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Washington State Home Inspector Licensing -- Legalities and Preferred Vendor Lists

By
Home Inspector with King of the House Home Inspection, Inc. Home Inspector Lic #207
This post, and a previous post about WAC 308-124C-050, are  based on information I have gleaned from various and official sources.

This post should provide insight, for realtors and home inspectors, into changes in Washington State real estate laws. Information in this post is of benefit not only to Washington State home inspectors, realtors and brokers but also it should be read by inspectors, such as those from Oregon or Idaho, who might come into Washington to work.

Let us review. The new section in the WAC mandates that brokers establish policies so agents in their firm will disclose business relationships that might exist between the firm, realtors and the inspectors. If you did not see that earlier post that described this new section in the WAC, read it here.

The topic, detailed in this post, is controversial. The subject is "preferred vendor lists." It is not hard to figure out what they are and the controversy is obvious. Simply do a google search on the topic. You will find states with laws in place that prohibit home inspectors from paying to be on such lists. You will find large home inspector organizations that restrict their members from participating in such schemes. You will find television networks with live online videos quote "exposing" the practice of paid vendor lists. You will also find that some home inspectors, nationally, are reported to pay as much as $2000.00 per year to be included on such lists. 

The concept is simple -- those parties on preferred lists pay the fee and, as a result of paying that fee, they are included on the list that is then given out to clients of that real estate firm. This  vendor list might be operated by an affiliate of a real estate company and could be called a service, maintenance or home service company. Regardless of the mechanics involved, the firms give out a list of inspectors that have paid to be referred. The common term is "pay to play".

There are other fields -- home stagers or appraisers for example -- that also pay to be on these preferred lists. In this post, I am only addressing paid vendor lists that include home inspection firms. That is the area I am familiar with. This post is not referring to non-paid lists of inspectors that might be given out by realtors because the realtors believe the inspectors do good work. Again, the topic is paid vendor lists.

I was told by DOL staff that, under the WAC, any real estate firms in this state, that refer inspectors from paid lists must disclose that fact to clients. Clients must be told that the inspectors paid to be referred. This is a mandatory disclosure issue for real estate firms that provide paid vendor lists.

That is the situation now but, in this state, these paid lists of inspectors are on the way out. Come September, when the new home inspector licensing law is scheduled to go into effect, the practice of referring inspectors from a paid list will be a moot issue. Real estate firms might keep their paid lists, but they will not be able to have home inspectors on that list. Those of us on the home inspector licensing advisory board feel strongly about this issue and we put language in the law that stops this practice altogether. Any inspector who pays to be on such a list will be in violation of state laws that regulate the profession. You can see that language, in the Standards of Practice and Ethics,  here. 

Applicable language is explained below:

An inspector SHALL NOT provide compensation, inducement, or reward directly or indirectly, to any person or entity other than the client, for the referral of business, inclusion on a LIST of recommended inspectors or PREFERRED PROVIDERS or participate in similar arrangements. The purchase and/or use of low-value advertising or marketing services or products that does not exceed ten dollars per item, is not considered inducement or reward.

That makes it clear, and DOL staff agrees, inspectors will not be allowed to participate in paid lists. This rule, again, does not stop realtors from giving out lists of inspectors whom they believe have merit and are qualified. It does keep inspectors off paid lists.

For the record, Washington is not the first state in the Pacific Northwest to slam the door on home inspector participation in this type of marketing. When Oregon's home inspection laws went into effect a few years ago, inspectors there were told that they could not participate in such lists. The applicable language in the Oregon law is below.

"An Oregon certified home inspector shall not.....Directly or indirectly compensate realty agents, or other parties having a financial interest in closing or settlement of real estate transactions, for the referral of inspections or for inclusion on a list of recommended inspectors, preferred providers or similar arrangements."

You can read the detailed explanation for the Oregon law at this link. Since some inspectors, such as those in the major city of Portland, OR and/or Vancouver, WA, serve both states, this law should assure that inspectors on both sides of the state line will not be allowed to participate in paid vendor lists.

