Caveat Emptor Under Prudentialism
| Author | Jon Frauley |
| Published date | 01 June 2014 |
| Date | 01 June 2014 |
| DOI | http://doi.org/10.1177/0964663913513218 |
| Subject Matter | Articles |
Article
Social & Legal Studies
2014, Vol. 23(2) 195–213
Caveat Emptor Under
ª The Author(s) 2013
Reprints and permission:
Prudentialism: The Case
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DOI: 10.1177/0964663913513218
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Inspection Industry
Jon Frauley
University of Ottawa, Canada
Abstract
Residential home (that is, housing) inspection has been a growth industry in Canada and
the United States since its emergence in the 1970s. Within a legal context where the
purchase of used housing is governed by the doctrine of caveat emptor, and a political and
economic context characterized by prudentialism, home inspection appears to offer a
means by which consumers can discharge their legal and political duty to be prudent.
However, in Canada, because home inspection is largely unregulated and market driven,
consumers of pre-owned housing are placed at a structural disadvantage relative to home
inspectors. This article argues that we should be cautious of embracing private residential
home inspection as an adequate consumer protection mechanism or form of risk consult-
ing because there are fundamental and irreconcilable differences between a public service
that strives to meet the objective of the public good and home inspection as a private ser-
vice offered for public consumption that strives to meet the objectives of private interests.
Keywords
Caveat emptor, governance, moral hazard, real property law, prudentialism, real estate,
home inspection, risk, housing, citizenship
The prudent subject of risk must be responsible, knowledgeable and rational. To rely on the
State to deal with the harmful effects of known, calculable and individually manageable
risks appears feckless and culpable (O’Malley, 1997: 202).
Corresponding author:
Jon Frauley, University of Ottawa, 120 University Street, Ottawa, ON K1N 6N5, Canada.
Email: jfrauley@uottawa.ca
196
Social & Legal Studies 23(2)
Certainly, as a matter of prudence, a purchaser who is at risk with respect to defects in
quality of the land . . . will have a practical incentive to engage in a proper inspection of the
property (McCamus, 2003: 112)
Introduction
Residential home inspection, a special form of general inspection for those buying new
and used houses, has been a growth industry in North America since its emergence in the
1970s (Marshal, 2002; McNeill, 1979; Nixon, 1982).1 As a rapidly growing industry, it
has had an impact on new and used home buyers and sellers of all classes, genders, and
ethnicities. The purchase of a home is a significant financial undertaking and poses an
economic risk to the buyer as well as the mortgagee. In Canada, many home buyers
do utilize the services of home inspectors, and the practice of home inspection has been
increasingly accepted as a valuable part of the real estate industry (Real Estate Council of
Ontario [RECO], 2010; see Weisleder, 2009). However, this industry, which produces
information generally accepted as crucial to helping potential buyers be prudent about
what is potentially their largest purchase and greatest economic risk, remains largely
unregulated. Although many provincial governments are directly responsible for a wide
variety of inspection practices for the public good (e.g. municipal building, vehicle,
occupational health and safety, nursing homes, and retirement homes), except for recent
developments in British Columbia and Alberta, Canadian home inspectors do not require
licensing, certification, or training.2
In cases where homes are not warrantied and not subject to state inspection, such as is
the case with used housing, the doctrine of caveat emptor constitutes the governing prin-
ciple (Landry, 1977; Manderscheid, 2001; Marsh, 2007; McCamus, 2003; Nixon, 1982;
Weinberger, 1996). This long-standing legal rule dovetails with relatively recent devel-
opments in political economy. As political sociologists have argued, since the demise of
welfarism as a dominant rationality of governance, we have witnessed changes not sim-
ply in modes of governance but also in the conception and practices of citizenship
(O’Malley, 1996; Rice and Prince, 2000; Rose, 1992; Sears, 1999; Teeple, 2000; Wal-
ters, 1997). The move away from welfarism as a model of regulation and citizenship sig-
nals a move toward what has been termed ‘prudentialism’ (Dean, 2010; Kemshall, 2011;
O’Malley, 1997; Peters, 2005). In the resale real estate arena, the political subject and the
legal subject have aligned through the duty to be prudent.3 It is in this context, I argue,
that the residential home inspection service has come to appear as a valuable mechanism
of consumer protection and risk management (see Canadian Mortgage and Housing Cor-
poration [CMHC], 2007; Marsh, 2007; Marshall, 2002; Nixon, 1982; O’Malley, 1993;
Webb and Seiler, 2003).
