E & O Insurance...

[Bob Stark]

While I understand the inherent value in liablility insurance, I have spoken to several "seasoned" inspectors that tell me that because their pre-inspection agreement is so "tight" in their liability limiting language, that they have never purchased E&O. (Limiting to the extent of the report's cost).

Any thoughts on this subject anyone ??

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[Rick Hurst]

My thought on this is that most "seasoned" inspectors feel they perform a through enough inspection, that their liability is lessened thus the expense of E&O is not warrantied.

If you stay in this business long enough, you will be sued. That is just a fact in our suit happy type society we live in.

A newbie in the business just doesn't have all the experience in recognizing defects and is at a higher risk thus he'd should by all means carry E&O in my opinion.

All the inspectors I personally know that have been sued and paid out judgments it was within their first few years of business. Thats one of the reasons the drop out rate in this business is high.

As for as a "tight" agreement, none of them basically hold up in court and are just a smoke screen to your client to think twice of going to court. Keep in mind that the courts usually look out after the consumer more than the business.

[Richard Moore]

I'm certainly no legal expert but let me ask you a question. If an inspection agreement could be "air-tight" under ALL circumstances, why would insurance companies exist?

Hospitals, and the medical profession in general, have been around a long time and probably have access to some of the best lawyers around. Go in for surgery and you get to sign the best waivers they have been able to produce. But still, how many hospitals and doctors don't have liability insurance?

In our case, yes, if you can prove that you performed the inspection to normal standards, then the agreement might hold up. But, if there's enough at stake, particularly an injury or death, even if caused by something you had no way of catching, the plaintiffs lawyer is going to be trying very hard to suggest you didn't do your job and that the "contract" should be thrown out or at least put aside while the case is argued.

It's a gamble some are willing to take. The rest consider it part of the cost of doing business and include it the fees. In my case, SWMBO is very protective of our "nest-egg" and insists on insurance.

(She Who Must Be Obeyed)

[Bill Rice]

Bob:

I, too, have asked serveral inspectors in my area and all have said the cost of E & O insurance is prohibitive, not to mention the ridiculous deductable amount. I know that all it takes is one lawsuit to validate the monthly premiums, but the cost for new inspectors, like me, is just simply too expensive.

I consulted an attorney about how "tight" an inspection agreement was and he said any attorney worth his salt could tear it apart in court. Until I get enought business to support the insurance premiums, I'm taking my chances with my own agreement.

Bill
Closer Look Inspections
Sorrento, Florida

[Paul Kondzich]

I read somewhere (maybe here) statistics say that you are 200% more likely to be sued if you have E&O as opposed to not having it. So my state does not require it and I am INC. so I'm taking my chances.

[Jerry Peck]

I consulted an attorney about how "tight" an inspection agreement was and he said any attorney worth his salt could tear it apart in court. Until I get enought business to support the insurance premiums, I'm taking my chances with my own agreement.

Ask an attorney about suing a home inspector who has no, or limited, assets, and he will advise you to 'try to work something out', and that if you use his services, your cost will be in the thousands, possibly even higher than what is ultimately awarded ... you make the call if you want to proceed.

However, if there is E&O insurance, one letter and the THREAT of legal action, and the E&O will typically pay up to the deductible without much fight (the insurance company will have the home inspector write a check for that amount), now, if the deductible is high enough (most are), the attorney may suggest 'going for it, even if I take 30%, you still get some free money' (not necessarily in those words, but that's the meaning behind them).

[Bob Stark]

Boy, talk about limited assets ! So, some of you say, tighten up the agreement and set sail, while others say, "I know it's expensive but get it anyway." I appreciate the comment about 'one lawsuit and the premiums are validated......."

What to do, what to do......

[Tim Moreira]

I tend to agree with Jerry. I had E&O my first year but dropped it after that.

First: Is the cost.

Second: Is the fact that it means there are *deep pockets* for an attorney to sue for.

Third: Most in_surance companies have a high deductible that they will offer to resolve the claim without even fighting it.

Since Florida does not require E&O I will not carry it until it does. I know that there are plenty of folks on here that would not do business with out it.

I look at it this way. If I get sued, the client will most likely contact an attorney that will intern contact me. When I tell him that I do not have E&O in_surance and that they signed the *agreement* (for what that's worth) and that I am incorporated and all of the legal stuff that goes with it is up to date and that my company assets equal less than $500.00 in the company bank account and that I have some used tools and a few nice brochure holders they could have, I don't think I will hear back from them. Nothing there to collect.

Also, in my state my home that I live in is *homesteaded* meaning no one can sue you and take it away from you (except the tax man if you don't pay him )

So the way I see it, my risk is minimal. I put the money I would have payed for the in_surance into a saving account. This way if I do have a legitimate problem I can make some kind of offer to settle.

[Bob Stark]

Tim,
Thanks for the response! Good food for thought. (I 'knew' this was an excellent site to be part of !) As far as requirements are concerned, E & O is not required here either. I's funny that I wouldn't be caught dead without auto insurance while driving down the interstate, but with E & O, it's really a judgment call I suppose. The expense vs. assets (...or lack thereof) And, as you say, put those monies into a savings account to access in the event settlement is required..... with E & O in place, regardless of the outcome of a claim, I'd still be bound to pay the deductible anyway.
Thanks again! I'll chew on that for a while !!

[Kevin Luce]

I's funny that I wouldn't be caught dead without auto insurance while driving down the interstate, but with E & O, it's really a judgment call I suppose. The expense vs. assets (...or lack thereof) And, as you say, put those monies into a savings account to access in the event settlement is required..... with E & O in place,

What is the % of people that put the money into a savings account and keep it there?? Anyone that doesn't have the proper amount of money in there savings (which should be a lot of $) or have insurance is not right. Why would anyone think that if they did not properly inspect something especially when the home inspector knows that he missed it, that he should have the attitude that he cannot be touched since there is nothing to touch.

