Inspections: Michigan Does It Right

As reported in this column, over the past several years Michigan courts have placed great emphasis on the availability and use of property inspections when considering imposing liability against sellers and REALTORS® for alleged undisclosed defects.  Michigan REALTORS® have also successfully avoided liability for problems with incompetent or negligent inspectors by following two very simple rules. 

First, REALTORS® should, whenever possible, provide buyer clients or customers with the name of more than one inspector.  This puts the buyers in the position of making the final determination as to which of the one or more property inspectors will do the job for them.

Second, Michigan REALTORS® should make certain that the buyer contacts the property inspector directly to establish the business relationship.  Once the business relationship between the buyer and the inspector is established, the REALTOR® may then have some involvement in arranging for or attending the property inspection.  Again, the important point is that the buyer has taken responsibility for establishing the terms of the relationship with the property inspector. 

MAR, in its 2005 Legal Update, tried to emphasize the importance of following these two basic rules by discussing cases in other states where the REALTOR® did not follow these two basic rules. 

In a Connecticut case, a salesperson was found liable for failing to obtain a competent well inspector for her buyer clients.  The purchase agreement in that case had been contingent upon a “satisfactory test of the well system to be performed by a competent well inspector.”  The purchase agreement also called for certain other inspections. 

The Connecticut trial court concluded that the salesperson had taken on the responsibility of assisting the buyers and seeing that the appropriate inspections were done.  The court specifically found that it was the salesperson who had determined what needed to be done and which inspectors should perform the work.  Unfortunately, the salesperson had, on behalf of her buyers, hired a professional home inspector who had not done a well inspection, but had simply tested the quality of the water to make sure it was potable.  The home inspector’s report expressly stated there had not been an inspection of the well.  The salesperson testified that based on her experience, a well inspection was only a water test, and she assumed that the well contingency clause was satisfied by the water test. 

After closing, the buyers discovered they had purchased a home with a dug well rather than a drilled well. In addition, they discovered that the dug well was in a condition such that animals were able to access the well. Obviously, animals with access could both extract water and deposit materials in the well that would contaminate it.  The court found the salesperson and her broker to have been negligent, stating:

Here, the Defendants agreed to assist the [buyers] in finding a suitable home for their family and seeing that the appropriate inspections were conducted so that they did not buy a home that was not suitable.  The Defendants should have known that the buyers would rely on their representations regarding the inspections needed to be done to satisfy the well contingency clause of the purchase agreement and their recommendation as to who was competent to perform them. The jury could reasonably have concluded that even if [the salesperson] believed that a well inspection was a water test, that did not negate the fact that the [buyers] reasonably believed that whatever inspections [the salesperson] suggested would be sufficient to uncover any deficiencies in the well system necessary to determine whether it was a satisfactory well system for the home. 

This case demonstrates the importance of letting the buyers select what inspections need to be made and which inspectors will perform those inspections. 

A case from New Jersey demonstrated the dangers of appearing to only provide the name of a single inspector to perform a specific inspection.  In this case, the purchase agreement required septic system certification.  The salesperson, who was acting as a dual agent, arranged for inspection of the septic system and the issuance of a certificate at the request of the buyer.  The salesperson selected the inspector. The testimony at the trial established that the salesperson used this particular inspector “several times a month” to conduct special inspections and issue certificates regarding septic systems.  The inspector completed his inspection and provided a “septic system certification.” 

Unfortunately, about a month after purchasing the house, the buyers began to experience problems with the septic system.  It was ultimately determined that the septic system needed to be fully redesigned. The con tractor who did the new work testified that the procedures used by the inspector were “totally inadequate.”  The buyer claimed that the salesperson had committed consumer fraud by directing her to hire the particular inspector. In

support of her claim, the buyer pointed to the fact that this particular inspector conducted several inspections and certifications per month for the salesperson. The trial court found, and the New Jersey appellate court affirmed, that this fact alone was not sufficient to establish a fraudulent relationship. The court noted that this inspector had been in the inspection business for 42 years and was apparently a reputable inspector.  The court also relied on the fact that the buyer had the option of choosing the septic sys tem certifier, and that it had been the buyer ’s choice to defer that selection to her salesperson.  Fortunately, the trial court summarily dismissed the claims against the salesperson, and the New Jersey appellate court affirmed the decision in favor of the salesperson.  While the salesperson prevailed in this case, any REALTORS® who have been involved in litigation and ultimately prevailed know that simply being involved in litigation is ultimately a losing proposition both with respect to time and money.

Michigan REALTORS® need to continue to follow the two basic rules when it comes to property inspections so that they will continue to avoid the experiences of their brothers and sisters in other states.