Why Should You Have a Home Inspection Performed?
HISTORY OF THE HOME INSPECTION INDUSTRY
The beginning of the industry on the west coast is documented back to 1975 when a small group of concerned home inspectors formed a study group to troubleshoot inspection techniques and enhance their knowledge and professionalism. Up to this point, inspections had been performed on a very casual basis by a very limited number of individuals. From the meetings and correspondence of this group, the California Real Estate Inspection Association (CREIA) was born. At the same time on the east coast, a group of inspectors formed the American Society of Home Inspectors (ASHI) with a national vision in mind. In the past, homebuyers relied on the "walk-thru" inspection, usually conducted three days prior to the close of escrow by themselves and/or with their agent. Buyers did not (and many still do not) distinguish between the appraisal and the physical inspection. They assumed that if the bank was willing to loan on the property then everything was okay. They relied on their Realtors® for advice, and the Realtors® relied on the seller's honesty. Realtors®, banks, and buyers did not always ask the right, or enough, questions and the seller, many times, did not understand the physical aspects, systems operations and other conditions in their homes. BUYER BEWARES! No one had the facts.
In 1984 Easton sued Strassburger and the California Supreme Court ruled that agents had a duty to disclose "known and unknown facts" pertinent to the property. But that seemed unreasonable to ask, therefore, Senate bill 1406 was legislated to mandate disclosure in California. The disclosure laws require sellers to tell homebuyers everything that they "know" about the property they are selling. This ranges from listing all items in the home that are defective, to identifying items not functioning or additions built without permits. The law also requires that real estate agents perform their own "diligent visual inspection" and disclose defects they might find.
The California Association of Realtors altered their contract forms to include a provision for the homebuyer to hire their own professional inspector. Hence the home inspection business emerged on the west coast as an industry. Since then, one state after another has adopted California's disclosure laws. All this has happened very rapidly and, therefore, the need for home inspectors has led to the nationwide expansion of the industry.
BENEFITS FOR THE BUYER
Having a home inspected offers both immediate and long term benefits for the buyer. Certainly the buyer should have a good understanding of what is being purchased. A home inspection enables a buyer to make an informed decision. Oftentimes, finding defects and problems will enable the buyer to renegotiate the selling price. If there is something wrong, the buyer can go back to the seller and demand that any problems be corrected or that the selling price be reduced. In fact, it could be stated that a home inspection is the only return on a buyer's investment that is practically guaranteed in many cases the return is ten-fold for the buyer. Finding over one thousand dollars worth of problems is very common. If there is nothing wrong, the buyer gets peace-of-mind and an education on general maintenance. Also, a home inspection eliminates buyers' remorse that benefits not only the buyer but also the real estate agent.
BENEFITS FOR THE AGENT
If a home has been inspected it limits the agents liability because everything has been disclosed. It can greatly assist in the sales process by making a buyer feel more confident about the purchase. As stated earlier, a buyer knows more about what they are buying which eliminates buyers' remorse. Also, when an agent suggests to the buyer that they have a home inspected, it builds credibility and makes them look more professional. Consequently, this often results in a lot more referral activity from buyers who feel the agent truly has their best interest in mind. So, having a home inspected not only limits the agent's liability, but can actually increase their sales activity.
BENEFITS FOR THE SELLER
If the home inspection has been performed for the buyer, the primary benefit for the seller is that full disclosure has been made, which eliminates the possibility of future legal action for non-disclosure. Certainly there is the possibility of having to renegotiate the selling price, but any problems will have been addressed prior to the sale, avoiding costly and time-consuming legal battles later. Also, having an inspection solidifies the sale and gives confidence to both the buyer and the seller. Home inspections are often performed for the seller. It assists in preparing the home for sale. Having an objective third party inspect the home enables the seller to have a chance to correct problems before a home is placed for sale. The seller can potentially sell the home for more money if it is in perfect condition. Also, the seller can disclose more, this will often speed up the sale of the home and certainly limits the seller's liability.
BENEFITS FOR THE LENDER
The lenders benefit by having a better understanding of the condition of the property. They are going to lend a lot of money for a home. The more assurances they have that the buyer will make the payments, the easier it is for them to approve a loan. For example, if there is a lot of deferred maintenance or things that were failing at the time of the sale that went undetected, and the buyer spent all their money for the down payment and moving expenses, there is the potential for an immediate financial problem. The buyer's cash reserves are depleted, the mortgage payments are all they can afford and all of a sudden the roof needs repairing, the furnace fails, the water heater needs replacement and the buyer can not afford to pay the mortgage and make the necessary repairs. So, the buyer could potentially default which means the lender gets the house back in poor condition. Granted, the buyer would undoubtedly take legal action, but that could take months or even years to resolve, and it would not solve the immediate default problem for the lender. This is an enormous market that is virtually untapped. Presently, lenders in practically every state require a termite inspection (some states do not have termites). It is called termite clearance. As the concept of having a home inspection becomes more commonplace, the home inspection industry will certainly impact lenders the same way as the termite industry. The more a lender knows about a property, the better their chances are of getting paid.
