e070622 Real Estate Agent Indemnification
Identifier: e070622
Date: 06/22/2007
Question
When marketing inspection services to real estate agents and brokers, does promoting the fact that an inspector's Professional Liability insurance includes an endorsement that indemnifies referring brokers and agents constitute direct or indirect compensation in violation of 1.C of the Code of Ethics?
Response
The committee believes that the reduction of risk gained by a referring real estate agent or broker from a "limited additional insured" status provided by an inspector's insurance policy, does not constitute direct or indirect compensation in violation of 1.C of the Code of Ethics. This limited indemnification coverage is provided only to the extent that the referring agent is held liable for the insured inspector's errors or omissions. While an agent may consider the indemnification to be an inducement to refer a specific inspector when he or she compares one inspector's services with another, the agent gains nothing for referring an inspector who includes such indemnification, compared to making no referral at all. The indemnification simply reduces the risk to the agent, as does referring the most thorough inspector. Promoting the benefits and value of one inspector's services over those of another to real estate agents does not constitute a violation of the Code so long as those advantages are represented honestly and do not include some form of direct or indirect payment for referrals.