Your services do not end when the inspection does
Your services do not end when the inspection does
A real estate agent I know recently told me that when a listing inspection has already been completed, he advises his clients to rely on it and waive their inspection contingency. It seemed like a reasonable efficiency play. The report exists, the house has been looked at, why duplicate the effort? Then he asked me whether his buyers were protected by the listing inspector's E&O insurance if something went wrong later.
That question sent me down a rabbit hole contacting several insurance companies. The short answer: it depends on the insurer. My insurer recommended that a new contract, fee, and service be established with any third party who intends to rely on an existing report. Another inspector's carrier took a different position and considered him covered. Coverage varies, and that inconsistency is part of the problem. The longer answer has direct implications for how inspectors write reports, knowing that someone other than the original client may rely on them.
The author is a home inspector, not an attorney. This article is for general educational purposes only and does not constitute legal advice. Consult a qualified attorney regarding your specific exposure and obligations. The case law discussed below reflects California; standards in other states may differ.
1. What California Case Law Says
In California, the 2001 appellate decision in Leko v. Cornerstone Home Inspection established three holdings that every inspector should understand. The case involved a buyer who sued their real estate agents for failing to disclose structural defects in a property. The agents, in turn, filed a cross-complaint against the home inspection companies. What the court decided reshaped the liability landscape for inspectors in California.
The three holdings in brief:
Inspectors can be liable to parties they never contracted with. Even without a direct agreement between the inspector and a subsequent buyer, an inspector may be held liable if they knew with substantial certainty that their report would be used by others beyond the original client. When a transaction falls through, or when an inspection is commissioned by a seller, the report almost always gets passed along. The court applied the Bily v. Arthur Young standard to home inspectors: professionals who provide commercial information are liable to a defined group they know will rely on it. As a result, a written disclaimer stating "for exclusive use of the client" is not a complete legal defense. It did not protect an inspection company in the case from liability to subsequent buyers.
Agents can bring inspectors into a lawsuit — and that raises the bar for everyone. When an agent is sued for failing to disclose a defect that the inspector also missed, the agent may file a cross-complaint against the inspector seeking equitable indemnity, a sharing of the financial burden proportional to each party's fault. The trial court had dismissed this possibility, reasoning it was unfair to let agents "point the finger" at inspectors. The appellate court reversed that ruling. Importantly, this does not shift the agent's own duty onto the inspector. Both remain independently responsible.
Both parties can share liability. Inspectors and brokers can be held jointly and severally liable when their independent failures to disclose caused a single, indivisible injury: the buyer purchased a defective home.
2. What This Means for How You Write Reports
The liability framework above has a direct implication for how inspection reports are written. Under the Bily standard adopted in Leko, an inspector may be held liable to third-party readers when there is substantial certainty that a report will be relied upon by parties other than the original client. In listing inspections, pre-sale inspections, or any situation where a transaction falls through, that certainty is often present. The report almost always gets passed along.
This does not mean writing defensively or burying findings in qualifications. It means writing clearly enough that someone who was not present at the inspection, and who has no relationship with you, can understand what you found and why it matters.
The practical standard to apply: before finalizing any report that may change hands, ask whether a buyer reading it cold, without benefit of your verbal explanation, would understand what you found and why it matters. If the answer is uncertain, the report needs more clarity.
3. The Value of Meeting with Clients
According to Larry Hoytt, expert witness and former home inspector, one of the most effective ways to reduce the risk of legal action is straightforward: meet with your clients or those relying on the report. Inspectors who sit down with buyers, either in person or by phone for a report review, are less likely to face complaints or litigation. That conversation sets realistic expectations, gives clients the opportunity to ask questions, and builds the kind of confidence that prevents misunderstandings from becoming disputes.
This is especially relevant when a report is being passed to a new buyer. A brief call to walk them through your findings, even informally, can significantly reduce the risk of misinterpretation down the line.
4. Summary
Three takeaways worth implementing:
Next week: the same case law carries significant implications for real estate agents, both in how they advise clients around existing reports and in how they make inspector referrals. The Referral Weakness: Why Every Agent Needs a Vetting Process publishes next week.
Glossary