For those that do not have the funds available when you do make a mistake, I hope you don't hurt that family too bad. I know you wouldn't want to be hurt in that way.

[Scott Patterson]

Also, in my state my home that I live in is *homesteaded* meaning no one can sue you and take it away from you (except the tax man if you don't pay him )

So the way I see it, my risk is minimal. I put the money I would have payed for the in_surance into a saving account. This way if I do have a legitimate problem I can make some kind of offer to settle.

Well, that's sorta of true. Your home can't be taken but if you have any equity in it that can be taken. You could be forced to either sell or take a second mortgage out to settle a judgement, it just takes longer to get this done. One reason that OJ is renting his house.

You don't want a court ordered judgement on your credit record.

[Jerry Peck]

Anyone that doesn't have the proper amount of money in there savings (which should be a lot of $) or have insurance is not right. Why would anyone think that if they did not properly inspect something especially when the home inspector knows that he missed it, that he should have the attitude that he cannot be touched since there is nothing to touch.

Kevin,

What I think you are missing is that if there is a problem, take care of it, with the difference being:

a) You take care of it and it costs $1,000 (probably less, a lot less).

b) You have E&O and the attorney goes for $500,000. Your insurance settles and you pay your deductible - $5,000, of which the attorney gets 30% ($1,500 plus expenses, so lets say $2,500) and the client gets the rest - $2,500.

E&O did not 'solve' anything.

E&O just made it worthwhile for the attorney to become involved, which costs $$$$$$$.

[Kevin Luce]

I think it needs to be told that in many cases, there is a lot more to the work/repair than just the problem itself. It's suprising sometimes what has to be removed to get to that problem and fix it properly; then those items need to be re-installed/built. When that person has to pay a contractor which has operating expense himself, the cost for repairs can easily go over $1000.00.

[Jerry Peck]

Kevin,

Are you saying that E&O 'does not' bring in the sharks even when the water is shallow?

[Kevin Luce]

No, I'm not saying that at all. I just feel this is something we have to deal with, just like most others that have insurance.

The bigger picture is protecting ourselves but also being financally responsible when mistakes are clearly made by a home inspector.

[Jerry Peck]

Good, something we can agree on in the end.

Choosing NOT TO have E&O does not make one an irresponsible inspector anymore than choosing TO have E&O makes for a responsible inspector.

There are good and bad inspectors in both camps.

[Ben Garrison]

E&O: To insure or not to insure, that is the question. By not insuring, you run the risk of losing it all potentially. By insuring, at least if you lose, it's the insurance company's money, minus your deductible and premiums. There are good arguments supporting both sides on this thread. When it comes to your pre-inspection agreement and Rick is right about them not really holding up in court. Even if they did hold up, you would still pay a good amount of money for an attorney to establish that your agreement limits your liability. The lawyers are making the money here.

[Rick Cantrell]

Bob
An Insurance company has two obligations (a least it's supposed to).
1 To make a profit for the stockholders
2 To protect the public by paying for damages caused by the insured

Look at auto insurance
Georgia requires you to have auto insurance, not for your benefit or protection but for the benefit and protection of the public.
If someone causes injury or damage to property of another, the insurance will pay compensation for the injury/damage, thus protecting the public.
It further protects the public; by increasing the rates of people that are at a higher risk (Someone with a DUI, Speeding, or other claims), or by refusing to insure them. Increasing the rates on these high risk people, will (in theory) cause them to drive more carefully, thereby protecting the public even further (and increase profits).
It makes a profit by:
(I could go on about this, but I make it short)
1 Increase your rates
2 Deny your claims
3 Make someone else pay the claim

As for insurance protecting you, that is insurance company marketing hype. Protecting you would be: Investigating deeper, mediation more often, and defending you against all claims.
You ARE NOT what the insurance company is protecting.

In many cases, one would be better to save the money that would be paid for the insurance AND deductible, and pay the claim himself or hire a better attorney, after all $5-6K still buys a decent attorney.

[Ben Garrison]

Bob
An Insurance company has two obligations (a least it's supposed to).
1 To make a profit for the stockholders
2 To protect the public by paying for damages caused by the insured

Look at auto insurance
Georgia requires you to have auto insurance, not for your benefit or protection but for the benefit and protection of the public.
If someone causes injury or damage to property of another, the insurance will pay compensation for the injury/damage, thus protecting the public.
It further protects the public; by increasing the rates of people that are at a higher risk (Someone with a DUI, Speeding, or other claims), or by refusing to insure them. Increasing the rates on these high risk people, will (in theory) cause them to drive more carefully, thereby protecting the public even further (and increase profits).
It makes a profit by:
(I could go on about this, but I make it short)
1 Increase your rates
2 Deny your claims
3 Make someone else pay the claim

As for insurance protecting you, that is insurance company marketing hype. Protecting you would be: Investigating deeper, mediation more often, and defending you against all claims.
You ARE NOT what the insurance company is protecting.

In many cases, one would be better to save the money that would be paid for the insurance AND deductible, and pay the claim himself or hire a better attorney, after all $5-6K still buys a decent attorney.

Rick,

You raise many good points. If rates for insureds were not increased for a higher risk on the basis of claims or prior incidents, insurance companies would probably not be in business. I would like to think that having one claim, or perhaps one DUI, would preclude someone from future wrong doing. In my opinion, that's not the reality all the time.

What I find interesting is now insurance companies are using credit scores as a means to determine rates. Apparently, there's data that suggests that lower your credit score, the more likely you are to get in a car accident??? In some ways, it's a shame because there are reasons, beyond people's control, that result in a low credit score. Especially with the emergence of identity theft.

Your thoughts???

