Real Estate Inspection Fraud with Homes for Sale in Lafayette CA

by Ron
November 16, 2015

Contractors doing home inspections have an inherent conflict of interest.This post won’t endear me to multitude of contractors and other trades people who are involved in the lucrative real estate “inspection” industry, but the type of unethical and opportunistic behavior I observed during the market heights of 2005-06 is back again with homes for sale in Lafayette CA.  The conspicuous conflict of interest that exists with these “inspectors” should be illegal, but somehow escapes the radar screen of the California Contractor’s License Board or other oversight organizations.

Since CA is a highly litigious state, real estate brokerage companies must be very careful to encourage buyers to have all inspections that are deemed necessary during the purchase process.  On the surface, it makes sense since we want unanticipated problems with a property to be identifies prior to consummating the purchase.   Fair enough, except for the fact that aside from the “general home inspectors” who only do inspections and don’t bid the repair work, the rest of the “inspectors” we encounter also bid the work.  They are principally contractors who earn the preponderance of their income doing various trade work, not doing “inspections”.

The State of California Licenses Termite Companies to Do Inspections and Bid the Work

Let’s start with the largest offender in the business, the “termite inspection” industry.  By definition, the multitude of independently owned and operated termite inspection companies are legally charged with being the only ones who can do inspections for termites and related wood boring pests, as well as evaluate “wood fungus”, better known as dry rot.  Their inspection reports include a bid for the work.  Sure, you can have someone else do the work, but then you need to pay the termite company to “certify” it as complete.  And, if you need chemicals administered, they are the only ones authorized to use them.

We use a company that we trust.  Their repair prices are fair, and in line with what a customer would pay for an appropriate trades person to do the work.  They are the exception.  Many of the companies that I encounter use their position of power to write exploitative reports that are unreasonable, and bid repair prices that are 2-3x market rate for a similarly skilled trades person.

Unethical, Opportunistic Behavior by Contractors Doing Real Estate “Inspections” is Becoming More Prevalent

The problem doesn’t stop there.  About a year ago, I represented a buyer in a transaction where a local sewer lateral “inspector” was retained in to evaluate the seller’s sewer line.  The company I normally use was unavailable, so I used someone else widely retained by the local real estate community.  This type of inspection is important because a broken sewer line is not visible, and replacement runs into the thousands of dollars.

The inspector found tree roots invading the sewer line about 10 feet from the sewer clean-out.  His recommendation should have been to have the line cleaned with blades that cut the roots away.  Instead, he told the buyer that he’d recommend replacing that entire segment of line, but he didn’t stop there.  He then took the buyer aside and said, “If I was buying the house, I’d put another clean-out further down the line. And, while you are at it, you might as well replace the entire line.  Since this is a real estate transaction, I’ll just write it all up as a recommendation in my report so that you can ask the seller to pay for it.”  Suddenly, a legitimate $250 repair turned into a potential major expense of over $15,000.  Fortunately, my client was a person of high integrity.  He told me that he did not believe the “inspector” and we subsequently brought in my usual vendor who evaluated the line and cleaned it.

An “Inspector” Attempts to Extort Money from the Seller During the Inspection

This same sewer “inspector” showed up last week to do a buyer’s inspection at one of our homes for sale in Lafayette CA.  There was a fitting stuck in the sewer clean-out which he claimed could not be removed.  He said he could not do the inspection unless he was paid $1000 to replace the short PVC pipe that provides access to the sewer line.  I objected and convinced the buyer’s agent to bring in the company I use.  Their tech popped the fitting out of the line within 5 minutes, ran a special camera through the pipe that showed no problems, and was done within 45 min — total cost $315.  The person that the buyer’s agent had originally retained likely victimizes vulnerable home sellers for thousands of dollars every week, and there is no oversight or accountability.

Later in the week, a roof gutter company was brought out to “inspect” the home’s 6-year old galvanized steel gutters.  They wrote a report stating that they observed surface rust and recommended replacing all of the home’s gutters for a cost of almost $4000.  Gutters have an expected lifespan of about 20 years, and any surface rust that they may have been observed, certainly did not impact performance or necessitate gutter replacement.  Their “report” was a transparent attempt to generate unnecessary work at the seller’s expense.

This problem is becoming increasing prevalent with homes for sale in Lafayette CA, since contractors view the sellers as affluent, vulnerable targets for their opportunistic behavior.  Both buyers and sellers need to be aware of this in all sales transactions.