Home Inspection Combined with Appraisal Services

[Mountain Man]

Jeff, how do you handle your E&O? Two separate policies for each business entity?

 

[Mike Simpson]

I've done both.

I left Home & Pest Inspections behind for two reasons:

The secondary reason was because appraising is far more lucrative (in my area), and with far less liability (that's actually two reasons...huh?). I now turn away appraisal assignments regularly, and no longer desire to do H & P Inspections as a result.

The primary reason, however, was I was tired of pandering real estate agents (more common than not). I could've advertised differently I guess, but the easiest way to get business is through referals from agents.

I've had agents follow me around inspections offering their services as an interpretor (as if I were speaking a foreign language). I've had them intercept my report and not give it to their buyer if they didn't like, or felt there was something contained within the report which might 'kill their deal.' I've had them accuse me of scaring the buyer nearly every time I pointed out a condition which needed to be addressed. Personally, I feel the buyer might need to be scared of elevated carbon monoxide readings coming from an aging furnace, carpenter ants numbering in the thousands--which aren't working on the house to build an addition, or the numerous other things an inspector might run across while conducting their inspection. I just got sick of the constant interference as a matter of everyday business.

If you're still interested I've contacted HUD regarding someone performing both H & P inspections, and appraisals. They told me they do not want one person performing both services (conflict of interest--one would most often be representing two different parties in this instance). However, they don't see any conflict with two different people from the same company--one performing a H & P inspection, the other the appraisal??? (I've got it in writing). Additionally, I needed two different E & O carriers and neither would cover me for the other (hope that makes sense?).

Rather than perform H & P inspections, I've obtained my real estate liscense and will be pursuing my brokers at a later date (all educational requirements completed at this time). If you can't beat em, join em and beat em!

-Mike

 

[Mountain Man]

Additionally, I needed two different E & O carriers and neither would cover me for the other (hope that makes sense?).

Mike, is it that they would not accept an insuree working two different areas in the same field?
Or that you were SOL on a claim for missing active termits while doing an "inspection" for an appraisal. IE: your pest control E&O would not cover it as you were not inspecting for pest. But your appraisal E&O would not cover it, because you should have noticed it in your "inspection" since you are a pest control expert. :?:

Mell

 

[Mike Simpson]

M,

I means neither company would cover me to perform an assignment for which they offered no coverage (the H & P insurer wouldn't cover me for appraisals & my Appraiser E & O insurer wouldn't cover me for H & P inspections). Additionally, if I were foolish enough to perform the H & P, and Appraisal (which I never did) neither company would agree to cover me at all!

I was able to get dual coverage only upon assuring my carriers I had no intention of performing both duties on a single home (which, after research--I didn't want to do anyway because, I wanted to avoid even the slightest appearance of conflict of interest in this over litigious society).

Additionally, I didn't cross advertise. In other words, I didn't inform my appraisal clients I was also a H & P inspector, and I didn't shop my wares to my H & P clients as being 'also an appraiser.' I figure what my clients don't know won't hurt me.

Someone would have a difficult time suing an appraiser (successfully) for not noticing wood destroying organisms in some far recess of the home's attic or crawl space. Appraiser's are not hired to perform this service and common industry practice does not require them to inspect a home nearly as thoroughly as a H.I. (thus the somewhat recent HUD lawsuit for insinuating appraiser's were H.I.'s in their past advertising). I've spoken to several attorney's regarding this fact and they all agree--I am hired to perform a specific duty and cannot be expected to perform other duties for which I've not been hired simply because I may have experience in some other field. Moreover, this fact is reflected in the fee. Two different attorney's have written my Additional Conditions, Scope, Function and Objectives, and I'm fairly confident that I'm adequately covered.

Lastly, my Lawyer clients find my background desirable and I intend to market more along these lines in the near future. Pandering real estate agents and unethical lenders are creating a niche market in my opinion.

-Mike

 

[Jeff Horton]

Jeff, how do you handle your E&O? Two separate policies for each business entity?

Mike answered most of the other things I was going to address. But in my business I take an approach that brings down fire from the Appraisal Forum Nay-sayers every time I mention it. But what the heck, I am pretty good at ignoring those that think they know everything.

I am incorporated and in my state the Corporation and the individual are two separate entities. As long as I keep my bookkeeping done correctly I can not be sued personally for something I did as part of the business. My Corporation has so few assets that (per my lawyer) I am not worth suing. The one thing he HAMMERED into me when he Incorporated me was my bookkeeping! He said NEVER EVER buy groceries with a business check! Don't buy gas for the personal car. If it was not a real business expense don't write it out of my business account.

Write myself a check for salary and deposit it in the personal account or Cash it. If I had to pay for something with a business check reimburse it!! Keep the business and the personal side TOTALLY separate and I would be OK. There is a method for "piercing the corporate bubble" but he said was very difficult and when it happened it was usually someone that had mixed personal and business funds the point that their was no distinction between the business and personal finances.

From what I gather this doesn't work in every state.

 

[Mike Simpson]

Jeff-

We must have the same kind of accountant, but I still find E & O--for less than the price of one assignment--helps me sleep better at night.

Have you ever considered getting your real estate license? Keeps pace with inflation (a heck of a lot better than appraising or H & P Inspections) and gives you a lot of juice!

In my state, an appraiser w/more than 5 years experience (appraising) can take the necessary course work (120 hours, 3 mandatory classes & 1 elective), and challenge the brokers exam. You must pass the exam the first time, however, otherwise you must serve the 2 year internship (no second chances).

-Mike

 

[Larry Lyke]

Am I left to assume the the Appraiser-Home Inspector who is doing both on the same subject is noting same in the appraisal report?

Yes; and if so, do you send a copy of the home inspection along with the appraisal to the UW or do you wait until they ask for it?

I would think these activities would be mutally exclusive unless you are in a very, very small market where the public and Realtors and lenders are just happy to even have these services available at all.

I thought about it seriously several years ago, but every answer came up "no." I could do one but not both. I prefer appraising. But the scary thing was the higher due diligence required in appraising with this knowledge codified in my background.

Something to think about...