Ben

[Tim Moreira]

Ben,

I agree with you on the credit score/in_surance rates. That's a load of crap. Since you pay for the in_surance in the front, not the rears, there is no danger of the not getting paid by a person with bad credit problems.

Credit score does not determine accident rates in my opinion. Can't see how that is possible.

Secondly, I would like to see more in_surance companies have a more affordable way for part time inspectors or for when things slow down like now. Any thoughts on a per use inspection? If that could be done in an affordable manner to both parties you could end up with more clients.

[Ben Garrison]

Ben,

I agree with you on the credit score/in_surance rates. That's a load of crap. Since you pay for the in_surance in the front, not the rears, there is no danger of the not getting paid by a person with bad credit problems.

Credit score does not determine accident rates in my opinion. Can't see how that is possible.

Secondly, I would like to see more in_surance companies have a more affordable way for part time inspectors or for when things slow down like now. Any thoughts on a per use inspection? If that could be done in an affordable manner to both parties you could end up with more clients.

I think insurance companies are drawing a correlation between a person's credit history and the likelihood of getting an an accident. Not so much the ability to pay premiums on time. Apparently studies have shown that drivers with poor credit scores have increased chance of accidents. Now, considering that I have good credit, I wonder what Nationwide would say if I called them and asked for a discount on that basis? Seems like it's pretty one-sided with the auto insurance. Although people think insurance as a whole is one-sided. Until they actually need it.

The Pay Per Inspection concept is a good one. But it's difficult to make that a successful program. It's an administrative nightmare from what I've been told, and can lead to adverse selection for the carrier.

[Rick Cantrell]

Ben
You said:
" If rates for insureds were not increased for a higher risk on the basis of claims or prior incidents, insurance companies would probably not be in business."
True. As someone once said: ( I heard it from Zig Ziglar)
" The best indicator of future performance is past performance"

"I would like to think that having one claim, or perhaps one DUI, would preclude someone from future wrong doing. In my opinion, that's not the reality all the time."
I agree. See the quote above.

"What I find interesting is now insurance companies are using credit scores as a means to determine rates.Apparently, there's data that suggests that lower your credit score, the more likely you are to get in a car accident??? "
You find it "interesting"...
As Granny from the Beverly Hillbillies would say
Ar you fer it er agin it?
My opinion is, the best indicator of future performance is past performance.
What I mean is; if someone does not follow the rules in one area of their life they are more likely to not follow the rules in other areas as well, in my opinion.

[Ben Garrison]

Ben
You said:
" If rates for insureds were not increased for a higher risk on the basis of claims or prior incidents, insurance companies would probably not be in business."
True. As someone once said: ( I heard it from Zig Ziglar)
" The best indicator of future performance is past performance"

"I would like to think that having one claim, or perhaps one DUI, would preclude someone from future wrong doing. In my opinion, that's not the reality all the time."
I agree. See the quote above.

"What I find interesting is now insurance companies are using credit scores as a means to determine rates.Apparently, there's data that suggests that lower your credit score, the more likely you are to get in a car accident??? "
You find it "interesting"...
As Granny from the Beverly Hillbillies would say
Ar you fer it er agin it?
My opinion is, the best indicator of future performance is past performance.
What I mean is; if someone does not follow the rules in one area of their life they are more likely to not follow the rules in other areas as well, in my opinion.

I've read some of Ziglar's books, I'm a fan.

I would like to see some more detail on the study to see how the correlation was made between credit and risk. It's not like you're getting a higher interest rate on a loan resulting from bad credit. That's easily justifiable. Claiming that I'm likely to get in an accident on the same basis is a stretch.

[Jerry Peck]

I remember when Zig Ziglar told about his first starting out.

He wanted to contact as many 'well-to-do' people as he could, that was who he was directing his marketing toward.

So he bought a list of everyone making over $5,000 per year (I think it was $15k, back then, that was considered 'good money'). So he started mailing his marketing materials to the names on that list.

After he had spent a fair amount of money on those mailings, working his way through the list, lo and behold, he ran across his name on that very list, and *he knew* he was not making *anywhere near* that much money, he was almost broke, so ... what about the others on that list?

[Jerry McCarthy]

My opinion on E&O insurance: Unless you’re living in a 10 year old truck and your only assets are a flashlight, ladder and the clothes on your back you better have E&O insurance. Is it a rip off? You bet, and the dirtiest secret in our profession. I learned this after years of doing legal EW witness work representing both claimants and real estate inspectors. Yes, there are folks out there who would like to use your E&O carrier as their personal ATM as there’s also folks out there who actually believe they are home inspectors.

Many of us have installed a lot of legal speed bumps in our contracts, but when the invertebrates begin sniff the blood in the water I would hope you had a decent E&O policy so you can at least sleep at night. For years I’ve pleaded, bitched, moaned, and begged everybody raise your fees in that the biggest problem in our industry is inspectors as a rule don’t charge enough basically because they are afraid too. Too many bottom feeding agent suck-ups think that if they charge 25 bucks less than the competition they will make a decent living. Hah, reminds me of the old saying, “We lose a little each job, but make up for it in volume.”

Those that have been around the block and have some gray hair (or no hair) and established their business at least 10 years ago are survivors and they’re survivors because they’re professional inspectors and charge accordingly. However, even those dinosaurs could do better, because they are better and should double their fees. I’m sure I’ll get some flack for voicing my opinion on this subject, but what the hell, I stand behind it because that’s been my experience in this business.

[Ben Garrison]

While I'm not an inspector, it seems to me that the inspectors prices are held hostage by the fear of pricing themself out of the market. If the consumer approaches home inspection as a commodity, which some might, they may look for the lowest price. Which is scary. I guess it's sort of like gas. If you saw gas for 15 cents less across the street, chances are you're going to go there. But, for the most part, the gas station we chose is insignificant unless we delve into the political aspect of it all. Jerry, I agree with you that inspectors are not compensated enough. Is there a solution?

