There are a number of conflicts of interest that accompany homeownership that can find you in situations you wish you could have avoided. Knowing what these conflicts are and how they affect your largest asset, your home, can help you make the right decisions to protect your financial and personal interests.
We have highlighted a number of conflicts of interests that we have encountered over many years of being homeowners and hope our experiences can help you along your own homeownership journey.
10 Conflicts of Interest Every Homeowner Should Know
- Non-Invasive Plumbing Technology vs. Traditional Plumbing Methods
- Real Estate Agent Dual Agency
- Home Warranty Plans
- Pre-Sale Home Inspection Disclosures
- Solar Panels: Selling Back to the Grid
- Going through the Permit Process
- Homeowner Perceptions of ADUs
- Professional Service Referrals
- Lead-Gen Home Improvement Websites
- Why You Should Never Lend a Ladder to Your Contractor
1. Non-Invasive Plumbing Technology vs. Traditional Plumbing Methods
Professional contractors who do not stay current with the latest industry best practices have a conflict of interest, as they cannot recommend a better solution, even if they know one exists.
In particular, traditional “old school” plumbers, who have not caught up with new technological solutions in their industry, will refrain from telling you that there is a better way to repair a broken or fractured sewer line.
Since Cured in Place Pipe Technology (CIPP) came on the scene, many plumbers have seen their “big money” traditional projects – e.g. digging up surrounding landscape and opening up floors insides homes – shrink in volume, as CIPP prevents the need for full trench plumbing to solve the same issues.
The plumbing industry has many new curative technologies for resolving underground water issues, including epoxy coating and pipe bursting, which resolve the same sewer line issues without all of the headache, cost and time of the older methods of digging up and replacing the sewer lines completely.
2. Real Estate Agent Dual Agency
A Dual Agency relationship with your realtor means that the agent is representing both you and the other party. In other words, a conflict of interest is naturally inherent in a Real Estate Agent Dual Agency relationship, as an agent has a fiduciary responsibility to represent the best interests of both parties.
If you are the seller of the property, looking to sell at the highest price possible, how can this agent simultaneously represent your interests and those of the buyer who is looking to pay the lowest price possible?
Dual Agency is a dirty little secret that reputable agents will admit is not in the best interest of either client in terms of “utmost care, integrity, honesty and loyalty”, without compromising the interests of one or both parties.
The law requires that an agent disclose to the buyer and seller that he is representing the other, and that each party must consent to the arrangement. When a price is not pre-determined, this arrangement is only in the agent’s best interests, as he receives compensation from both the sale and purchase end of the transaction.
On the other hand, Dual Agency is best suited when a buyer and seller have already agreed to a price before enlisting an agent, such as a transfer of property between family members.
3. Home Warranty Plans
The conflict of interest involving home warranty plans can be summed up by the two polar opposite incentives of each party:
- Homeowners want as many repairs and replacements covered with quality parts, appliances and service providers
- Home warranty companies, on the other hand, want to keep costs low by approving only a narrow set of repairs, relying on lower quality parts, appliances and service personnel
Unless you negotiate a home warranty subscription as part of your home purchase, you should always forego any home warranty contract if you must pay the contract premium. Home warranty companies are notorious for denying claims based on fine print or “extenuating circumstances”, and exclusion items that seem to grow each year.
Since home warranty plans only cover “normal wear and tear”, any ad hoc damage, such as your child accidentally placing items into a power outlet resulting in an electrical fiasco, would not be covered.
In addition, the quality of home warranty service providers is typically inferior. Many of these “Mom & Pop” operators are considered to be at the bottom of the service and quality scale and are deemed to be unreliable and less knowledgeable on the latest technologies in their respective industries. Mediocre service repair professionals are more reliant on referral business from home warranty companies. Top tier service firms, on the other hand, do not need to rely on home warranty companies, which can also limit service rates.
As an alternative to a home warranty plan, we highly recommend creating and consistently funding a “Home Maintenance” savings account.
