- Certification, Governance

Realtor referral programs

Membership of the Ontario Association of Certified Home Inspectors requires the Inspector to adhere to a stringent Code of Ethics.  The Code of Ethics is seen as a valuable model for professional practice for Home and Property Inspectors across Ontario.

The OntarioACHI Code of Ethics was was developed after intensive research, consultation with professional ethics consultants, and considerable input from the membership of multiple associations in North America.

In any business there is often significant pressure to compromise ethical principles in order to successfully compete in the marketplace.   In the Home Inspection profession, where the service provided is often not considered by the consumers as a mandatory requirement, the very survival of the Home Inspectors business relies on the ability to market their skills and services.

This marketing can be effective and a number of ways for an Inspector to market their skills, including printed and Social media, extra Certified Education and direct marketing.   Paid referral programs bring an altogether  more complex issue of ethics into the marketing equation.   Participation in shared marketing strategies is not prohibited, as long as it does not similarly involve some type of referral agreement or listing.

It would seem at first sight that paying a Roofer, Electrician or Plumber to be in their “preferred vendor” referral program would not invoke a conflict of interest.  Indeed most inspectors would consider these types of referral networks as not financially worth advertising with.  Having said that it is important to see that any referral program that offers one or both parties a quid-pro-quo benefit from each other in a transaction that involves a third, usually member of the public, can be seen as a conflict of interest and a breach of ethical principles.

Adherence to strong ethical principles can sometimes seem to be a real disadvantage.  When the “preferred vendor” list is operated by a Realtor the situation is no different but has a greater impact on the Inspector, and a potentially devastating impact on the Client.

In the majority of inspections, the first person the Buyer or Seller comes into contact with is the Realtor.   The Realtor has a vested interest financially to ensure that a home sale goes through.  Ontario realtors are bound by the regulators own Code of Ethics and the Real Estate Business and Brokerages Act.   Neither the Act nor the RECO Code of Ethics address this problem.  It is quite valid, legally, for a Brokerage to ask a Home Inspector to pay to be on a Preferred vendor list, and refuse to refer any inspector not on that list.

The OntarioACHI standard inspector/client agreement has a clause that warrants to hold the Realtor free from liability for referral, and this clause is based upon the belief that Realtors would have the same ethical high standards our members do.

Many of our Inspectors have recently noticed that a number of Realtor Brokerages throughout Ontario are starting to adopt a preferred vendor list and referring only vendors from that list.  This is obviously an issue of ethics for the Realtor, but the temptation for the Inspector to pay fees to receive referrals clearly violates the principles the membership that OntarioACHI has chosen to adopt.  This is obvious to most inspectors, but has obviously become muddied when hidden within a “preferred vendor” marketing program.

The violation of these principles is at it’s worst when the referral program is being operated by a Realty Agent, Broker or Company.   The reason for this is that both the Realtor and the Inspector have to operate in the interest of the Client.  This may not be specifically pointed out in either the Real Estate and Business Brokers Act nor in the RECO Code of Ethics but it is very specific in the OntarioACHI Code of Ethics.

Paragraph f of the Code of Ethics states:

The OntarioACHI member SHALL NOT:

  1. have any undisclosed conflict of interest with the client
  2. accept any undisclosed commissions, rebates, profits or other benefit
  3. accept 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
  4. not 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.

As it can be seen, the OntarioACHI Code of Ethics takes the position that payment to be placed on a list of “preferred vendors” is payment for referrals. The prohibition against participation in these programs may be controversial, but recent decisions by some other home inspection organizations, such as CREA, and many regulatory bodies in the USA have supported the stance of OntarioACHI.

All professionals have a duty to act in good faith toward their clients. Paying for referrals and participation in preferred vendor programs, as interpreted by our Code of Ethics, violates our responsibility to act in good faith toward our clients. The home inspection client should be able to have a reasonable expectation that when a home inspector is being recommended, the referral is based on merit, not on the payment of what is essentially a bribe to the referring party.