While home inspection may appear as a valuable type of risk consulting for ‘respon-
sibilized’ home buyers who have a political and legal duty to be prudent and who wish
to secure against potential economic loss, we also need to see home inspection as a for-
profit market-driven industry where inspectors are prudent entrepreneurs whose objective
interests conflict with those of the consumer. If we look at the objectives of inspec-
tion as defined by various home inspection associations (discussed below), we note
that the standards of practice of each limit the scope of inspection to what are called
Frauley
197
‘patent defects’, which are readily accessible to the senses unlike hidden ‘latent
defects’ (Manderscheid, 2001; Marshal, 2002; McCamus, 2003; Nixon, 1982). What
is important for our purpose is that a methodological limitation and the narrowly
defined scope of inspection expose inspectors to economic risks. Significant defects
may not be revealed and this can leave inspectors vulnerable to litigation. Although
litigation can be costly, it is not unheard of (Marsh, 2007; Nixon, 1982). In some
cases,
complainants
have
successfully
sued
home
inspectors
for
damages
(Cresswell-Jones v. Segouin [2008]; Salgado v. Toth [2009]; Aaron, 2009; Canadian
Broadcasting Corporation [CBC], 2009; Seyd, 2009). As a result, inspectors some-
times carry ‘errors and omissions’ insurance and have clients sign a liability waiver
as indemnification against risk of economic harm, should they fail to uncover struc-
tural defects in the house.4 Such strategies suppose it is the client who poses a risk
of economic loss to the home inspector. So too are real estate agents prudent entre-
preneurs. Agents may work on behalf of clients, just as home inspectors do, but in
doing so may recommend the client hire a home inspector; not simply as a measure
of prudence but as a way to discharge their own legal duty of disclosure to the buyer
(Aaron, 2006a, 2006b; Schmitz, 2011). Here too the buyer represents a risk to the
real estate agent. Thus, there are tensions and contradictions that surround the pur-
chase of used housing. Given the pervasiveness of home inspection and absence of
implied or express warranties for used housing, we ought to question whether or not
residential home inspection as currently constituted offers adequate risk consulting
or can serve as an adequate consumer protection mechanism.
Our knowledge of home inspection derives largely from industry insiders, self-help
manuals, reality television programming, and the real estate industry. More recently,
community colleges, in establishing home inspection certificate programs, have come
to shape perceptions of the nature and value of home inspection. The emergence of these
programs and efforts by the industry to professionalize and market itself underwrites the
view that such services are in high demand by consumers and, by implication, valuable.
Although home inspection is a ubiquitous aspect of the market in pre-owned housing and
appears as a risk-consulting service that enables one to discharge a duty to be to be pru-
dent, there is surprisingly little research on it.
Consultation of a wide variety of abstracts and indices yielded four published articles
in peer-reviewed journals (Marsh, 2007; Nixon, 1982; O’Malley, 1993; Webb and Seiler,
2003).5 In addition, the search yielded one research report written for the Canadian Mort-
gage and Housing Corporation (CMHC) (Marshall, 2002). The scholarship is of uneven
quality, none hails from the social sciences, and only Nixon and Marshall focus on the
Canadian context. Marsh (2007) and Nixon (1982) offer the most valuable discussions of
the industry, providing an overview of the scope of inspection, inspector training, discus-
sion of case law up until the publication date, and discussion of the doctrine of caveat
emptor. Marsh (2007: 113) argues that
the reasonable expectation of homebuyers is often far too great, given the limited
nature of the duties most home inspectors undertake, and that caveat emptor is alive
and well in the used residential real estate market, without regard to the increasing use
of home inspectors.
198
Social & Legal Studies 23(2)
Nixon (1982: 169), while asserting the value of home inspection, concedes that fur-
ther study is required as the actual consumer benefit derived is unknown. It is clear that
Nixon (1982), Marsh (2007), and Marshall (2002) believe that home inspection cannot
provide what many think it does or should be able to provide.
This article is the outcome of exploratory research (see Stebbins, 2001) on the
home inspection industry in Canada and is part of a larger project. It argues that
we should be cautious about embracing private...
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