ASHI's Position on Paid Referrals & Preferred Vendor Programs Remains the Same
by Keith Oberg
Published January 2006
In the spring of 2004, the membership of the American Society of Home Inspectors approved an updated Code of Ethics for its Membership and as a model for the profession. The Code was developed after intensive research, consultation with professional ethicists, and considerable input from the membership of the Society.
There is often significant pressure to compromise ethical principles in order to successfully compete in the marketplace. Adherence to strong ethical principles can sometimes seem to be a real disadvantage. Paying fees to receive referrals may be tempting to some, but clearly violates the principles the membership of ASHI has chosen to adopt. This is obvious to most inspectors, but becomes muddied when hidden within a “preferred vendor” marketing program. The ASHI Code of Ethics takes the position that payment to be placed on a list of “preferred vendors” is payment for referrals. The prohibition against participation in these programs has been controversial, but recent decisions by some other home inspection organizations, such as CREIA, and many state regulatory bodies have supported ASHI’s stance.
Professionals have a duty to act in good faith toward their clients. Paying for referrals and participation in preferred vendor programs, as interpreted by our Code of Ethics, violates our responsibility to act in good faith toward our clients. The home inspection client should be able to have a reasonable expectation that when a home inspector is being recommended, the referral is based on merit, not on the payment of what is essentially a bribe to the referring party.
A major part of all ethical codes involves the avoidance of conflicts of interest that can compromise, or appear to compromise, professional independence, objectivity and integrity. Real estate agents, whose interests lie in the successful sale of real estate, and home inspectors, acting in good faith toward their clients, have clearly conflicting interests. Referrals from realty agents, dependent on their having received some form of compensation, represent an even stronger ethical concern than recommendations from otherwise disinterested, but paid third, parties. The ASHI Code of Ethics recognizes this principle.
1.C states, “Inspectors shall not directly or indirectly compensate realty agents, or other parties having a financial interest in closing or settlement of real estate transactions, for the referral of inspections…”
The ASHI Code of Ethics principle 1.C continues, stating that inspectors shall not compensate realty agents for the referral of inspections, “or for inclusion on a list of recommended inspectors, preferred providers, or similar arrangements.”
Placement on a list of “preferred providers” constitutes a referral. There is no real difference between being recommended verbally or in writing, singly or as part of a small group such as a short list of “preferred inspectors.” When placement on such a list is contingent upon payment of a fee, it represents a payment for referral. It is misleading to the client, who does not know that the home inspector paid for the privilege of being placed on that list.
Nothing in the ASHI Code of Ethics prohibits advertising with real estate agents or any other party, unless such advertising involves a quid pro quo arrangement, in which referrals are dependent on the inspector paying for advertising with the real estate agency. Likewise, participating in shared marketing strategies is not prohibited, as long as it does not involve some type of referral agreement or listing. Nonetheless, due to the potential conflict of interest between realty agents and home inspection clients, any marketing or advertising with real estate agencies will entail some risk. Any contractual or business arrangement between the real estate agent and the home inspector has the potential to compromise, in the eyes of the client, the independence of the home inspector. Each inspector must examine his/her participation in such marketing to determine if hidden arrangements exist, involving a violation of ethical principles. Home inspectors should be very cautious about developing business relationships with realty agents that might compromise, or appear to compromise, the integrity of the inspector or the profession.
Most home inspectors welcome and appreciate the referral of business from real estate agents, believing that such referrals represent a genuine expression, on the part of the agent, of confidence in the knowledge, competence and integrity of the inspector. We strongly believe that, in the long run, adherence on the part of home inspectors to strong ethical principles, and the avoidance of potential conflicts of interest, will encourage rather than reduce future referrals and recommendations.