BILL ANALYSIS
SB 31
Page 1
Date of Hearing: July 1, 2003
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Lou Correa, Chair
SB 31 (Figueroa) - As Amended: April 3, 2003
SENATE VOTE : 28-8
SUBJECT : Home inspectors.
SUMMARY : Requires a certified home inspector to conduct a home
inspection with the degree of care that a reasonably prudent
certified home inspector would exercise, and requires certified
home inspectors to provide the client certain, specified
disclosures prior to conducting a home inspection.
Specifically, this bill :
1)Makes it an unfair business practice for individuals to refer
to themselves as certified home inspectors unless they have
met specified requirements.
2)Defines "certified home inspectors" as an individual who meets
both of the following:
a) Has demonstrated to a home inspection professional
association that they have fulfilled one of the following:
i) Performed at least 200 home inspections for which a
fee was paid; or,
ii) Performed at least 100 home inspections for which a
fee was paid and completed at least 45 classroom hours of
relevant home inspection education provided by a school
approved by the Bureau for Private Postsecondary and
Vocational Education or one of the specified educational,
governmental, or professional entities that have been
providing home inspection education for at least two
years; or,
iii) Performed at least 50 home inspections for which a
fee was paid and completed at least 90 classroom hours of
relevant home inspection education provided by a school
approved by the Bureau for Private Postsecondary and
Vocational Education, or one of the specified
educational, governmental, or professional entities that
SB 31
Page 2
have been providing home inspection education for at
least two years.
a) Has passed a psychometrically valid knowledge, skills,
and aptitude examination endorsed by a home inspection
professional association within the past five years. The
examination shall test a person's competence in home
inspection practices. Also, the examination shall be
developed and administered in a manner consistent with the
American Educational Research Association's "Standards for
Educational and Psychological Testing," the Equal
Employment Opportunity Commission's "Uniform Guidelines for
Employee Selection Procedures," the Civil Rights Act of
1991, and the Americans with Disabilities Act of 1990.
3)Defines "home inspection professional association" as an
organization that meets all of the following criteria:
a) Has at least 200 members who are home inspectors in
California.
b) Has been in existence for at least 10 years.
c) Operates pursuant to Section 501(c) of the Internal
Revenue Code.
d) Certifies that its home inspectors have met the criteria
specified in this bill without requiring membership in the
association.
1)Provides that it is an unfair business practice for home
inspectors or home inspection companies that employ home
inspectors to do any of the following:
a) Use the title "certified home inspector," or a
confusingly similar term, without meeting the specified
criteria of this bill on or after July 1, 2004.
b) State or advertise registration or license numbers
unless the type and/or category of the license or
registration numbers are specified.
c) State or advertise as being home inspectors or home
inspections companies certified, registered, or licensed by
a governmental agency to perform home inspections.
SB 31
Page 3
d) Fail to disclose or misrepresent any essential
information or item required by existing law or the
provisions of this bill.
1)Specifies that as soon as it is commercially feasible and
prior to commencing a home inspection, a home inspector shall
disclose in writing to the client, on whose behalf the home
inspection is being prepared, all of the following:
a) The name, address, and telephone number of the home
inspection professional association that certified the home
inspector, and date the home inspector was certified,
unless the home inspector is not a certified home
inspector.
b) A statement disclosing whether or not the home inspector
maintains professional liability insurance.
c) A statement disclosing whether or not the home inspector
maintains general business liability insurance.
d) The approximate number of home inspections the home
inspector has performed to date.
e) A written statement informing the client of the
inspector's years of experience and education relating to
home inspection.
1)Allows a home inspector to name a seller, real estate broker,
or real estate salesperson as an additional insured in any
liability insurance policy maintained by the home inspector.
2)Allows a home protection company affiliated with or retaining
a home inspector to perform repairs pursuant to a claim made
under a home protection contract.
10)Provides that nothing in the specified provisions of this
bill shall prohibit a licensed contractor from performing a
home inspection.
11)Provides that nothing in the specified provisions of this
bill shall be construed to require a licensed agent or broker
to refer a certified home inspector rather than a
non-certified home inspector when making an inspection
SB 31
Page 4
referral.
12)Provides that it is the duty of a certified home inspector
who is certified pursuant to the specified provisions of this
bill, and who is not licensed as a general contractor,
structural pest control operator, architect or registered as a
professional engineer, to conduct a home inspection with the
degree of care that a reasonably prudent certified home
inspector would exercise.
13)Makes technical and clarifying changes.
EXISTING LAW :
1)Defines "home inspector" as any individual who performs home
inspections.
2)Defines "home inspection" as a noninvasive, physical
examination, performed for a fee in connection with a transfer
of real property, mechanical, electrical, and plumbing systems
and the structural and essential components of a residential
dwelling designed to identify material defects in those
systems, structures and components.
3)Prohibits home inspectors who are not registered engineers
from performing any analysis of the systems, components, or
structural integrity of a dwelling being inspected that would
constitute the practice of civil, electrical, or mechanical
engineering.
