Providing house inspection services to prospective home buyers can be a lucrative business venture, but can also be potentially disastrous. As a general rule, the Registered Master Builders Federation discourages its members from providing building inspections services.
Before outlining the risks involved in providing inspection services and some hints on how to protect your business against those risks, below is a true story about one RMBF member who did a one-off house inspection.
The case involves a builder who went into business about eight years ago as a self-employed builder providing contract carpentry services to a head contractor. The builder had a simple business structure — sole trade, low overheads and no employees.
Over the years he grew his business, formed a company and become a Registered Master Builder. About a year ago he was asked by a friend (as a favour) to do a house inspection for a third party. Our member didn’t normally undertake house inspections, but agreed to do the inspection anyway.
During the inspection he realised that the house he was inspecting was actually the fi rst job he had undertaken as a self-employed tradesman. He had worked for the head contractor doing general carpentry work, but mainly framing and cladding.
During the inspection he mentioned to his friend that he had worked on the house during its construction, and this information was relayed to the person who was asking for the inspection report. The member provided a report on the house, which stated that it had some serious faults. He recommended that the prospective purchaser not buy the house because of the faults.
Despite the member’s recommendation not to buy the house, the prospective purchaser did anyway. Soon after purchase the new owner fi led a claim with the Weathertight Homes Resolution Service (WHRS), and the member was named as a party to the WHRS case.
In fact, the only two defendants in the case were the local city council and the member. He was served personally (not his company) because he had been a sole trader at the time. The head contractor no longer existed, none of the subcontractors could be identified (or no longer existed), and so the council and the member were left holding the proverbial can.
During the construction phase the member had had no control of the plans, specifications and the choice of materials, and only worked on the building for a short period. The RMBF endeavoured to have the member struck out of the proceedings because of these factors.
However, the adjudicator refused to take that into account, and at an ensuing mediation he was bullied by an aggressive local council into contributing to the claimed amount. However, he was lucky. His contribution was about $14,000, and he didn’t have to pay any legal expenses as the RMBF provided some assistance in that area.
Nevertheless, his total loss on his first house inspection job was about $10,000. This is one example of how house inspections can go wrong, but there are many others. Our advice to members considering doing house inspections where it isn’t their core business is — don’t. Your liability is as high as any head contractor, but your profit on the inspection work is only a few hundred dollars.
If you insist on doing house and building inspections, then these are the minimum requirements:
Don’t do the work as a Registered Master Builder. Operate the inspection service business separately from your building business (ie, under a separate company).
Ensure your insurances are adequate for that kind of work.
At the very least, use the New Zealand Standards house inspection standard 4306:2005 (which is available to members free if they are signed up to the New Zealand Standards deal).
Speak to your solicitor and accountant about your business needs.