It happens with insurance too. I find that many people price shop and the actual quality of what they purchase is secondary to the cost. It's a reflection of the market right now in my opinion. The goal is to get the most and pay the least. With anything for that matter. Easier said than done.

[Jerry Peck]

However, even those dinosaurs could do better, because they are better and should double their fees.

I shoulda thunk o' dat!



(Dang, first thing I'd have to do answering the phone is have Caller ID and alert the nearest Fire Department so they can send out a rescue unit to get there in time for when the question came up 'Okay, so how much is that going to cost?' ... ding-dong, the door bell rings and rescue is there ... just as I tell them 'Oh some where around ... ' )

[Craig Grefe]

Hi everyone, new HI here. I've been reading the threads on these boards for a few months and have really enjoyed it. The advice and experiences that are shared are very helpful, so I thought I would give it a shot. Being new to the business, and a natural born skeptic, I am in the market for some E&O, does anyone have a recommendation of a carrier? Frea seems to be one that keeps coming up, but are there others that are worth checking out?

[Tim Moreira]

Hi Craig,

Welcome.

If you would, please fill out the location on your profile. It will help everyone to know where you are when answering your posts.

FREA is one of the more popular ones.

If you do a search you will find more than you will ever want to know. You can go to old board archives, there is tons of stuff there.

[Craig Grefe]

Thanks Tim, I will do just that.

P.S. my profile is updated

[Russel Ray]

I've been doing some research with a couple of attorneys here on lawsuits against home inspectors for another organization that I'm involved with. The one common thing that I've found is that not a single lawsuit against a home inspector involved breach of contract. All of them involved "negligence," "incompetence," "gross incompetence," and/or "violation of [various legal statutes]." None of those is covered by one's home inspection contract.

It is also good to remember that any person can sue any other person at any time for any reason and for any amount.

One should also remember that while one might not have any assets, or have them appropriately hidden, that in and of itself won't prevent a lawsuit because a good attorney will go for punitive damages, which will attach to you for life in most states (see O. J. Simpson). So if you move to a different state, that punitive damage award will follow you. If you get a different job in a different industry, that punitive damage award will follow you. Even bankruptcy won't discharge that punitive damage award.

Every lawsuit I've read so far has asked for punitive damages. It's those punitive damages that attorneys go for because that's where they have the potential to make the really big bucks. The whole purpose of punitive damages is not only to teach a lesson to the defendant, but to make an example of the defendant so that others who might be thinking about doing the same thing, won't. Punitive damages many times are a factor of 10, or 100, or even more, so if the actual award is, say, $25,000, punitive damages might be $2.5 million. The threat of punitive damages is what causes insurance companies to settle out of court because punitive damages never are in the hundreds or thousands of dollars. So even if you have nothing today, unless you're dead or have a Sugar Daddy or a Sugar Momma, you need an income, and that income can be taken away to pay those punitive damages. So while an attorney might not make the big bucks on one lawsuit today, if he wins 50 lawsuits that include punitive damages, he's got a nice residual income coming down the road somewhere, even if he doesn't know exactly when.

[Tom Simmons]

Wow, as a new Home Inspector wannabe, you guys are scaring the hell out of me. Who can start a new career in the HI business and pay $4000.00 a year for E&O insurance? I have 29 years in construction, but everyone is capable of missing something in a Home Inspection. I would have thought that the PIA would CYA, at least some. It sort of appears a little hopeless to me. Your PIA appears to be worthless, insurance costs are prohibitive, etc.

How can a buyer sign a contract and then a court says it's no good?

I am in Idaho where there are NO LAWS governing HI, at least for now.

[David Brauner]

Hello Bob Stark, Ted Simmons and all. I've been reading this thread and I have learned one thing in my 16 years of providing E&O for inspectors and others- I never try to sell the concept of insurance!

You either believe in it or you don't. Many don't believe in it - until they need it.

If you are interested in E&O, however, you should be informed. I've posted a story on E&O on our site that I just finished writing- it is set to publish in our magazine, Working RE, later in the week. If you want a sneak peek: www.orep.org/home inspectors E&O insurance- market softens, prices drop.pdf .

It doesn't cover why you should have E&O but explains quite a few things you should know if you have coverage or are looking for it.

If you can't open it or find it, email me at dbrauner (at) orep.org Thanks.

[Scott Patterson]

Wow, as a new Home Inspector wannabe, you guys are scaring the hell out of me. Who can start a new career in the HI business and pay $4000.00 a year for E&O insurance? I have 29 years in construction, but everyone is capable of missing something in a Home Inspection. I would have thought that the PIA would CYA, at least some. It sort of appears a little hopeless to me. Your PIA appears to be worthless, insurance costs are prohibitive, etc.

How can a buyer sign a contract and then a court says it's no good?

I am in Idaho where there are NO LAWS governing HI, at least for now.

Good, more need to have the bejeezers scared out of them! This is an easy profession to enter but it has a very very high failure rate. Upwards of 95% of those who enter will not be around for their second year.

[Rick Hurst]

2nd. year?

I personally know 3 newbies that didn't make it through the first year and 2 of them have dates scheduled in the court house.

As Scott said it is too easy for many to jump into a biz that they think they know, but in reality don't have a clue what they are in for.

So many times, I have heard these folks say I've been in the construction business for XXX years and I know it all.

In reality they have probably been framing a few houses or sitting at a desk in a construction trailer watching over a crew somewhat and really trying to keep the building cost down for the home office.

If you think you got it, jump on in and get your feet wet. Be ready for a soaking somedays.