4)Exempts registered engineers, licensed land surveyors, and
architects acting pursuant to their professional registration
or license from the existing laws governing home inspectors.
5)Provides that it is an unfair business practice for a home
inspector or company that employs home inspectors to do any of
the following:
a) Perform or offer to perform, for an additional fee, any
repairs to a structure being inspected on which the
inspector, or the inspector's company, has prepared an
inspection report in the past 12 months.
b) Inspect for a fee any property in which the home
inspector, or the inspector's company, has a financial
SB 31
Page 5
interest in the transfer of the property being inspected.
c) Offer or deliver any compensation, inducement, or reward
to the owner of the inspected property, broker, or agent
for future business referrals.
d) Accept an engagement to make an inspection or to prepare
a report in which the employment itself or fee payable for
the inspection is contingent upon the conclusions in the
report, pre-established findings, or close of escrow.
7)Provides that contractual provisions that purport to waive the
home inspector's duty, or limit the liability of the home
inspector to the cost of the home inspection report, are
contrary to public policy and invalid.
8)Regulates false and misleading advertisements and subjects
violators to both civil and criminal penalties.
9)Regulates unfair or deceptive business practices and subjects
violators to both civil and criminal penalties.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS :
Purpose of this bill . According to the author, the purpose of
this bill is to require home inspectors to disclose to the
client the total number of previously conducted home
inspections, related education and training, and whether or not
they have professional liability insurance and/or general
business insurance prior to conducting a home inspection. This
bill also will require home inspectors who wish to call
themselves "certified home inspectors" to meet specified
education, experience, and examination requirements and disclose
specified contact information regarding the association that
certified them as well as disclose the date they were certified
or recertified. This bill also makes it an unfair business
practice for any person failing to make the specified
disclosures or to call themselves "certified home inspectors" if
they have not met the specified requirements.
Background . Under existing law, a home inspector can be anyone
who claims they can perform a proper home inspection. They do
not have to disclose to the client whether or not they have any
SB 31
Page 6
specific education or training experience. Current law only
requires home inspectors to conduct home inspections with the
degree of care that a reasonably prudent home inspector would
exercise. Also, current law specifies what amounts to unfair
business practices for those involved in home inspections,
however it does not prohibit home inspectors from advertising
themselves as being "certified," thereby creating an unfair
business practice.
Home inspectors are persons who conduct physical examinations of
residential property in order to inform potential buyers about
whether or not there are any defects or imperfections on the
inspected property. Some home inspectors are licensed
engineers, land surveyors, or architects. However, the majority
of active home inspectors are not.
According to information provided by the author, there are
approximately 1,500 home inspectors working in this state. The
author believes that consumers are unaware that some of these
home inspectors have little or no experience in performing
proper home inspections. Many home inspectors claim to be
"certified." However, currently there is no legal set standard
describing what a "certified home inspector" means, or what type
of education and training is needed to be able to successfully
perform a proper home inspection. Additionally, there is no
existing statute requiring home inspectors to disclose their
background or training history before executing home
inspections, or if they are adequately insured. Because of
these facts, consumers have little opportunity to choose a
qualified home inspector and have possibly no recourse against a
home inspector who provides a substandard home inspection report
concerning the condition of the dwelling that was inspected.
The author's office points out that an increasingly significant
percentage of the 500,000 persons who purchase existing homes
each year in California are relying on reports prepared by the
approximately 1,500 home inspectors. It is estimated that 82%
of buyers are requesting home inspections as part of the real
estate transaction. Because no statutory standards exist for
home inspectors, incompetent or unscrupulous home inspectors can
cause prospective homebuyers to make a decision that can
potentially result in economically disastrous consequences. The
provisions of this bill are intended to remedy these situations
concerning home inspection.
SB 31
Page 7
Support . According to information provided by the proponents,
there are two organizations that have 200 or more members in
this state. The California Real Estate Inspection Association
(CREIA) has over 800 registered members, making it the largest
home inspection association in the state, and the largest state
association of its kind in the country. CREIA was founded in
1976, and is headquartered in Palm Springs, California. CREIA
has an excellent reputation with consumers, realtors, and other
affected professionals working in the real estate industry. The
American Society of Home Inspectors (ASHI) has approximately 350
registered members in the state and over 6,000 registered
members nationally. ASHI was founded in 1976, and is
headquartered in the state of Illinois. ASHI has eight chapters
throughout California, and is recognized nationally as the
industry leader of the home inspection industry.
In their letter of support, the Alliance of American Insurers
(AAI) states that during the last several years, homeowner
insurers have been victimized by dishonest home inspectors who
assure homeowners requesting a property inspection that they can
identify and address water-related damages. AAI states that
dishonest home inspectors cost insurers thousands of dollars in
unnecessary, and in most cases, false reports of mold exposure
to the homeowner. Once insurers are notified and payment demand
is made, insurers will often go in and re-inspect the structure.
