Monday, August 18, 2014

Don't Blow Off the Home Inspection

When you buy a house, a home inspection can be one of those things everybody hates. For buyers, it's one more impediment, and who has to pay for repairs, anyway? For sellers, it's one more impediment, and who has to pay for repairs, anyway?

A home inspection report is like a certified letter: It seldom bears good news. The hard part for buyers is sorting out if the bad news is a little-bit-bad or a-lot-bad. Unfortunately, no one is there to help. While no news may be good news, bad news may be worse news, so do not forego the inspection, even if your Realtor tells you that competing offers waived the inspection contingency.

There are some common problems with home inspections. First, they seldom uncover serious construction defects, which can only be discovered with an invasive inspection (and which most home inspectors aren't qualified to perform anyway). A home could pass inspection but still be full of dry rot. Second, some inspectors don't properly prioritize areas needing attention. A furnace needing cleaning and a new filter is far less serious than water damage under a sink. Third, some inspectors are either inattentive or just plain not good. I recall one instance when my client's inspector failed to note instances of open wiring--a deal killer on an FHA loan (and yes, I pointed it out to the inspector).

Some states regulate home inspectors. Others don't. In Oregon, where I practiced, the state regulates them, but a license means they took the course work and passed the test. That's often not enough. In Colorado, my home inspector--a great guy, by the way--included a bid to do the work his inspection discovered. Hmmm.

Buyers often rely on their Realtors' recommendation for a home inspector. That's a good place to start, but it's not enough. In the instance cited above of the inspector not noticing open wiring, I had used the recommendation of a colleague because my own inspector was unavailable. That means my colleague had to have recommended the bad inspector to clients prior to my alert.

Whether or not your state licenses these individuals, choose an inspector who's experienced at doing this kind of work, and if you can find one who's done a lot of houses in your chosen neighborhood, so much the better. Some inspectors will disagree, but choose one who's worked in the construction trades. Former skilled workers and contractors seem to have a better sense of how the house goes together and can prioritize reapirs. In my experience, they also will note potential detects not on the standard checklist. And ask for the printed report along with recommendations for annual maintenance.

For lay people, a problem with home inspections is that too much of it is about risk management. Brokerages recommend them because inspections are a defense in case there's a lawsuit, and inspectors sometimes exaggerate certain repair items for the same reason. If you're buying (or selling) a home, the only risk you want managed is yours, thank you very much.

Who pays for repairs? Buyers don't want a pig in that poke they just bought, nor do they want that shiny new paint and carpet to be lipstick on the pig. Lender-required repairs really aren't negotiable--they have to be done before the loan closes--and the others depend on the type of sale (traditional or distressed) and the tolerance of the parties.

Any financial transaction has to be analyzed for upside-downside, and a home inspection is crucial in mitigating downside risk for buyers. Don't pass on one.