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Key Clauses You Need in Your Pre-Inspection Agreement
by Kendra Budd, Associate Editor
As a professional home inspector, your pre-inspection agreement is far and above your best defense against upset clients and potential claimants.
This is because it clearly sets the table for the services you are going to provide—it defines what a home inspection is, what you will be looking at, and just as important, what a home inspection IS NOT (at least if your agreement is written correctly). This in itself will assist you greatly in any dispute with a customer. You can always point back to the definition of services and kindly remind your client that they hired you to perform a non-invasive visual observation of the property—not see through walls!
Beyond the very valuable function of defining your home inspection services, your pre-inspection agreement can (and should!) also include a number of very important clauses that will make it much easier to defend you against potential claims.
In December 2021, Isaac Peck, President of OREP Insurance, presented a webinar titled Sharpening Your Pre-Inspection Agreement where he went over several of the clauses that are “must haves” for home inspectors.
Here are some of the clauses that OREP strongly recommends you consider including in your pre-inspection agreement.
Statute of Limitations
While some states may limit your ability to protect yourself by limiting the statute of limitations, you can almost always, at least partially, reduce the window of time that potential claimants have to pursue a claim against you.
This clause can especially be useful if you live in a state that bans limitations of liability. This is because a statute of limitations restricts the time within which a client can make legal proceedings against you, usually to a fixed period of time after the occurrence of events.
OREP’s own claim data suggests that 60% of all home inspector claims arise within the first year, and 90% within the first two years. So, while this won’t solve all of your problems should a past client decide to pursue legal action against you, it will still help reduce some of the potential claims.
Example:
The Client and the Inspector agree that no claim, demand, or action, may be brought to recover damages against the Inspector, or any of its officers, agents or employees, more than one (1) year after the date of the inspection, except for a claim for breach of contract. No breach of contract claims may be brought against the Inspector more than 2 years from the date the cause of action accrues. Time is of the essence herein. Client understands that the time periods discussed herein may be shorter than otherwise provided by law.
Excluding Specific Services
If you’re a home inspector who offers ancillary inspections services like mold, septic, air quality, sewer, etc., then listen up because this one is for you! It’s great to offer additional services for an additional price, but if your client declines them, then one approach is to have the client sign a separate exclusion of services agreement acknowledging that they are declining the service and releasing you of all liability in relation to that service.
For example, if you have client that declines a mold inspection, you should then have them sign a mold-specific service exclusion detailing that (1) they are declining your mold testing/inspection service, and (2) they release you from any liability concerning mold. In this way, if they decline your mold service but then months later they try to sue you after finding mold in their new home, they won’t have a legal leg to stand on.
Mediation Clause
Putting a mediation clause into your pre-inspection agreement is another way to reduce the risk of a lawsuit. A mediation clause simply requires any potential claimant to meet you for a mediation session before filing a lawsuit. Both the home inspector and the claimant both get the opportunity to hear each other out and explain their positions.
This is not going to make all claims go away, but sometimes getting both parties together to discuss the issue in front of a mediator can avoid escalation of the matter and prevent a lawsuit.
Mediation clauses are common among Realtors associations and Realtor forms, so clearly there are large swaths of real estate professionals that have found mediation to be useful at bringing both parties to the table. The California Association of Realtors (CAR), for example, includes a mediation clause that has teeth in that if a party does not go to mediation before resorting to litigation, they waive the right to recover attorney’s fees if they were to otherwise win the case.
Here is an example of a mediation clause in a home inspector agreement:
Client agrees that if a dispute or claim arises from this agreement, the inspection, the report, and if the dispute cannot be settled through direct discussions, the parties agree to endeavor first to settle the dispute by mediation. If the case isn’t resolved at mediation, then both parties can seek justice in the court system.
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Attorney’s Fee Clause
This is one of the most important (and aggressive) clauses that you should definitely include in your pre-inspection agreement. This clause says that if an angry client sues you and doesn’t win, they must pay your attorney’s fees.
Quite frankly, this works as a threatening “stick” that your defense counsel can use to remind the claimant that if they decide to pursue a frivolous claim, it is THEM who will be paying YOU, instead of the other way around.
This is enough to get all but the most thick-headed claimants to think twice about filing a lawsuit against you as it ensures that they have skin in the game. If they lose their case, they will have to pay all your legal fees. This ensures that you are negotiating with potential claimants from a position of strength and discourages claimants from threatening you with weak and/orfrivolous claims.
Example:
The Inspector and the Client agree that in the event any dispute or controversy arises as a result of the Agreement, and the services provided hereunder, and the Client fails to prevail on all causes of action alleged, the Inspector shall be entitled to recover all of the reasonable and necessary attorney’s fees, costs and expenses, including expert expenses, incurred by the Inspector.
