Your Inspection Agreement:
What To Have, And What Not To Have
As many of you are no doubt aware, the Inspection Agreement, that contract between you and your
customers is currently under the microscope at TREC. There was legislation pending this year that many
felt that TREC would use to curtail certain aspects of the Inspection Agreement. Whether or not that
happens remains to be seen. In the meantime, there are other very important things that should and
should not be in your Inspection Agreement. As the largest provider of Home Inspectors E & O in the
state of Texas, it follows that we likely get to see more claims than anyone else. Since we have our own
program, we also try to provide added value to the inspection industry.
Twice recently, we have had claims reported to us, and when we received the inspector’s signed
Inspection Agreement, we were horrified to see wording to the effect that the inspection might give
certain rights to the client under the Texas Deceptive Trade Practices Act! Arrrgh!! A very fine gentleman
whom I have never met, but we all owe a debt to named Carl Wesley Retherford fought the fight and
won all the way to the Texas Supreme Court getting home inspectors exempted from this onerous
provision. You can Google this case under “Retherford vs. Castro” to read all of the details, but basically
it states that a home inspection is a professional opinion, not a warranty, and is thereby exempt from
DPTA. If you have anything like this in your agreement, TAKE IT OUT!
Another thing that should not be in your agreement is mandatory arbitration with the American
Arbitration Association, and any reference to it. You will always be found at fault to a certain degree at
arbitration. It is what they do. Also, there is not a tremendous amount of difference in Loss Adjustment
Expense to the company over the cost of a lawsuit. If you want to put in something helpful, put in a
mediation clause. Each side agrees to binding mediation. One of our attorneys can likely draft language
that will be helpful.
Now, as to what you should have, up until TREC rules otherwise, and after the lengthy court fight that
will follow that ruling should it occur, you should have a LIMITIATION OF LIABILITY clause in your
agreement, and it should be set out in bold and/or capital letters just as I have done. We have 3 sample
agreements that each contain a valid and enforceable LIMITATION OF LIABILITY clause. We do not
recommend the InterNACHI agreement as it does not contain one, and it sets Colorado law as governing
law. If you would like to have a copy of the 3 we have, write me at claims@spmga.com and I will be
happy to send all 3 to you. They are all different in some regards, each has strong and weak points, but
all contain the very important LIMITATION OF LIABILITY clause.
About the author – Don Nixon is president of Southern Preferred MGA, Inc, of Garland, TX. SPMGA is the
largest provider of Home Inspectors E & O in Texas, writing both directly, and through one agent. Mr.
Nixon has testified at TREC hearings on behalf of Texas home inspectors, and will likely do so in the
future.