A significantly important part of any ethical code must involve the avoidance of conflicts of interest that can compromise, or appear to compromise, professional independence, objectivity and integrity.    Real estate agents, whose interests lie in the successful sale of real estate, and home inspectors, acting in good faith toward their clients, have clearly conflicting interests.

Although the regulatory documents in Ontario for Realtor do not specifically call out guidelines, the Canadian Real Estate Association does.  In paragraph 8 of their Code of Ethics they state:
REALTORS®  shall:

(a) obtain the consent of their Clients prior to:

(i) accepting Compensation from more than one party to a transaction, or
(ii) accepting any rebate or profit on expenditures made for a Client

(b) disclose to their Clients any financial or other benefit the REALTOR®  or his/her firm may receive as a result of recommending real estate products or services to that party

CREA goes on to explain that the interpretation of this should be considered as paragraph 8.1 8.1 Without limiting the generality of Article 8, reference to real estate products or services includes lending institutions, title insurance companies, lawyers, appraisers and moving companies, and other real estate brokerage firms from which the REALTOR® may receive a referral fee.

OntarioACHI sees the issue as more important than the responsibility to inform the client that a payment to be referred for services.  The OntarioACHI Code of Ethics recognizes that referrals from realtors, dependent on their Brokerages having received some form of compensation, represents an even stronger ethical concern than recommendations from otherwise disinterested, but paid third, parties.

Placement on a list of “preferred providers” constitutes a referral. There is no real difference between being recommended verbally or in writing, singly or as part of a small group such as a short list of “preferred inspectors.”

When placement on such a list is contingent upon payment of a fee, it represents a payment for referral. It is misleading to the client, who does not know that the home inspector paid for the privilege of being placed on that list.

Any contractual or business arrangement between the real estate agent and the home inspector has the potential to compromise, in the eyes of the client, the independence of the home inspector.  Each inspector must examine his/her participation in such marketing to determine if hidden arrangements exist, involving a violation of ethical principles.  Home inspectors should be very cautious about developing business relationships with realty agents that might compromise, or appear to compromise, the integrity of the inspector or the profession.

Most home inspectors welcome and appreciate the referral of business from real estate agents, believing that such referrals represent a genuine expression, on the part of the agent, of confidence in the knowledge, competence and integrity of the inspector.

We have noted of late a number of Inspectors have informed us that upon approaching Brokerages to supply information about their Inspection businesses they a being told that the Brokerage operates a preferred vendor list.  In order for the Inspector to be on that list they have to pay.  Any OntarioACHI inspector who engages in this practice will be see to have breached the OntarioACHI Code of Ethics.

The realty Brokerage may have breached the CREA, and by Association the OREA, Code of Ethics if it does not have all of it’s agents inform their clients of the fact that it only refers inspectors who have contributed to the financial coffers of the broker.  This being fact does not give the Inspector the right to do the same.

At OntarioACHI we strongly believe that adherence on the part of home inspectors to strong ethical principles, and the avoidance of potential conflicts of interest, will encourage rather than reduce future referrals and recommendations.

If any inspectors come across this practice in Ontario we ask you to inform us.  We need the Brokerage Name, address  and telephone number as well as the date you were informed of the practice.  We will be raising the issue with the Designated Administrative Authority for Realtors, the Real Estate Council of Ontario.

About OntarioACHI

Founded in 2012 the Ontario Association of Home Inspectors is a not-for-profit association of members with aims to improve the quality and standing of Home and Property Inspection for the benefit of consumers and our profession. The association is run by, and for, Home & Property Inspectors in Ontario. Our goal is to ensure all Home Inspectors are qualified to the highest standards and comply with the most exacting professional Code of Ethics, Standards of Practice and Duty of Care. A consumer hiring an OntarioACHI qualified Canadian-Certified Home Inspector (CCHI) will know they have they hired a truly Professional Home Inspector.
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