Notice + Waiver Clause
This clause is pretty straightforward. It says that the client has ten days to provide written notice to you after the discovery of potential housing problems or defects. Additionally, the clause states that your client agrees not hire a third-party or try to fix any defects themselves until you get the chance to re-inspect the home.
If the client fails to give a proper written notice within ten days, then their potential claims for damages are automatically waived. In other words, they give up any right to bring a claim against you.
Example:
In the event that a dispute arises regarding an inspection that has been performed under this Agreement, the Client agrees to notify the Inspector, in writing, within ten (10) days of the date the Client discovers the basis for the dispute so as to give the Inspector a reasonable opportunity to reinspect the property. Client agrees to allow re-inspection before any corrective action is taken, Client agrees not to disturb or repair or have repaired anything which might constitute evidence relating to a complaint. Such removal or repair would substantially inhibit Inspector’s opportunity to defend himself/herself in a dispute. IF CLIENT FAILS TO GIVE PROPER WRITTEN NOTICE HEREUNDER, ALL OF CLIENT’S POTENTIAL CLAIMS FOR DAMAGES ARISING OUT OF SUCH COMPLAINT ARE EXPRESSLY WAIVED, INCLUDING THE NEGLIGENCE OF THE INSPECTOR. THE WAIVER CONTAINED HEREIN IS INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH THE EXPRESS TERMS AND SCOPE THEREOF NOTWITHSTANDING ANY EXPRESS NEGLIGENCE RULE OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES BECAUSE OF THE NEGLIGENCE OR GROSS NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT OR ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF ANY OF THE INDEMNIFIED PARTIES.
Confidentiality/Exclusivity Clause
It is always a good idea to include a confidentiality/exclusivity clause in your agreement to prevent other third-parties, who are NOT your client, from bringing a claim against you.
Imagine this scenario: You perform a home inspection for your client, the first homebuyer. Your client decides not to proceed with the purchase, but the seller, who received a copy of your home inspection report, then passes it on to the next buyer—who is not your client and never paid your inspection fee. This next buyer decides to save some money and not get their own home inspection—relying on your report even though they are not your client and they never paid you a dime. A few months later, they discover a defect in the home and want to bring a lawsuit against you—even though you don’t know them, never worked for them, and have no agreement with them!
We’ve seen multiple cases where this exact scenario plays out. Including a confidentiality/exclusivity clause into your agreement protects you from that. Once a client signs this they are agreeing that they, the current buyer, are the only ones that can see and rely on the report. It also specifically prohibits any other party from relying on the report. (By the way, it is also a good idea to include similar language in the inspection report itself.)
Here is some sample wording for this clause:
The report is confidential and is for the sole and exclusive private use of the client. Use of all information contained in the report is specifically restricted to the transaction for which the inspection was performed. Use of or reliance upon the report by other parties, or for other transactions, is strictly prohibited. No third party shall have any rights arising from this contract or the report and may not rely on the report. Client gives permission for the Inspector to discuss report findings with real estate agents, specialists, or repair persons for the sake of clarification.
Define Client Broadly Clause
Lastly, make sure your pre-inspection agreement defines your client as a broadly as possible. If you limit your client to the individual who signed the agreement, you could be in a heap of trouble. For example, if your pre-inspection agreement defines the client as just an individual, or doesn’t define the client at all, you could be in trouble if the “husband” signs the agreement but later the “wife” is the one who files the lawsuit. She wasn’t included in the pre-inspection agreement, so she could use that to her advantage.
It is highly recommended to make this the first clause in your pre-inspection agreement. Example:
This Agreement is made by and between the Client(s) (referred to herein as “Client”) and the Inspector (referred to herein as “Inspector”). The term Client shall include the undersigned representative of the Client, as well as any of Client’s past, present and future subsidiaries, divisions, parents, affiliates, assigns, related entities, successors, predecessors, representatives, employees, officers, shareholders, directors, agents, assigns, and any other person or entity that benefits from or relies on the Inspection Report. The term Inspector shall include the undersigned representative of the Inspector, its past, present and future subsidiaries, divisions, parents, affiliates, assigns, related entities, successors, predecessors, representatives, employees, officers, shareholders, directors, agents, and assigns.
Final Thoughts
Remember, your pre-inspection agreement is one of the best defenses you have against a lawsuit in today’s litigious society. Be sure to use an agreement that clearly defines what your home inspection is (and is not)—and get it signed! And then, of course, consider adding some of these clauses to your agreement.
Stay safe out there!
P.S. If you’d like to learn more about how to strengthen your pre-inspection agreement, don’t miss tomorrow’s webinar, Sharpening Your Pre-Inspection Agreement, presented by Isaac Peck.
About the Author
Kendra Budd is the Associate Editor and Marketing Coordinator for Working RE magazine. She graduated with a BA in Theatre and English from Western Washington University, and with an MFA in Creative Writing from Full Sail University. She is currently based in Seattle, WA.
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