Insurers time and again find shoddy and ineffective cleanup.
Not only do insurers have to pay the first cleanup claim, they
also have to pay the subsequent cleanup claim. Consequently,
this type of dishonest inspection activity creates harsh
economic effects on state consumers because it ultimately causes
the homeowner's insurance premiums to go up, thus affecting the
homeowner when renewing the insurance policy. The provisions of
this bill would address abuses within the home inspection
industry.
Other proponents state that the provisions of this bill set the
necessary ground rules needed to encourage the industry to "self
regulate." This bill also avoids another added layer of
bureaucracy by not mandating a state agency to hire regulatory
staff to ensure proper oversight.
Opposition . In their letter of opposition, the California
Chamber of Commerce states that the provisions of this bill
would significantly increase the costs associated with home
inspections to existing businesses engaged in home inspection
SB 31
Page 8
and create unfair barriers to entry in the home inspection
industry. The certification process outlined in SB 31 includes
requirements of a minimum number of home inspections,
educational hours, and successfully passing an industry specific
examination endorsed by a home inspection professional
association. These prescriptive certification requirements may
be burdensome and costly to small home inspection companies.
Additionally, This bill narrowly defines "home inspection
professional association" as an association that has at least
200 members and has been in existence for at least 10 years.
This definition has the effect of legislatively delegating
control over access to certification to one or two trade groups.
Such a limitation on the number of certification entities
creates a barrier to entry for individual home inspectors that
would ultimately drive up costs to small home inspection
companies.
According to Service Master and its wholly owned subsidiary,
AmeriSpec, this bill creates a certification process for home
inspectors that vests the regulatory and examination authority
to one home inspection association, the California Real Estate
Inspection Association (CREIA), thereby excluding all other
local and national home inspection trade associations.
Essentially, this bill grants CREIA the exclusive authority to
grant the word "certified" for its members and allows it to
approve the education and examination requirements for all home
inspectors who would be required to become certified by means of
CREIA's certification program. For all practical purposes,
CREIA would become the unofficial regulator of the home
inspection industry of California.
AmeriSpec and several other national home inspection companies
belong to a competing national trade association, the American
Home Inspection Association (AHIA). Also, a number of
California based home inspection companies and independent home
inspectors belong to another competing trade association, the
National Association of Home Inspectors (NAHI). Neither AHIA
nor NAHI currently meet the specified requirements of this bill
to be classified as a home inspection professional association.
Service Master maintains that this bill will put them and their
members at the mercy of CREIA who may wish to use this new
certification authority as a means to drive competitors out of
the home inspection marketplace.
AmeriSpec is particularly concerned with the additional
SB 31
Page 9
litigation exposure for home inspection companies under the
unfair business practice sections of the Business and
Professions Code. This bill imposes new disclosure requirements
on home inspectors and allows consumers, or their attorneys, to
take advantage of Section 17200 lawsuits to enforce the
specified requirements. AmeriSpec is concerned that
unscrupulous attorneys may take advantage of these new
provisions to harass home inspectors with Section 17200 demand
letters.
Prior Legislation . SB 1332 (Figueroa) was introduced in 2002
and would have provided title act protection for home inspectors
by making it an unfair business practice for individuals to
refer to themselves as "certified home inspectors" unless they
met specified requirements. Also, SB 1332 would have required
home inspectors to provide specified disclosures prior to
conducting a home inspection. SB 1332 failed passage in the
Assembly.
SB 1216 (Hughes) was introduced in 1999 and would have required
persons seeking to represent themselves as "certified home
inspectors" to disclose in writing to the person ordering the
home inspection whether or not they have passed a home
inspection specific examination or have performed at least 250
home inspections for which home inspection reports were issued.
A home inspector would have been required to pass a home
inspection specific examination. Because the bill may have
exposed consumers to increased costs and would have required
additional regulatory burdens on licensed professionals, it was
vetoed by Governor Davis.
AB 2780 (O'Connell) of 1994 would have set up a comprehensive
statutory scheme for certifying and regulating home inspectors
and would have provided for the creation of a new statewide,
nonprofit organization to exclusively certify home inspectors.
AB 2780 failed passage on the Senate Floor.
There have been several other attempts to regulate the home
inspection industry in previous legislative sessions. For
example, in 1986, SB 2026 (Petris) would have established
specific licensing requirements for home inspectors. However,
SB 2026 was amended to only require the Contractor's State
License Board to conduct a study concerning the problems
relating to home inspectors.
SB 31
Page 10
REGISTERED SUPPORT / OPPOSITION :
Support
Alliance of American Insurers
League of American Homeowners
Los Angeles County District Attorney's Office
Opposition
AAA Home Inspections
American Home Inspection Association
AmeriSpec Home Inspection Service
California Chamber of Commerce
House Master
Pacific West Property Inspections
Pillar to Post, Professional Home Inspection
Service Master
World Inspection Network
Analysis Prepared by : Chris L. Gallardo / B. & P. / (916)
319-3301