Is Disclosure an Ethical Answer to Conflicts of Interest?

Disclosures would seem a reasonable way to protect home inspectors’ clients from the potential for unethical influences caused by conflicts of interest. Belief in disclosures seems to rest on several assumptions, such as the following:

• Clients can understand the information disclosed and can choose another inspector who does not have a conflict of interest, if they so wish.

• Once a conflict of interest is revealed, the inspector won’t be influenced and/or the client can adjust.

• Attorneys recommend disclosing conflicts of interest; therefore doing so must take care of the conflict.

But are these assumptions valid?  Is disclosure sufficient to address the ethical issues involving conflicts of interest? Could disclosures be ethically detrimental?

In practice, it’s virtually impossible for clients to get meaningful disclosure before choosing an inspector.  Homebuyers usually hire inspectors without adequate time for comparison shopping. The opportunity for the client and the inspector to communicate is either non-existent (i.e., somebody else schedules the inspection) or inadequate for the inspector to fully disclose and the consumer to completely understand.

When first meeting the inspector and being informed of a conflict of interest, most homebuyer clients realistically are not free to choose a different inspector. Unable to change their minds, a disclosure does not protect them beyond informing them they are stuck with somebody involved in an unethical conflict of interest.

Furthermore, unethical influences on an inspector’s state of mind still are present after disclosure. The following are a few examples of how the adverse effects of conflicts of interest remain, even if disclosed.

It’s clearly unethical for an inspector to offer to repair reported deficiencies because s/he has a motivation to exaggerate or only report items that the inspector might be paid to repair. Disclosure does not remove that motivation.

An inspector receiving payments for recommending contractors is a blatantly unethical conflict of interest because such payments are likely to influence the inspector’s advice to his/her clients. What an inspector advises or does not advise should be based on his/her genuine beliefs, not on receiving payments for the benefit of other vendors. Disclosing to clients that the inspector will be paid for his/her recommendations does not eliminate the financial influence on his/her advice.

Arrangements wherein the inspection fee is paid only if the inspected home is successfully sold are obviously unethical because the inspector is strongly influenced to not report anything that might jeopardize the sale. Even though such payment arrangements probably would be known (i.e., disclosed), the inspector still has much to gain or lose by the outcome of the proposed sale.  

Paying a realty agent/broker to recommend the inspector is unethical for many reasons, including the serious conflicts of interest and their potential influence on the inspector. Dis-closing such unethical payment does not eliminate the substantial influences on the inspector to slant an inspection and report in favor of the agent/broker’s goal to sell the home.

Besides not eliminating the unethical influences on home inspectors, disclosures often are incomplete or confusing, leaving the clients unprepared to adjust for the disclosed influences. Even if a written disclosure could describe completely all potential consequences of a conflict of interest, few consumers would read and understand it well enough to know how to make up for slanted reporting. In addition, even when clients know parts of an inspection report are compromised, such knowledge is of little help in dealing with other parties to their transaction. Clients seem neither helped nor protected by disclosures.

Although attorneys recommend getting client signatures on written disclosures, such measures do not make disclosures ethical because (a) they are for liability defense of the inspector, not to protect clients, and (b) most clients don’t actually read such disclosed information and are, therefore, not really informed about unethical conflicts of interest.  And signed disclosures actually may be detrimental to clients. Rather than encouraging inspectors to be more careful to avoid the influences of conflicts of interest, some inspectors might feel legally protected and be more influenced by conflicts of interest than if there were no disclosure.

Because disclosure does not protect clients and may even aggravate the detrimental effects on inspectors, disclosing conflicts of interest is not required in ASHI’s new Code of Ethics. Instead, home inspectors must not engage in any conflicts of interest prohibited by new Code paragraphs #1.A through #1.F.  Other conflicts of interest that would appear to compromise an inspection (but are not prohibited by paragraphs #1.A through #1.F such as inspecting the house of a relative or close friend of the inspector) should be avoided, not merely disclosed, per paragraph #1, by trying to decline the inspection, substituting or recommending another competent inspector, or taking other action to avoid the conflict of interest.

Even with best intentions, attempts to avoid a conflict of interest may be unsuccessful. If an inspector is unable to avoid an inspection that happens to involve a conflict of interest not prohibited by paragraphs #1.A through #1.F, the new Code does not prohibit disclosing such conflict of interest for the inspector’s legal defense. But inspectors should remember that such disclosure doesn’t protect the client and doesn’t make it ethical. When a conflict of interest not prohibited by paragraphs #1.A through #1.F cannot be avoided, the good faith effort to avoid inspections involving such conflict of interest, along with complying with new Code paragraphs #2, #2.A, and #2.B are what make an inspector’s actions ethical, not any disclosure.
See also http://www.iit.edu/departments/csep/perspective/pers17_1fall97_1.html “Conflict of Interest in the Professions” by Michael Davis.