Your services do not end when the inspection does
Your services do not end when the inspection does
Last week we looked at how California case law affects home inspectors when their reports are passed to buyers they never met. The same legal framework carries significant implications for real estate agents, both in how they advise clients around existing inspection reports and in how they make inspector referrals.
A real estate agent I know recently told me he advises buyers to rely on an existing listing inspection and waive their contingency. Then he asked me whether those buyers were protected by the listing inspector's E&O insurance. That question led to a broader conversation about agent exposure that he had not fully considered.
The author is a home inspector, not an attorney. This article is for general educational purposes only and does not constitute legal advice. Consult your broker-of-record or a qualified real estate attorney regarding your specific exposure and obligations. The case law discussed below reflects California; standards in other states may differ.
1. What the Leko Case Means for Agents
The 2001 California appellate decision in Leko v. Cornerstone Home Inspection is most often discussed in the context of inspector liability. But two of its three holdings speak directly to agent exposure.
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. The court noted that this cross-complaint mechanism actually benefits the industry: an inspector who knows they can be pulled into an agent's lawsuit has stronger incentive to be thorough.
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.
Having recourse against an inspector does not reduce an agent's own exposure. It means damages may be apportioned, but only if the inspector also failed. An agent who steers a buyer toward an unqualified inspector, or advises reliance on an existing report without considering its limitations, carries independent risk.
2. The Referral Risk Agents Often Overlook
Beyond questions about an existing report, there is a separate exposure that agents may not consider: the referral itself.
A negligent referral occurs when an agent recommends a service provider without reasonable investigation into their competence or licensing. Courts have found this to be a breach of fiduciary duty. In the Leko opinion, the court cited Brown v. FSR Brokerage, Inc. (1998) for the principle that a buyer's agent owes their client "a heightened fiduciary duty of utmost care, integrity, honesty, and loyalty."
It's worth thinking about that for a moment. A seller already knows the property, its history, its quirks, its problems. Their agent's job is to sell it. The buyer, by contrast, is typically walking into the biggest financial commitment of their life, often without deep knowledge of the property or construction in general. They are trusting their agent to help them make a sound decision. That trust extends to the contractors and specialists the agent recommends to evaluate the home.
A referral handed out without due diligence — a name pulled from an office brochure rack or a number passed along because it's familiar — can become a liability if that inspector turns out to be underqualified, uninsured, or simply not suited to the property type.
3. Practical Steps to Reduce Your Exposure
The following practices are often recommended to help agents manage referral risk, regardless of whether your state has adopted similar standards.
Offer qualified options, not just names. Providing clients with multiple referrals is common practice, but quantity alone is not a defense if the names on the list have not been vetted. Real estate attorney Lou Pesta has argued that three unvetted names may actually create more exposure than one carefully qualified referral, because your client is choosing from a closed set they reasonably expect you know personally. The list is only as strong as its weakest name. Read Pesta's full argument on LinkedIn.
Vet the inspectors you refer. At a minimum, this means confirming whether the inspector was trained specifically as a home inspector (contracting or engineering backgrounds are valuable, but the inspection mindset is different), whether they hold membership in a recognized professional association such as ASHI or InterNACHI, and whether they carry both professional liability (E&O) insurance and general liability coverage. E&O covers findings the inspector missed or misreported. General liability covers damage that may occur during the inspection itself. These are different policies serving different purposes, and both matter.
Avoid personal guarantees. Recommending an inspector is appropriate; vouching for their work is not. Encourage clients to review sample reports and read reviews before deciding. The final choice should clearly rest with them.
Disclose any financial relationships. Any business arrangement or financial interest involving a recommended vendor must be disclosed.
Consider geographic and language fit. If only one inspector on your list regularly works in the area or speaks the client's language, the practical choice count has dropped to one, regardless of how many names you provided. If no inspectors speak the client's language, the potential weakest link in the process becomes the translator. The entire interaction relies on them for an honest and complete exchange.
4. Summary
Four takeaways worth implementing:
This article is the second in a two-part series. Inspector Liability: The Long Life of an Inspection Report covers the inspector side of the same case law.
A sample inspector vetting table, developed to support the qualification process described above, is available on the Listing Inspections & Third-Party Liability resource page.
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