Can A Buyer Successfully Sue A Negligent Home Inspector When Inspection Report is Prepared For The Seller?

Fortunately for the real estate brokerage community, most buyers in today's market obtain a home inspection prior to the purchase of the home. In some geographic areas of Northern California when the market is "hot", sellers will obtain a home inspection before, or at the time of, the listing. This can assist a quicker close, minimize the risk of surprises, and minimize the chance of a buyer renegotiating the purchase price after obtaining a home inspection report.

Many home inspectors, however, attempt to limit their liability by inserting a provision in a home inspection report which provides that no one other than the seller can rely upon the contents of the report.

Liability Limitation Provisions

What if your buyer purchases a home, discovers defects which should have been discovered and disclosed by the home inspector, but the home inspection report limited liability only to the seller? Is this limitation enforceable? Probably not.

There is no case authority dealing precisely with this issue. However, by analogy to decisions involving other professionals, several cases suggest that home inspectors can be liable for negligent misrepresentation for statements in their report that are reasonably relied upon by a buyer. In the case of Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 11 Cal.Rptr.2d 51, the California Supreme Court held that auditors may be liable for negligent misrepresentation in an audit report to those persons who act in reliance upon those misrepresentations in a transaction the auditor intends to influence. The Court noted, at 414:

"Defendant is deemed to have intended to influence its client's transaction with plaintiff whenever defendant knows with substantial certainty that plaintiff, or the particular class of persons to which plaintiff belongs, will rely on the representation in the course of the transaction."

Similarly, in the case of Soderberg v. McKinney (1996) 44 Cal.App.4th 1760, 52 Cal.Rptr.2d 635 the Court held that appraisers who know their appraisals will be used by potential third parties may be liable to those third parties for negligent misrepresentation. The Soderberg Court noted:

"Liability may be appropriate where the defendant knows with substantial certainty that the plaintiff will rely on the representations in the course of the transaction."

In Soderberg, the appraiser attempted to limit his liability by stating on the appraisal report that "reproduction of [the] appraisal report is restricted to such use by the [client]." The Court disregarded this limitation when the plaintiff investor presented evidence that the appraiser knew that potential investor would rely on the report.

Similarly, most home inspectors who perform inspections for sellers certainly are aware that potential buyers will rely on the statements in the home inspection report. Thus, by analogy to the auditor and appraiser cases, the home inspector most likely cannot escape liability to a buyer even if there is language limiting the report to the seller. A broker, however, would be well advised to simply have the inspector remove the limitation from the report.

Please note: This publication is intended to provide accurate information. However, the authors do not intend this bulletin to constitute, or be a substitute for, legal advice or assistance from a real estate attorney. If legal assistance is necessary, please consult your personal attorney.

About the Authors/Editor:

K.P. Dean Harper has tried and arbitrated over forty cases. He specializes in real estate and broker liability litigation and edits the Bowles & Verna Real Estate Bulletin, a periodic newsletter for real estate brokers. To contact Mr. Harper by email, click here.