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Tue, Jan. 21

Inspectorscannot be on 'preferred vendor' lists

I have received numerous phone calls recently from home inspectors regarding "preferred vendor" programs. These are programs where a home inspector pays a fee in order to be able to "advertise" with a real estate office or company. This advertising could be having the inspector's name on a "preferred vendor" list, being allowed to speak at office meetings or place brochures in the office, having an ad or link on the real estate office's Web site, etc. Inspectors that do not pay the fee are not allowed to do any of these things.

Q: One question asks if this is allowed if money is not paid directly to the real estate office. I will answer most of these questions by quoting a Board of Technical Registration Rule (BTR) Rule:

A: R4-30-301.01. Home Inspector Rules of Professional Conduct

"A Certified Home Inspector shall not:

"1. Pay or receive, directly or indirectly, in full or in part, a commission or compensation as a referral or finder's fee;"

Note that the rule states "directly or indirectly." Any home inspector that pays to be on a preferred vendor or marketing partner list is subject to disciplinary action if a complaint is filed with the BTR. The BTR feels so strongly about this they have issued the following Substantive Policy Statement regarding preferred vendor programs. This Statement can be seen on their website at btr.state.az.usa.

Substantive policy statement

Arizona Administrative Code Section R4-30-301.01(B)(1) prohibits a Certified Home Inspector from paying compensation, even in an indirect manner, in order to obtain a referral for home inspection business. Many real estate companies, offices, brokers and/or agents have established programs under various names (i.e., "preferred vendor," "approved vendor," "marketing partner") in which the home inspector makes a financial payment to the real estate entity to be included on a list of recommended inspectors, preferred providers or part of a similar program.

The board believes that payment by certified home inspectors to real estate entities or other parties who have a financial interest in the real estate transaction, to be included on a list of recommended inspectors, preferred providers, or similar program, is at a minimum an indirect payment for referral of business by the party to the Certified Home Inspector and violates A.A.C. R4-30-301.01(B)(1).

Filed with the Secretary of State on 1-16-04.

Applicable laws

Arizona Revised Statutes §§ 32-106(A)(5) and -128.

Arizona Administrative Code, Title 4, Chapter 30, R4-30-301.01(B)(1).

There is a simple and logical reason the BTR rules prohibit these programs. A client is assuming that Realtors are referring home inspectors based on the inspector's competence, or experience, or honesty. The more honest inspectors will not participate in these programs, not only because they are against the BTR rules but because they are misleading to the consumer. This means the real estate companies with these programs are going to end up with a list of the least ethical home inspectors to refer to their clients.

I see some potential liability for the real estate offices too. Eventually a client will receive a poor home inspection and find out about the requirements to be on the real estate "preferred vendor" list. Do you think that client will be upset if he/she finds out their Realtor only referred home inspectors that were willing to pay to be on a list?

Another question was about a real estate company that said they are only going to refer home inspectors that provide them with copies of the inspector's E&O (errors and omissions) and disability insurance. Although the home inspector is not "paying" for these referrals, there are problems with this program. First, E&O and disability are not required by Arizona for certified home inspectors, so the real estate company is requiring insurance that many home inspectors do not have. This may be construed as a preferred vendor program because it discriminates against certified home inspectors that have met all state requirements for certification.

To my knowledge, the BTR has not addressed a program exactly like this. Most home inspectors feel it is not ethical. If a home inspector is a member of a professional organization, he/she had better check the Code of Ethics of the organization. The American Society of Home Inspectors has a national Code of Ethics Committee. They received a request for interpretation for a case very similar to this. The last paragraph of the committee's reply follows:

"Participating in such an agreement does not comply with second paragraph of the Code of Ethics to avoid conflicts of interest and is contrary to Code of Ethics paragraph #2 to act in good faith toward each client because clients would assume referrals are based on competence, not on a hidden protection to the realty company."

These programs can also be misleading to the consumer. I can understand a Real Estate Office wanting to make sure any home inspectors they recommend are competent and have met all the state requirements for certification. But requiring proof of insurances that are not required by the state is, in my humble opinion, not reasonable or fair. I would not hesitate to provide copies of my insurance to a potential client, but I will not provide this to a Real Estate office.

Litmus test

Here's the litmus test for inspectors: Say you miss something on an inspection, and it's an honest mistake. Now say the client finds out you are participating in a preferred vendor program with the real estate office that referred you. Might not that client be suspicious that your inspection may have been affected by this agreement? This is why the BTR does not allow these programs. If you are an honest inspector you will avoid programs that could put doubts in the mind of the consumer, whether the doubts are valid or not.

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