Licensing Home InspectorsDecember 21, 2007Legislative CommitteeThis material is for discussion purposes only and has not been approved by the Legislative or Executive Committees or the Board of DirectorsIssue: Should home inspectors be required to hold a license as a general contractor, engineer or architect?Action: OptionalOptions: 1. Do Nothing. 2. Sponsor legislation to require home inspectors to be licensed as a general contractor,engineer or architect. 3. Sponsor legislation to require home inspectors to disclose whether they hold a license applicable to their inspection activity. 4. Other.Status/Summary: Home inspectors are not required to hold a license, althoughmany have acquired various sorts of contracting and construction related licenses during their careers. This lack of regulation and recognition has made home inspectors less credible as a substituted disclosure provider, and makes their reports less valuable as a defense to liability in a real estate dispute.Home inspector trade groups have previously, and unsuccessfully, sponsored legislation to impose a license requirement on their industry. These groups and C.A.R. have sponsored legislation imposing astatutory standard on home inspections..DiscussionWhy License Inspectors? Downturns in the real estate market tend to be accompanied by an increase in disputes, many of which involve the condition of the property. It has been suggested that insituations where a dispute leads to litigation, home inspectors’ reports are of only marginal value in defending against liability because the profession itself is unregulated and the individual inspector has not had to demonstrate any particular competence in order to enter the business. Increasing the status of the inspection business by requiring a license might add credibility to the business. However, REALTORS® can also bolster the credibility of inspections now by selecting, orhelping their clients select, only an inspector that possesses impressive qualifications such as a general contractors license, engineering background, extensive experience, professional designations or the like. Of course, the more impressively qualified inspectors may also command a higher price.Inspector trade groups like ASHI (American Society of Home Inspectors) or CREIA (California Real Estate Inspection Association) have sponsored licensure legislation in the past to raise the minimum requirements of their profession, standardize their business practice model to reduce liability and to restrict competition from unlicensed competitors. The legislation was defeated multiple times because the sponsors could not demonstrate a big enough need forthe license program and because the population of inspectors was too small to support a fee-based regulatory program. In 1996 C.A.R. sponsored home inspector legislation (AB 258, O’Connell) to codify a standard of care for home inspectors andto limit abuses reported by REALTORS® in the field. Among other things the statute prohibited attempts by inspectors to require a contractual waiver of their liability, or to limit their liability for errors to a mere return of the inspection fee. The standard of care approach was adopted when it became clear that the legislature was not prepared to enact a licensing statute. The statutory standard of care applies to inspectors that do not have a higher standard that comes from practicingunder authority of another license such as a contractor’s or architect’s license.Substitute disclosure as a liability shield. Licensure and standards are important to sellers and agents for risk management, over and above mere quality ofthe inspection. Civil Code Section 1102.4, says in essence that if an expert performs a required disclosure for a seller, then the seller is immune to liability for a mistake in the expert’s report. The expert “substitutes” for the seller, hence the term “substitute disclosure.” The most common example is a termite report. The seller hires an expert (the licensed pest control operator) to inspect the property and substitute his or her more expert and complete disclosure for that of the seller. In the absence of fraud, it will be the pest control operator that is responsible for the facts contained (or omitted) from the report, and not the seller or agent.The code section specifically lists “licensed engineer, land surveyor, geologist, structural pest control operator, contractor, or other expert ” as people that can (within their area of expertise) issue an effective substitute disclosure. While one could certainly argue that a home inspector is an “other expert” within the meaning of the code section, it is risky to assume that a court would accept it to cut off liability to an aggrieved buyer. There seems to be no authoritative case law on the subject.C.A.R.’s original legislation was designed in part to create greater credibility for home inspectors so that they could be postured as “other experts” and thus provide a partial shield for liability for incorrect disclosures. It has been of limited effectiveness unless the inspector has additional credentials.Requiring a Contractors License Based upon the prior experience of industry groups, a new license to perform home inspections is not politically feasible. However, an alternate approach mightbe to require all home inspectors to acquire and act within an existing license that is already listed in the substitute disclosure statute. The contractor’s license seems to be most appropriate.In addition to contractors, other classes of licensee might be appropriate; for example a licensed engineer or architect. Should C.A.R. sponsor legislation to prohibit home inspectors from practicing unless they are licensed as a general contractor, engineer or architect?Disclosure as an alternative. While a contractor’s license is hardly “rocket science,” neither is it an overnight process to obtain. This is even more true for licensure as an architect or engineer (which really is rocket science!). However, if home inspectors can only come from the ranks of engineers, architects and contractors; it may restrict the supply of inspectors and result in higher costs or delays. Inspectors may also fairly argue that imposition of such a rule may put legitimate companies out of business.These consequences could be avoided by imposing a disclosure requirement instead. The disclosure of a license, or lack thereof, would tend to steer consumers to the better qualified inspectors and eventually raise theprofessionalism of the inspection business. The disclosure requirement could also be used as a substitute for the license requirement during a lengthy transition period leading up to an actual license requirement, or as a sort of “grandfathering” device for those home inspectors “in the business” before the effective date of the licensing requirements.Should C.A.R. sponsor legislation to require home inspectors to disclose whether they hold a license applicable to their activity? Licenses would include at least those listed above.