JMHO

Rick

[Mitchell Meeks]

I have been an inspector for over a year now. I have yet to do an actual inspection. I have looked at properties for my construction clients as well as one of my real estate clients but only in the capacity as a general contractor. They also knew this up front.

I also looked at E & O and decided it just was not worth it. This is not my livelihood. I can and will pick and choose my clients. I have respect for the home inspection profession and I really would like to do it but we are kicked around, fussed at, and picked on from just about everyone. But at the same time, they can't do without us.

I think I am going to just stick to my construction company work and do the occasional real estate transaction and maybe do a home inspection if the moment is right. When the public and everyone else can really take us seriously and be willing to pay us for what we know and do, then I might reconsider.

[Tom Simmons]

2nd. year?

I personally know 3 newbies that didn't make it through the first year and 2 of them have dates scheduled in the court house.

As Scott said it is too easy for many to jump into a biz that they think they know, but in reality don't have a clue what they are in for.

So many times, I have heard these folks say I've been in the construction business for XXX years and I know it all.

In reality they have probably been framing a few houses or sitting at a desk in a construction trailer watching over a crew somewhat and really trying to keep the building cost down for the home office.

If you think you got it, jump on in and get your feet wet. Be ready for a soaking somedays.

JMHO

Rick

Thanks, Rick. I don't claim to know it all. And I don't make claims that I cannot back up. I plan to learn, just like you did. You weren't born knowing all aspects of Home Inspection, now were you? In fact, there is no prior career that trains one in all aspects of Home Inspection and, since I don't know of anyone who has been a carpenter/electrician/HVAC/plumber all-in-one, EVERYONE had to start somewhere. I can handle "tough" and I go in with eyes wide open and 49 years of "hard knocks" training, as well as having been a journeyman carpenter for 25 years ( the first four of my 29 years in construction were as an apprentice and the next ten years were as an instructor). I injured my back a while back (minor, but chronic). I am a business man who has had a business on the Internet for 10 years. I design websites. I repair computers and teach classes. I have professionally installed over 10,000 garage doors. I am not some young kid with pie-in-the-sky ideas, so don't judge too harshly. I would appreciate any advice. I plan to take the necessary training to become the best inspector around. I certainly appreciate everyone being blunt about how tough it is. A friend started a home Inspection business here in Idaho about 6 years ago and seems to being doing quite well. Within a couple weeks, I plan to request a few "ride-alongs" with him and ask questions.

The $2000/year from OREP is significantly better than the other E&O I have seen.

Thanks for all the responses.

Tom Simmons

[Richard Rushing]

Hello Tom,

It's good that you have other 'means' of making a living other than relying solely on the HI business starting off. This is where most fail (because they don't have that)...

The start up-cost comes like a nice down payment on a new car. But, that's not what gets people to go belly up. It's the lack of business (and income) during the first couple of years prior to getting the referral base up and rolling that takes it's toll.

You see, this is a "chicken-and-egg" business. Two things have to happen-- 1) you have to get the business and 2) you have to get referrals from the business you get. You can't have #2 without first having #1(original customers). Once you get by the first 500 customers, they will start to provide you with some family/friends/co-worker type referrals that lower the cost-impact needed to maintain your business from a marketing perspective.

Again, the first two years are the toughest. Hang in there and with the good attitude and work-ethic (as it sounds like you have) will go along way toward reaching your goal and making it as a successful Professional Real Estate Inspector.

If you haven't noticed by this and/or other message boards, this is a physically demanding business as well as one that can be frustrating to deal with the different personalities of the general public. Some people out there are as good as gold, but there are more who just want to sue your ass. There is no question that you will run into both and sometimes in the same day.

Good luck and feel free to post any/ all questions here in the future.

rr

[Scott Patterson]

Oh what the heck, lets just make this a Snow Drift of a thread!

Another large aspect of success depends on the area or market you are in. If the homes are not selling and the buyers are not buying, then nobody is ordering a home inspection. For the past several years it has been fairly easy to obtain business, if you worked to get it. Over the past eighteen months or so this has changed in many parts of the country.

From what I can tell about the only bright spot in the country for home sales is in the southern part of the US, excluding Florida.

I know what I'm talking about when it comes to starting and building a home inspection business. I'm doing it now!

I moved to the Nashville, TN area in July 2006 after being established in Jackson, MS for about ten years. I left a very good referral base, that had allowed me not to market to anyone for about seven years! It was fantastic, I knew that I would have business when others didn't. My yearly goal was 300 inspections I would hit that and add a few more every year.

After my move I had to start from scratch. I did not know a single person in the the Nashville area. I started marketing in September, and for those of you that know me I'm not a marketer, but I know what works and what is a waste of time. I sent about 20 letters a week and established a good web site, I made friends and handed business cards to everyone I met. It was slow and by December 2006, I had only done 19 inspections. Fast forward to now, September 2007 or one full year in business in a new location. As of today I have done 131 inspections, with many of those have been done between February and August. I also had a few EW jobs that helped a tremendous amount.

I also had about $20,000 socked away for this move, my wife has a good job (reason for the damn move in the first place ) and we have very little debt, outside of our home. All of our cars are paid for and we do not charge, except in the event of an emergency (Dave Ramsey school of hard knocks)

I say all this so that you can see that it is not a get rich profession. I'm doing good and building my business but I have been down this road before. For a person just starting out, you need to take the sage advice from everyone on this board and the other HI boards.

[Nolan Kienitz]

I can "ditto" what Scott has posted about starting over.

I was very successful and well connected in the Houston market and the continual referrals were wonderful.

Like Scott ... due to my wife's job we moved to the Dallas area (actually moved back home) and I got to start over with working to establish a presence and client referral base.

It takes time. I have logged 130 inspections since January-2007 and this is not "too bad" for a fresh start, but far short of what I had experienced in prior years.

