 inspections per week.   We know from member communication this wasn’t even close to being accurate with inspections on average running at around 1.5 per week.  This would suggest that the actual percentage of home Inspected was more like 31%.

Obviously, the Home Inspection market is subject to manipulation of the Real-Estate profession, as it appears are the figures.  Regulation of the Home Inspection Profession will go a long way to removing this control from the Realtors.

Realtor responsibilities

Currently,  Realtors in Ontario are required to adhere to their Licensing Code of Ethics. 

Specifically, there are three areas of contention with the Realtors Code of Ethics that has been raised in various meetings with the government.  The meeting on the 10th December was no different.

Section 5, paragraph 6 subparagraph 1 of the Realtor Code of Ethics states “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.”

Over the last two years, the market has seen many instances of Realtors suggesting to their clients that asking for a home Inspection profession as a condition of purchase might end up in them losing the sale.   Inspectors see this as a veiled attempt, by Realtors, to suppress inspections in pursuit of the sale at any costs.  Questions were asked of the Government as to if this breached the Code of Ethics.   The answer came back that if, in the opinion of the Realtor, the loss of the sale was indeed a possibility, then Realtors should indeed make this fact known.

However, subparagraph 2 of the same Code of Ethics states “Without limiting the generality of subsection (1) or section 5, a brokerage shall not provide an opinion or advice about the value of real estate to any person unless the opinion or advice is provided on behalf of the brokerage by a broker or salesperson who has education or experience related to the valuation of real estate; and a broker or salesperson shall not provide an opinion or advice about the value of real estate to any person unless the broker or salesperson has education or experience related to the valuation of real estate.”

Here the issue arises as to whether the Realtor or Broker (or indeed an appraiser) can make an accurate valuation of a property that has not been inspected as to its condition.  Again, the response has been from Realtors and Brokers approached on this matter, is that with a number of years in the sales business, they are able to opine on the condition of the property because of their experience.

Again,  from the Realtors Code of Ethics, two other paragraphs are similarly defended by Realtors who covertly or otherwise suggest to their clients to refrain from requesting a Home Inspection as part of the real estate purchase. These are from section 5 paragraph 8.

Sub-paragraph 1 states “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.” and

Sub-paragraph 2 states”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.”

Here, while the intention of the Codes are to ensure Realtors properly advise their clients to solicit the services of professional services in order to help them make a decision on the sale and purchase of a home, nothing in the law prevents them from doing so if it is considered they have the skills, knowledge and judgement and ARE NOT RESTRICTED by law from doing so.

This is where the Regulation of the Profession has the greatest support for Consumers and the Home Inspection Profession.   Any Realtor, post-Home Inspection Regulation, that makes a suggestion for a buyer to not have a Home Inspection, or for a Seller to reject any offer that requires a home Inspection may find themselves subject investigation by the Realtor Regulator or to litigation.

Providing segregation between the home Inspection Profession and the Realy Profession would be a major advance in the protection of Consumers and go a long way to reducing the risks of the “Caveat Emptor” doctrine applied to Real-Estate transactions.

Public Recognition

Public Recognition

With regulation comes responsibilities to maintain the ability to practice.  While many inspectors may view this as an onerous demand to provide services they have been managing to do without it, regulation actually elevates the Profession in the eyes of the public.

In a Seller’s market, where there are multiple offers and the tendency of buyers is to, ill-advisedly, forego any conditions in order to secure the home purchase, a pre-listing Home Inspection offers the buyer with at least some level of confidence in the condition of the Home on which they are offering.

The problem with this type of Inspection is the perception that, as an unregulated profession, nothing prevents the Home Inspector providing the inspection from colluding with either the Seller or the Listing Agent to go easy on the property.  Indeed we are aware of some Inspectors who provide the Inspection report to the Seller and Listing Realtor asking for comments and offering the ability to change the reports before they are published.

Regulation would stop this practice and clear up any perception in the eyes of the public of such practices, making pre-listing inspection more valuable to the Real-Estate transaction.

Because of heightened public recognition of the Profession, the number of inspections performed might actually reach the level purported by OREA.

Added Benefits – Valuation.

Provision of pre-listing inspections has a number of other benefits.    Currently, the valuation of a property is based upon the aesthetic components.   Both Realtors® who are able to offer an opinion of value and Appraisers who are qualified to give detailed valuations of a property is hindered by not having the time, and more frequently the skills, to properly inspect and opine on the condition of the property.