Bottom line: In this state, at this point in time, real estate firms, or an affiliated firm, can refer home inspectors who are on the paid preferred lists -- as long as the realtors disclose to their clients that the inspectors paid to be referred. But, that is now -- wait until September. At that time, Washington law is scheduled to follow in the footsteps of Oregon. Any inspector, paying to be on a list, will be violating state law and will risk repercussions or even forfeiture of the home inspection license.

The information above has been based on public information that was available to anyone who seeks it out. This last section to follow is my opinion, so accept it as that. It seems that  inspectors who are presently paying to be on such lists, could be caught in a pinch if they commit money to these programs. Paying fees, to be on such a list, and then having to suddenly cease participating in the program, could be a financial drain. As for the real estate firms that give out inspector names from paid lists, it is apparent that the lists will be obsolete come September. At that time, those firms will have to devise another way to refer home inspectors to clients.

Anyone who wishes complete details on this topic should contact the Washington State Department of Licensing.

To see additional information on home inspector licensing in the state, click on George's head.

Steven L. Smith

Bellingham WA Home Inspections

Posted by

Steven L. Smith

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Comments (11)

Brian Belcher
RE/MAX Executive - Charlotte, NC
Charlotte Realtor

Hey, great post. Thanks for the information about your area.

Feb 21, 2009 01:34 PM
Jack Feldmann
Clayton Inspection Service, Inc. - Knoxville, TN

Maybe it's just me, but I think that paying to be on a list is like going to the prom with your sister. It just doesn't mean the same.

"Oh, I have a great inspector for you to use. Uh, well, no I didn't use him for my own house I bought last month,but he has paid a fee to my office, so I know he's good enough for you"

Shame on the people that take money to refer someone based on their ability to pay the extortion  (sorry, fee), and not on their ability to do a great job for their client, that trust them to recommend someone good.

Shame on the wh***s that pay the money to get business, knowing they better take it easy, or someone else will take their place on the list.Of course, they are the same clowns that put out those flyers saying things like they do "firendly reports", or "won't scare anyone", or "won't kill the deal". Makes me want to retch.

Feb 21, 2009 01:39 PM
Steven L. Smith
King of the House Home Inspection, Inc. - Bellingham, WA
Bellingham WA Home Inspector

Jack,

Thanks for the comments. I am in a position where I have to present this in an unbiased manner, but you sure are free to put in your views. Thanks. I would not argue with one word.

Feb 21, 2009 02:27 PM
Jack Feldmann
Clayton Inspection Service, Inc. - Knoxville, TN

Well shucks Steven, I'm just a lowly inspector wanna bee from the South, what do I know about what I should say or not. (wink wink)

Feb 22, 2009 11:14 AM
Steven L. Smith
King of the House Home Inspection, Inc. - Bellingham, WA
Bellingham WA Home Inspector

Jack,

What you say holds together.

Feb 22, 2009 11:30 AM
Rick Bunzel
Pacific Crest Inspections - Anacortes, WA

Fortunately I don't think we have any offices in our part of the state that does PAY for PLAY. Did you see any in Bellingham?

 

Rick Bunzel, CRI
Pacific Crest Inspections

NAHI MEMBER OF THE YEAR 2008

NPSAR Affiliate of the Year 2006-2007
WWW.PacCrestInspections.com
360-588-6956
Fax 360-588-6965

Toll Free 866-618-7764

Feb 24, 2009 02:40 AM
Steven L. Smith
King of the House Home Inspection, Inc. - Bellingham, WA
Bellingham WA Home Inspector

Rick,

I am not aware of any in Bellingham or Whatcom County. At the state board, we have been told of a firm that may be using this arrangment down south near the Oregon border.

Feb 24, 2009 04:06 AM
Mike O'Handley
Your Inspector Inc. - Seattle, WA

Hi Steve,

There's another wrinkle that those who have already participated in such schemes are not going to like and that's WAC-408C-020 (2).

Provide full written disclosure of any business or familial relationships or other conflicts of interest between themselves and any other party to the transaction. The parties may include, but are not limited to, buyers, sellers, appraisers, real estate licensees, mortgage representatives, title companies, vendors and service contractors.