In this career one must be in a "continual marketing" mode to be ready at all times to "sell yourself" and your product.

The original point of the thread relating to E&O insur_nce is a personal, business decision in a lot of cases and in many cases required by the state you do business in ... IE: the new legislative requirement in Texas. It is a cost item of your business and you must factor that and many other items into just what it takes for you to produce a quality report that is of value to your client and keeps you on the right side of the SOP you work under or abide by.

[Bruce King]

Looks like OREP has come out with some nice changes and better rates.

I am in the process of finding out more since a very experienced inspector told me to run from FREA. I don't have any specific details and I know there are always two sides to a story.

What we need to find out is how agressive they are in defending us when the complaint is simply bogus.

Anyone know first hand how the process works?

[Stuart Brooks]

There is pay-per-inspection insurance available. There are some requirements some might not like (according to posts elsewhere). You have to have an "Approved" inspection agreement. That agreement must have a arbitration clause among other things.

Suits: There are people who look for anyway to get easy money. Beware tbe prospective client whose first question is, " Do you have Errors and Omissions Insurance?"

I would think that to help prevent suits:
1) know what you are doing.
2) Do not skip over anything major (goes back to #1)
3) IF you cannot see something you should inspect - WRITE IT DOWN! with a brief explanation of what, where, why, and the possible consequences for not inspecting. (Cathedral ceilings do not allow inspection of underside of roof. Cannot check for possible leaks; Cannot inspect the roof framing for structural integrity)
4) State the problem clearly and concisely. DO NOT LECTURE! DO NOT WRITE AN ESSAY! The NACHI web site has a lot of pictures with "inspector" comments. There is one person in particular who sets himself up for suits with every comment. In any one case he has the tendancy to make statements that would come from an "Expert" in any one or more of the following fields: structural engineering, construction, electricity, chemistry, biology, civil engineering, probability & statistics, etc. How does he do this? He writes a narrative and tries to explain too much because he wants "the client to be informed". He actually sets himself up to be sued by a seller. (This is not to imply that I am anti-narrative reporting)

[Lewis Capaul]

Ask an attorney about suing a home inspector who has no, or limited, assets, and he will advise you to 'try to work something out', and that if you use his services, your cost will be in the thousands, possibly even higher than what is ultimately awarded ... you make the call if you want to proceed.

However, if there is E&O insurance, one letter and the THREAT of legal action, and the E&O will typically pay up to the deductible without much fight (the insurance company will have the home inspector write a check for that amount), now, if the deductible is high enough (most are), the attorney may suggest 'going for it, even if I take 30%, you still get some free money' (not necessarily in those words, but that's the meaning behind them).

The trick is to "Own Nothing", or to protect what assets you do have from lawsuits. Here is a good website that discusses Asset Protection.
Asset Protection

Send for the free books that are offered, they make very interesting reading. Some of the steps take some money and time to set up, but it should be less expensive than paying those ridiculous E&O fees each year. The level of protection you need depends on how hungry the Lawyers who sue you are, remember that most work on a contingency, and the more money they have to spend breaking down your different levels of protection the less likely they will pursue a suit very far. In my opinion "Owning Nothing" beats E&O in every way except in marketing.

[Kevin Healy]

I have never quite figured out why E&O is "optional" to Home Inspectors.
Would you ever go to a doctor who didn't have E&O?
If you slipped at a supermarket and broke your arm, wouldn't you expect that the owner had General Liability insurance to cover you for their negligence?
The list could go on.

As far as I can tell, the insurance protects your business and your assets, it protects the home buyer if you actually made a mistake. Why would that be a bad thing? Aside from the cost.

I know this comment will cause a huge, mostly negative reaction, but I would like to understand the thought process.
Thank you in advance for not attacking the comment.

[Kevin Healy]

I would also love to hear a few comments on what Inspectors think would be reasonable cost for E&O. Honestly, is it $2,000 per year.

[Jim Luttrall]

I have never quite figured out why E&O is "optional" to Home Inspectors.
Would you ever go to a doctor who didn't have E&O?
If you slipped at a supermarket and broke your arm, wouldn't you expect that the owner had General Liability insurance to cover you for their negligence?
The list could go on.

Kevin, would it surprise you that one of the largest supermarket chains in
the US does not have Liability insurance? They are self insured.
If you slip and fall and file a claim, they pay out of pocket if it is their fault
and will spare no expense fighting frivolous claims.

That is one reason that E & O is "optional" unless you are in a state that
mandates coverage. You figure $2,000-3,000 annual premium and $5,000
deductible and loss of control to fight frivolous suits and you begin to get
the picture to see that for some, it is an option.

[Ben Garrison]

Kevin, would it surprise you that one of the largest supermarket chains in
the US does not have Liability insurance? They are self insured.
If you slip and fall and file a claim, they pay out of pocket if it is their fault
and will spare no expense fighting frivolous claims.

That is one reason that E & O is "optional" unless you are in a state that
mandates coverage. You figure $2,000-3,000 annual premium and $5,000
deductible and loss of control to fight frivolous suits and you begin to get
the picture to see that for some, it is an option.

Most large companies also self-insure many lines of their insurance, especially health. They have deep pockets to be able to that. I guarantee you there is a reinsurer too.

A $5,000 deductible is too high. If people are making the argument that E&O puts a target on your back, why would have that much front end exposure? Do a calculation of what it would cost you to hire a lawyer to represent you in court in the event of a lawsuit. Kevin posted a good case study about the cost of getting sued and having to defend yourself. Followed by Russell Ray's story about an inspector who got sued and what it actually cost him.