4. Pre-Sale Home Inspection Disclosures
The conflict of interest involving home inspections can be best summed up from the perspective of home sellers:
- Home sellers are advised to never have a home inspection conducted leading up to listing, as it will increase the chances of uncovering a previously unknown defect that must be disclosed to prospective buyers
- Consequently, any proactive repairs made by sellers before listing should strictly be for “known” issues
When purchasing a home, however, it is imperative to obtain a pre-sale home inspection. Unfortunately during frenzied “sellers’ markets”, many buyers forego this vital part of the home buying process in an effort to curry favor with the seller to get the deal done. Big mistake! A pre-sale inspection is always in the best interest of the buyer, as it provides protection for what is often the most expensive investment in your life.
Equally, whatever defects a previous potential buyer has uncovered through an inspection must also be disclosed to any subsequent potential buyer. If the home fell out of escrow or is “back on the market” per the MLS listing, ask to see any and all reports and disclosures related to previous offers. Sellers are obligated to reveal all information, including recent home inspection reports, known to them regarding defects, hazards and any issues that may impact the sale of the home.
5. Solar Panels: Selling Back to the Grid
Solar energy has become extremely popular as of late, especially since many states have witnessed increases in electric energy costs over the past few years. Solar panel contractors have been capitalizing on this phenomenon by touting the monetary savings that their products will generate for homeowners.
Further, homeowners can create their own solar-powered energy – realizing both savings and income – through tax rebates and the ability to sell energy back to their local power companies, a concept known as “Net Energy Metering (NEM)“.
Unfortunately, many jurisdictions are getting wise to the potential economic shortfall they will experience if everyone installed solar panels and requested payment from the utility companies.
In California, for example, the legislative assembly introduced Assembly Bill 920 (AB920) which, unfortunately, changes the parameters of the old NEM 2.0. The new law, NEM 3.0, has many changes that will:
- Require reductions in compensations for customers’ excess solar energy to almost wholesale cost
- Increase monthly fixed charges on solar customers and “grid access” charges based on system sizes for those customers who sell energy back to the utilities
- Decrease credits paid to solar panel owners.
These changes have new solar panel homeowners asking, “Why Bother?“.
6. Going through the Permit Process
Though we strongly recommend that homeowners take a responsible approach to pulling permits, we fully understand and empathize with the underlying fear that reporting a new home improvement project may trigger a reassessment of your home’s property value, and thus an increase in your property tax.
To assuage these concerns, we always recommend conducting research upfront to seek confirmation on which project types are unlikely to trigger a reassessment. Unfortunately, the disincentive of higher property taxes can have a negative impact on the cumulative valuation of a community, as homeowners may be less inclined to invest in their properties.
Though the primary purpose of permits is to protect homeowners and reduce their liability risks, many homeowners may be tempted to by-pass the process due to negative perceptions, such as:
- Confusing Paperwork
- Extra Cost
- Extended Project Time
- Overzealous Inspectors
- Inconvenient Bureaucracy
7. Homeowner Perceptions of ADUs
As the proliferation of ADUs (Accessory Dwelling Units) propagate across the US and into your local community, be aware that there will be inherent conflicts of interest displayed during the planning process. Most intriguing is that homeowners will view ADUs differently, on a case-by-case basis, depending on their immediate situation and understanding of how ADUs are primarily being used.
The dichotomy of opinions on ADUs can be lumped into two distinct homeowner groups:
- Anti-ADU Homeowners who are primarily concerned that ADUs will negatively impact neighborhoods with:
- Increased Density
- Increased Traffic & Parking
- Higher Percentage of Renters
- Declining Home Values
- Disruption from Continuous Construction Projects
- Pro-ADU Homeowners who believe that ADUs represent a net-positive for neighborhoods due to the following benefits and uses of ADUs:
- Housing for Aging Parents or Boomerang Adult Children
- Home Office
- Rental Income
- Housing for On-Site 24/7 Caregivers
- Guest Lodging
- Multifunctional Space as an Extension of the Main House
Another aspect of a conflict of interest is that state and local governments are primarily offering incentives for homeowners to build ADUs as a means to increase the affordable rental housing supply. However, many homeowners who are taking advantage of these programs may not be interested in using their ADUs as affordable rental units.