A pre-listing inspection, by its very nature, is prepared to be shared with people other than the client, and therefore could presumably be used by both listing Realtors and Appraisers to make a more accurate decision upon the value of a property. 

A buyers inspection, performed by a licensed Home Inspector, similarly provides this information to let them judge if the price their client is being asked to pay is fair.

Added Benefits – Risk Reduction.

People who purchase Homes without any conditions can end up exposing themselves to risks both in terms of inconvenience as well as financial hardship.  A Professional Home Inspection allows buyers to identify large expenses they might have to incur as part of the process of buying the home.  So a Home Inspection can reduce the risk in this area.

Moreover, when it comes to property, a valuation that is more accurate provides lenders with the ability to judge if the loans they make on a property are a sound investment.  No mortgage provider wants to lend money on a property only to find that the property is less than expected, or worse, that the repairs required to the property put the borrower in such dire financial difficulty that the default on the loan.

Similarly, insurers can be made aware of any significant defects that may affect the need to alter premiums up or down with respect to risks on a property.

None of this is really achievable without a set standard of competence for a Home Inspection Professional.  This is something only regulation can bring about.

All of these items have been discussed with the Government.

Professional Expansion

Typically, Home Inspections fall into one of two categories.   A buyer inspection or a pre-listing inspection.  One of the Benefits of Regulation is that Inspectors will be able to expand into Warranty Inspections and Maintenance inspections because as a recognise and regulated profession, the concerns about the competence, of Home Inspectors, from trades or warranty providers are laid to rest.

This increases the opportunity for inspectors to increase their earning potential.   Again, this was raised at the government meeting.

Entrance to Licensing

The MGCS provided two options to the meeting for the actual licensing process.  A “Light” option 1 which did not require Insurance, and a more robust option 2.

Everyone in the meeting recognised that, in order for the Home Inspection Profession to be taken seriously by both regulators and the consumers we server, option 1 was not feasible.

Option 2 looked at the requirements and costs of entry for three categories of the profession

  • Established Full-time Inspectors
  • Part-Time Inspectors and
  • New Entrants.

 

Established Full-time Inspectors

Established Full-time Inspectors were seen to be those that have an established Certification that fulfilled the requirements of mandatory Professional Liability Insurance, education, peer review and examination.  The designations offered by the NHICC (NHI), CAHPI (RHI) and OntarioACHI (CCHI) already require these.   In addition, licensing would require Police background checks as an addition.   (The CCHI requires this).

Determination still needs to be made as to whether a regulator set assessment examination will be additionally required by Inspectors holding one of these designations, but it was essentially agreed that established inspectors neede to be able to prove their capability.

Part-time Inspectors

Part-time Inspectors were seen as those that did not have a recognised Association status or E&O Insurance or worked at Home Inspection as a part-time way of earning supplementary income.  While it is recognised that some of these Inspectors have been operating a number of years, and may be very good at their job, the fact that they have chosen not to prove their commitment to the profession with Insurance and proven continued education means that they fall into a category that would need to have their skills better assessed.  This would include further education in addition to the requirements needed by the Established Inspectors.  This leads to a higher cost of entry into the Licensing program.

New Entrant Inspectors

A means to provide an entrance into the profession for new Inspectors was discussed and in addition to the requirements laid down for the previous two categories, were seen as requiring great levels of education, whether it was provided formally through college or online or self-learning in addition to a level of mentoring, apprenticeship or peer reviewal.  This obviously had the highest cost of entry into the licensing program, but this was seen as not different from every other profession.

Moving forward

The next steps are for the MGCS to work with the Minister’s office and the CMRAO to establish if the financing solutions are feasible for the Home Inspection regulation to move forward.  It was apparent that everyone at the meeting still had the same appetite for moving forward.  Everyone saw the huge potential for increasing consumer protection, and this was in-line with the views of the prior assembly that saw support from all three parties in the passing of the bill that saw the Royal Assent of the Home Inspection Act, 2017.

This Act elevates the Home Inspection Profession, provides increased protections to Consumers, Lenders and Insurers alike and can provide a sustainability to the Home Inspection Profession going forward. 

One last thought

If regulation was settled at even $1,400 per license, this would equate to less than $30 per week.  If this meant the probability of adding 1-2 inspections per week to the earning potential of Inspectors, I’m sure there’s not a single Inspector that would baulk at this cost, and we should urge the government to proceed at all haste.