[Todd Thomas]

I'm in the process of getting E&O and GL now...got it down to 2 companies

Allen and Business Risk Partners
coverage looks close to the same, Allen has a few more things that make it attractive.

premiums are close, $150/yr difference

BRP has a 500,000/500,000 and 500,000 in GL with a $5000 deductible

Allen has a 100,000/300,000 and 500,000 in GL with a $1,500 deductible
(for $150/yr I can raise it to 300,000/500,000)
question being, which is better to have, higher per claim coverage or lower deductible or somewhere in the middle


Thanks,
Todd

[Ben Garrison]

I'm in the process of getting E&O and GL now...got it down to 2 companies

Allen and Business Risk Partners
coverage looks close to the same, Allen has a few more things that make it attractive.

premiums are close, $150/yr difference

BRP has a 500,000/500,000 and 500,000 in GL with a $5000 deductible

Allen has a 100,000/300,000 and 500,000 in GL with a $1,500 deductible
(for $150/yr I can raise it to 300,000/500,000)
question being, which is better to have, higher per claim coverage or lower deductible or somewhere in the middle


Thanks,
Todd

I would not go with a deductible as high as $5,000. Too much exposure.

[Kevin Healy]

I would carry the higher limits. Remember your defense costs are included in your limit. It would be easy for a lawyer to blow through a $100,000 in a complex case that involved expert witnesses and arbitration hearings, etc. If you exhaust your limits you pay out of pocket.

[William Brady]

Just a question and I have not read all the above posts so here goes. If you are INC or LLC they provide a corporate veil for you that is not supposed to be pierced by anyone. Or so I am told. If you get involved in a lagal action has anyone had the experience of being protected by there INC or LLC and how did it work out.

Bill B

[Scott Patterson]

Just a question and I have not read all the above posts so here goes. If you are INC or LLC they provide a corporate veil for you that is not supposed to be pierced by anyone. Or so I am told. If you get involved in a lagal action has anyone had the experience of being protected by there INC or LLC and how did it work out.

Bill B

It makes little to no difference. If you screw-up, you stand a good chance of being part of a lawsuit. Even if you don't screw-up you can fall into the "shotgun" blast of a lawsuit. This is when the owners sue everyone that was involved in the sale of the home. Contracts don't matter and LLC or Inc, really don't matter. If you are sued you have defend yourself and that is what cost money.

Out of the 50 or so home inspector lawsuits that I have been an EW on over the past eight years, I would say that 90% of the suits were legitimate and the home inspector screwed-up. Out of those the vast majority were settled out of court.

[Eric Barker]

"Out of the 50 or so home inspector lawsuits that I have been an EW on over the past eight years, I would say that 90% of the suits were legitimate and the home inspector screwed-up. Out of those the vast majority were settled out of court"

Now if those inspectors had initially stepped up to the plate and dealt with the issue rather than fighting it those lawsuits may have been avoided.

[Scott Patterson]

"Out of the 50 or so home inspector lawsuits that I have been an EW on over the past eight years, I would say that 90% of the suits were legitimate and the home inspector screwed-up. Out of those the vast majority were settled out of court"

Now if those inspectors had initially stepped up to the plate and dealt with the issue rather than fighting it those lawsuits may have been avoided.

You are so right! Many never even responded to the complaint calls, I don't blame their clients one bit.

[William Brady]

thanks Scott for the advice and as for Dave Ramsey I to am doing "Better than I deserve".

Bill B

[Nolan Kienitz]

You are so right! Many never even responded to the complaint calls, I don't blame their clients one bit.

Fundamental "Customer Service 101" is VERY important. I've observed the way some of my fellow inspectors have treated their clients and it is horrendous. It's as if they are asking for a complaint.

The customer is still the customer and I am way beyond professional and courteous to a fault. That being said ... I hold my position and don't give in, but am extremely diplomatic about it.

Don't always agree with the client, but they do respect me and my work when it is all said and done.

[Randy Aldering]

Just a few comments. Clients, not customers. Mandatory insurance requirements only support trial attorneys and encourage lawsuits. If you are incorporated, you are not protected from liability, and you will need a lawyer, as some states will not allow an individual to represent an incorporated entity. Always respond to complaints quickly. Always do the absolute best for your client. I guarantee you, when your reputation and livelihood are on the line, other parties to the lawsuit will not care about you. Your "referral sources" will not care about you. The court will not care about you. The professionalism we exhibit must change. Home inspectors need to understand and respect the principle-agent relationship they enter into when they do an inspection. Pre-inspection agreements will not protect you. My nickel.

[Scott Boain]

Hi, I'm new to the site!!! Question: Was wondering if those of you who read and post here, who are inspectors could help me out here. Would you recommend working for an inspection company for a couple of years to get some experience and then start your own business if you had the option to do that.
I feel as a newbie, that I need much experience, to get work(inspections), thus making my E&O ins. cost a practical consideration. Thanks Scott

[Ted Menelly]

Hi, I'm new to the site!!! Question: Was wondering if those of you who read and post here, who are inspectors could help me out here. Would you recommend working for an inspection company for a couple of years to get some experience and then start your own business if you had the option to do that.
I feel as a newbie, that I need much experience, to get work(inspections), thus making my E&O ins. cost a practical consideration. Thanks Scott

If you outright think you need more experience then go for the working with some one. I commend you for not heading right out there with the lack of experience. So many think they know it all and or are no it alls that give this profession a bad name. Take a course and pass a test and bingo, instant home inspector.

Inspecting itself is certainly not brain surgery. Most hmes I inspect being in the newer age limits are pretty cut and dry. Maybe too dry but I still would not want to go out and tackle inspections with little experience in doing so.

[Scott Patterson]

Hi, I'm new to the site!!! Question: Was wondering if those of you who read and post here, who are inspectors could help me out here. Would you recommend working for an inspection company for a couple of years to get some experience and then start your own business if you had the option to do that.
I feel as a newbie, that I need much experience, to get work(inspections), thus making my E&O ins. cost a practical consideration. Thanks Scott

With some good education and after you get 25-50 home inspections under your belt you should have a pretty clear picture of the profession and what it is all about. Heck, I have 5,000+ under my belt and every single day is a learning experience or a new adventure.