8. Professional Service Referrals
When dealing with home inspectors and insurance assessors, always be on alert for any unethical or illegal referrals to other service professionals. Most state and local jurisdictions have well defined consumer protection laws that shield homeowners from being duped into signing up for either unnecessary repair work, over-priced work, or work done by a contractor who gives a financial “kickback” to a referring “professional”.
For example, if home inspectors could refer service professionals for your home, they would have incentive to overstate the scope of repairs.
Although we always recommend to homeowners to “always seek referrals” – especially from reputable, trusted tradespersons – honest professionals will explain upfront why they cannot provide a recommendation. However, they can ethically share with you what to look for when hiring a given contractor, if they choose.
9. Lead-Gen Home Improvement Websites
Though prominent home improvement service websites, like HomeAdvisor, Angi, and Houzz, all offer valuable content, tools and data to help research projects and hire contractors, homeowners need to be aware of their underlying business models and conflicts of interest.
Specifically, these sites sell highly-valuable contact and project information of prospective customers to multiple bidding contractors. The generic category of this business model is referred to as “lead-gen”, as in sales lead generation for home improvement projects.
The theory of this type of business model is sound (i.e. “an efficient matchmaking marketplace”). However, the underlying practices and day-to-day reality of what can transpire in these dynamic marketplaces can be very problematic.
For example, listing sites will have financial incentive to sell project leads to more contractors than necessary, and to contractors that may be suboptimal fits for a given project. Additionally, these sites are always under pressure to maintain a large base of subscribing contractors throughout the country.
As these sites push for more and more signups of paying contractors, their vetting process (e.g. background checks) may be, at times, imperfect, which means homeowners may be lulled under a false sense of security, when hiring a contractor from these types of sites.
Regardless of how you find a prospective contractor to hire, always do your own due diligence to check for any red flags. These sites can help, but never assume that they are foolproof.
Another emerging conflict of interest is prevalent Fake Reviews on local business listings and review sites. Less reputable service companies, with problematic reputations, are prone to pay unscrupulous individuals to write fictitious, over-flattering reviews.
10. Why You Should Never Loan Your Ladder to a Contractor
Understandably, homeowners want their home improvement projects to be successful, with quality workmanship and in the allotted time and budget agreed upon in the contract. In this quest, we, as homeowners, may be inclined to be helpful to a hired contractor, such as lending tools, if the job suddenly requires equipment that the contractor doesn’t have onsite.
Be forewarned, however, that in many jurisdictions, lending that ladder or other tools could cost you your home if there is a related accident or death. As a result of your kindness, you may face any of the following legal claims from an injured worker or his family:
- Negligent Hiring, Supervision & Training
- Premise Liability
- Wrongful Death
- Loss of Consortium
In California, for example, homeowners are generally covered by the Privette Doctrine, a stated legal principle that holds that homeowners and general contractors are not liable for injuries to the employees of subcontractors, unless they have affirmatively done something by act or omission to cause the injury.
Although Privette appears to be vague on its face, the truth is that the exceptions to the doctrine are quite clear:
- Claims involving a breach of a non-delegable duty imposed by statute
- Claims arising out of injuries caused by defective equipment supplied by the general contractor or homeowner
- Claims based on a failure to warn of a hidden dangerous condition
- Claims where a general contractor or homeowner retains control over a jobsite in such a manner that it affirmatively contributed to the employee’s injuries
In short, loaning a piece of defective equipment, not warning a contractor about a hidden danger on your property, or directing a general contractor’s employees on the job site, can all get you into a legal situation, even if your home is in a private trust.
Recommended Homeowner Articles
- Researching a Neighborhood Before Buying a Home
- How to Make a Major Home Renovation Project Safe for Your Family
- Security and Safety Products for Your Home Renovation Project
- Why You Should Never Lend Your Ladder to Your Contractor
- Best Online Legal Services for Homeowners & Property Owners
- How to Live in a World of Fake Reviews
- Homeowner Liability With DIY Projects
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