It doesn't specify when this relationship existed; only that it must be disclosed. So, if you used to be a partner in a fellow's real estate firm years ago and are now an inspector, and that firm is referring you to clients, that business relationship needs to be disclosed. Likewise, pay-to-play is a business relationship; so, even after one stops pay-to-play, it must be revealed. This is not done to punish anyone, only to ensure that the client is fully informed. That way, if the idea of that relationship makes the client even the least bit uncomfortable, the client can choose to go with another inspector. 

Think about it; if an inspector who used to participate in a pay-to-play scheme does not divulge that fact to his or her client and an issue later comes up with the house, and subsequent investigation by the client reveals that the inspector had once been involved in such a scheme, a client is very likely going to suspect there was some kind of subterfuge involved - even if there wasn't. On the other hand, if the inspector divulges that past relationship up front before the inspection, the client cannot say that he or she was not fully informed.

The whole point of these restrictions is to keep everything above-board and transparent in order to allay suspicions and prevent misunderstandings. For some inspectors it's going to mean a major shift in the way they are doing business - for most of us, not so much. 

Of course, non of these ethical restrictions are going to work if either the inspector, the realtor or both are simply unethical. As Steve has stated, non of this prevents an agent from handing a list of the agent's favorite inspectors to the client. It's still left up to the client whether the client chooses to hire an inspector off that list, hires an inspector recommended by friends relatives or co-workers, or picks one out of the phone book.

Giving out a list of names only works when everyone involved has the client's best interest at heart and isn't thinking about their own fees/commissions. I say that because we know from experience that most first time buyers will automatically trust the list that's handed to them by their agent. In a case like that, the outcome depends on the quality of names on that list.

If an agent's list is populated strictly with top-notch inspectors who will inspect completely and thoroughly, regardless of the outcome, there's a strong probability that, if the client uses one of the inspectors on that list, the client isn't going to have any major issues to deal with in the near future. On the other hand, if the list is populated with inspectors that are prone to minimizing what they find, in order not to kill the deal and upset the transaction applecart, then there's a strong possibility that somewhere down the road a client using someone from that list is going to get stung.....badly. 

It doesn't take long for agents to figure out one type of inspector from another, so an agent giving out these lists bears a certain amount of responsibility for any unsatisfactory outcome.  Still, non of us are perfect and everyone makes mistakes sooner or later: so, there are bound to be some unhappy clients at some point regardless of what one does. Still, the odds of having an unhappy future client can be increased or decreased depending on who the agent puts on that list.

If I had my druthers, all agents would just explain to a client what a home inspection is, tell their clients to ask family, friends and co-workers for the name of a competent inspector and then to check that inspector out on the internet, and then be sure to check the inspector's qualifications and obtain a list of references from previous satisfied customers who've given permission to use them as references, and then actually call some of them to verify his/her skills, before deciding to hire the inspector. 

I think that if agents did that and stayed completely out of the inspector decision process the overall image of both real estate professionals and home inspectors would improve greatly and the market would eventually weed out both agents and inspectors that are incompetent or unethical. Of course, then too, I'm often accused of being a dreamer.

ONE TEAM - ONE FIGHT!!!

Mike O'Handley, Editor - The Inspector's Journa (TIJ)

Feb 26, 2009 02:49 AM
Steven L. Smith
King of the House Home Inspection, Inc. - Bellingham, WA
Bellingham WA Home Inspector

Mike,

Thanks for your thoughts. You are, as a board member, one who works hard to avoid potential ethics problems as the law is being written so your input, thoughts here, are really appreciated.

Steve

Feb 26, 2009 02:59 AM
Anonymous
John (Contractor)

I heard a (KW) Keller William office in Olympia WA. who will only refer you if you pay a fee to be on their "exclusive" lists.  I wonder what they actually do with that money,... maybe buy a keg and throw a party,... obviously a paid fee is their OK that someone is good enough for their clients instead of merit.  Pretty scary if you ask me....  I guess if its true, the broker of the KW office better step up and tell their clients that everyone we recommend has paid a fee for their referral... Just my three cents..

Mar 07, 2009 04:06 AM
#10
Steven L. Smith
King of the House Home Inspection, Inc. - Bellingham, WA
Bellingham WA Home Inspector

John,

The better ougta not be doing that now. All these laws are now in effect and have been for some time.

Jan 04, 2011 03:26 PM