You will find that experience in our profession in priceless!

[David Brauner]

Hi guys- I know this thread is really old but I just re-read it. First the disclaimer: I'm an insurance professional, who specializes in your profession (OREP).

While it MAY be true that having insurance in some way puts a "target on your back," the inverse is not true: NOT having it doesn't keep you protected or prevent you from getting sued. In my 20 years, I've seen appraisers and inspectors, who did not have insurance in place, get sued. Even if you have little to lose (besides your credit), the stress, worry, aggravation, time spent dealing with it...to me, it's just not worth not having it.

The last time I heard a figure, the average legal cost to defend one of these types of suits is $25k. At our company, at least, that's about 20 year's worth of insurance ($1,250 minimum premium- $300k).

Yes I'm in insurance, so I believe in it but if you're in business, not having it just does not make sense to me. I wish us all good luck!

[Stuart Brooks]

Hi guys- I know this thread is really old but I just re-read it. First the disclaimer: I'm an insurance professional, who specializes in your profession (OREP).

While it MAY be true that having insurance in some way puts a "target on your back," the inverse is not true: NOT having it doesn't keep you protected or prevent you from getting sued. In my 20 years, I've seen appraisers and inspectors, who did not have insurance in place, get sued. Even if you have little to lose (besides your credit), the stress, worry, aggravation, time spent dealing with it...to me, it's just not worth not having it.

The last time I heard a figure, the average legal cost to defend one of these types of suits is $25k. At our company, at least, that's about 20 year's worth of insurance ($1,250 minimum premium- $300k).

Yes I'm in insurance, so I believe in it but if you're in business, not having it just does not make sense to me. I wish us all good luck!

Hmm, from what I have heard If the E&O insurance companies just pay off any claim no matter how frivolous or unfounded. Why are they paying a lawyer $25K to defend something that doesn't get defended. You see, that's why a lot of us are anti insurance. I think I had rather pay Joe Ferry $500 to kill a claim immediately.

[Ben Garrison]

Hmm, from what I have heard If the E&O insurance companies just pay off any claim no matter how frivolous or unfounded. Why are they paying a lawyer $25K to defend something that doesn't get defended. You see, that's why a lot of us are anti insurance. I think I had rather pay Joe Ferry $500 to kill a claim immediately.

Based on what you heard, you've been misled. Sure there are times where it's most equitable to settle a claim but settling is not the first and only option. Well, depending on who your insurance provider is.

Stuart, what happens when Joe's response letter doesn't work and your client files a lawsuit against you in Virginia? I would assume Joe is not licensed to practice there so who is going to represent you? Now, Joe will tell you that his success rate is 98% or something like that but I've seen that program backfire on inspectors in New Jersey, Ohio, and West Virginia where the letter did not work and the inspector is hit with a summons.

[Stuart Brooks]

Based on what you heard, you've been misled. Sure there are times where it's most equitable to settle a claim but settling is not the first and only option. Well, depending on who your insurance provider is.

Stuart, what happens when Joe's response letter doesn't work and your client files a lawsuit against you in Virginia? I would assume Joe is not licensed to practice there so who is going to represent you? Now, Joe will tell you that his success rate is 98% or something like that but I've seen that program backfire on inspectors in New Jersey, Ohio, and West Virginia where the letter did not work and the inspector is hit with a summons.

Virginia courts, are in general, still conservative. If you signed a legal agreement, you are held to that agreement. A summons is generally a scare tactic. A lot of less than ethical lawyers are only out for a fee.So, a minor $150 claim suddenly becomes $15K. They write a letter or two and stand to make up to $7.5K. I'm not worried about that type of claim and as long as I'm the inspector, I'm not worried about missing anything of real substance. I've refunded one inspection fee. I could have beat it without any trouble. A new home where the dryer vent was not connected inside a wall. The builder actually came in and ripped out the entire laundry room and replaced everything. It took 8 months for everything to come to light. My agreement expressly excludes anything covered by walls and not visible for inspection including dryer vents. Why did I return the fee? Why not? The young lady had been through hell with her new house and the dryer that was included with it. She emailed her story to me and thought that I should have caught it. I'm sure the appliance technician or builder had something to do with that. She asked for return of the inspection fee. The fact that I didn't argue or refuse her request made her happy. I didn't admit to anything; only that I would be glad to refund the fee if she would sign a release. I received the signed and witnessed release and mailed her a check.

I'm very confident in my abilities and make sure my reports cover any major deficiencies. I prefer the client to be at the inspection and tag along, ask questions, and lend a hand where appropriate.

I once had a lawyer client look at the inspection agreement and say, " It's just boiler plate," I replied, "Excuse me? That's not just boiler plate. That's carefully crafted plagiarized boiler plate." She had to smile.

[Ted Menelly]

With some good education and after you get 25-50 home inspections under your belt you should have a pretty clear picture of the profession and what it is all about. Heck, I have 5,000+ under my belt and every single day is a learning experience or a new adventure.

You will find that experience in our profession in priceless!

Most days it is "A new adventure".

In all honesty if I could go back a whole lot of years like a few decades or more I would say no to inspections.

Real Estate, construction and anything to do with real estate has way too many ups and downs over your lifetime. I could have went to work for Ford, the Post Office, ATT decades ago and been retired a long time past and then went on with new things in life and maybe retire from that. Benefits, vacation, sick days, holidays, 401 or other retirement/savings plan, no divorce, and did I say no divorce.

Any who, even for a part time deal it is tough to get and keep work and of course YOU have to pay for all those side goodies.