Thursday, April 29, 2010

More On Licensing

Here we are, well into the second quarter of 2010. The Michigan legislature has yet to move on House Bill 4162, or Senate Bill 355. Both of these bills license home inspectors in Michigan, and were introduced over a year ago. They have but once been addressed by the House Committee on Regulatory Reform, and at that time were vehemently opposed by the Michigan Association of Home Inspectors, while the Michigan Coalition of Professional Inspectors supported the legislation. Many special interest groups are asking for changes to these bills. It is important, when considering the changes that are being requested, to look at what the real issue is in regard to licensing.

In searching for data about bad home inspectors, or bad home inspections, there is little to none readily available. This is still a "project" that is being pursued. However, in speaking with clients, potential clients, and people who have experienced a "bad home inspection", the tipping point seems to be that the offending home inspector either failed to report a readily apparent and significant finding, or they failed to report same in a factual manner, making clear the implications of their findings.

One argument, which seems to be very popular, is that this is due to a poorly trained or unprofessional home inspector. Another view suggests that it may not be the home inspector, as much as it is external influences that feel that they are "stakeholders" in the home inspection. The third most popular reason cited was greed on the part of the home inspector. While all of these may have some element of truth to them, the first and third are easily and simply regulated by government by requiring minimum training standards and continuing education throughout the license term, and adherence to state consumer protection law. It is the second reason cited that is problematic, and perhaps attracts the most attention.

When a party that is not a party to an agreement feels that they should have some degree of influence over that agreement, then there is an inherent conflict of interest. There is typically but one or two methods of regulating this kind of conflict of interest. Professional ethics, usually in the form of a Code of Ethics, often is sufficient. However, when large amounts of money are involved, the "interpretation" of professional ethics, or a Code of Ethics, can become skewed. Legislation is another form of regulation used to deal with this type of conflict of interest. For either of these forms of regulation to be effective, however, they must be enforceable, and enforcement action must be made available to those parties who would be impacted the most by a violation: the consumer.

When there is poor enforcement, poor enforceability, or when enforcement records are not made available to the public, problems can continue. When people feel that they can get away with doing something that is questionable, or outright wrong, then bad things begin to happen. So, when a home inspector finds shifting of the foundation, and reports it as such along with the recommendation that a structural engineer be consulted, the circumstances are now set for conflict.

From the professional home inspector's view, and likely his client's view as well, the home inspector has properly executed his duty and performed his job with integrity. However, if the client then rescinds their offer to purchase based on the home inspector's findings, the home inspector is often faulted by others who feel that they are "stakeholders" in the inspector-client relationship. If they have suffered a perceived loss due to the home inspector's work, they may attempt to "pay the inspector back."

Financial professionals and real estate professionals are very close. They talk amongst themselves and between professions regularly. They have large political action committees. On occasion , they have been known to speak bad about a home inspector, due to their perceived loss. The usual intent of this idle chatter can be be summed up by a threat made to one home inspector by a real estate agent: "I'll see to it that you never do any home inspections in this town again." This returns us to our original topic: licensing home inspectors. Is it necessary? Will it be effective, if home inspectors are not protected from conflicts of interest? These are questions that remain to be answered.