Another enormous benefit for lenders is when a construction draw inspection is needed. Rather than quality control being the issue, if a person has a construction loan, there is an escrow account that is drawn down on periodically during construction. The lender must verify that a particular phase has, in fact, been completed so they do not over pay. This eliminates the possibility of a builder abandoning the project and just keeping the money. So, there is a big market for construction draw inspectors.
Furthermore, when a lender is going to use HUD, FHA or VA they require an appraisal. If HUD, FHA or VA is appraising a home and notices a stain on the ceiling, for example, the appraiser will order a roof certification. Or, if an appraiser sees there is electric wiring out of the wall, he will order an electrical certification. Home inspectors are doing a lot of this HUD, FHA and VA certification work. Also, HUD has a provision stating they will fund up to two hundred dollars ($200.00) through escrow for a full home inspection. So, HUD will actually fund the money for a buyer to have their home inspected.
BENEFITS FOR PROPERTY OWNERS
Having a home inspection could be extremely beneficial for the elderly or retired person who owns a home that is over twenty-five years old. Typically, people in this situation will have lived in a home ten years or more and they only have things fixed if there is a problem that affects day-to-day comforts. These same homeowners have their automobiles checked periodically. They go to the doctor for a check-up. They go to a dentist for a check-up. Why not check on their home? Also, condominiums have associations. They manage the dues that are paid each month by the condominium owners. Those dues are for taking care of the whole property, because a person only owns the airspace inside their unit. The group owns the outside, the grounds, the swimming pool, etc. The monthly association dues have to be allocated each year towards maintenance, repair and replacement of all the items that are owned by the group. A home inspector can perform an annual reserve inspection analysis and provide information regarding the condition of the property.
BENEFITS FOR INSURANCE COMPANIES
In California and on the west coast there are earthquakes. In Florida and throughout the eastern seaboard there are hurricanes. The Midwest has floods and tornadoes. Disaster evaluations become an issue when those catastrophes occur. Natural disasters create work for home inspectors. Outside insurance companies often use independent adjustors and home inspectors because there is so much work, that they need independent help in assessing the damage.
BENEFITS FOR THE RELOCATION INDUSTRY
The relocation industry extensively uses home inspectors. If a company needs to relocate an employee from one city to another, to facilitate the move the company might purchase the employees house they are presently living in and pay the costs to move the employee. A relocation agent is often contacted if the company does not have a relocation service in-house that contacts an inspection broker. Inspection brokers function nationwide. A home inspector should be on the list of each of the various inspection brokers. Obviously, this is beneficial to all parties concerned.
BENEFITS FOR BUILDERS, DEVELOPERS, OR PEOPLE DOING ADDITIONS AND REMODELING
Home inspections performed for a new homebuilder enables him to provide the prospective buyer an independent inspection of the house. He will seem more professional and more credible. As a rule, when doing a track of homes, a home inspector will contract to perform an inspection on all of the homes for a reduced rate because of the volume.
Developers usually hire contractors to do the work and often they are not actually on-site. In-progress construction inspections can not only save the developer tens or hundreds of thousands of dollars by policing contractors, assuring quality control, but it also gives the developer peace of mind in knowing things are being done correctly.
When a homeowner hires a contractor for a room addition or for a remodeling project, the same logic prevails as that for a developer. Having in-progress inspections assures quality control, can save the homeowner money, and gives peace of mind that their home is safe.
BENEFITS FOR CITY BUILDING DEPARTMENTS
City building departments, especially in small towns, subcontract many of their inspections. Also, the new building codes require that a lot of specialized inspection work must be performed. It is called "Deputy Inspection Work" or "Special Inspection Work". National building codes mandate this and each local building department enforces it. These national building codes are updated every three years. The 1991 revisions had some Deputy Inspection requirements in it, the 1994 revisions had more. Certainly, 1997 will have a tremendous amount of new Deputy Inspection requirements. This is becoming a new industry within the home inspection and construction industries because people within the private sector are helping the building departments and contractors fulfill the requirements of the building codes. The home inspection industry is truly an industry of the 90's and the future.
