Thursday, December 10, 2009
I have seen a growing trend over the last 6 months or so, where my buying client’s lender and even the mortgage insurance companies have asked for my professional opinion on the physical condition of a subject home, stemming from the appraiser’s comments.
I have no problem doing this as it helps my client’s in the home purchase process. After all, I am in the service business. I obtain permission from my client to respond and discuss the home inspection with the lender or related parties on their behalf. My statements are qualified, limiting my liability with no guarantee or warranty to the home’s condition and reference the initial inspection report, as the case should be.
I understand why these questions are being asked of the inspector. I also think it’s a testament to the growing value and credibility of the home inspection industry and service today.
However, it does raise a couple of questions/concerns:
1) COST - If this becomes a common practice, I will need to charge my client for the time and added liability exposure. Based on half dozen or so I’ve been involved with, a client could be charged an additional $95.00. There tends to be a lot of back and forth requests & confusion on what the underwriter is asking/needs and how to wordsmith it to meet the request, maintain the integrity of the inspection and report and not provide more than what’s asked for (see following consequence point).
2) CONSEQUENCES - These requests so far appear to have been based on the appraiser’s stated observation(s) raising concerns with the underwriter, needing a better understanding of the apparent physical condition and risk as it may affect the loan’s collateral asset. My home inspection observations are more comprehensive as the “expert” opinion. Apparently the underwriter knows the appraiser is not a qualified home inspector. Consequently, each case has come with the risk of opening a new can of worms for the buyer in obtaining the loan or obtaining the loan with the initial terms as my (inspector’s) observations may reveal a bigger or unknown concern for the underwriter than identified in the appraiser’s inspection.
3) CONFLICT of INTEREST – Maybe? My client, the buyer/borrower, has a different objective and perspective than the lender/mortgage insurer has regarding risk tolerances and purpose of the inspection. They clearly are not the same. So, a home inspection for a buyer may inadvertently cause problems with the financing because of the more comprehensive assessment of the home’s physical condition and the lender/mortgage insurer are now expanding the physical condition into the lending process. Under some scenarios, I could see a buyer foregoing a home inspection if it could conflict with the loan. If that’s the case, would the lender “require” a home inspection? What if the buyer doesn’t want or approve the disclosure of the home inspection to the lender? What if the buyer, by a chosen option, pays for a home inspection only to have the inspection be the basis for denying the loan or modifying terms that won’t work for the buyer? They could incur some considerable out-of-pockets expenses (home inspection and appraisal) for information benefiting the lender and not them.
Anyhow, just some noted observations of the recent trends and changes in our market place. I’m sure we’ll all adjust accordingly. More factors for a consumer to be aware of in the home buying process.
I hope this is helpful. Any additional comments or insights to consider?
Tuesday, December 1, 2009
I'm reposting my response because I hope it provides some useful insight from a home inspector's perspective to better serve our mutual clients.
My response is based in part on the following observations I've made as an experienced home inspector and former market analyst. First, consider the following generalized and categorized mindsets with respect to how inspection findings are used by Buyers.
Expectations of Buyers vs. The Seller's Representation of the Home's Condition. - A real situation I just had with a client explains this well. The home was only a few years old, well maintained and decorated, and had the hardly lived in appearance. The Seller's flyer marketed the home as "better than new." My inspection found about a dozen issues to address, mostly maintenance type items and a couple of minor cost repair items with potential bigger consequences if not corrected sooner than later. The Buyer was not discouraged with the inspections findings. However, he stated to his wife (they were there with me for the entire inspection) that he (Buyer) wanted the Seller to fix everything. He was surprised the inspection discovered anything as the Seller presented his house as being defect free (the Seller stated, "I've maintained this newer home and you shouldn't find anything") and the flyer said "better than new." If you were the Buyer in this scenario, how would you respond? His expectations, as sold to him, were that the home was defect free and better than new.
Expectations of Buyers in a Buyers vs. Sellers Market - This one is self explanatory. Most Buyers are going to take advantage of market conditions and use it to their benefit. Why not? I thinks it's the Buyers (or Seller's) prerogative, depending on those market conditions. Wouldn't you?
Risk Tolerance Level of Buyers - This one I find few Realtors either fully understand or take the time to understand their client's position on risk tolerance. I use it to gage how I speak and interact with my clients in order to best communicate the inspection findings. We all have different risk tolerances and this is especially true when making a big, if not the biggest purchase decision and emotionally charged purchase of buying a home. The bottom line is some people want to eliminate as much risk as possible and others don't care as much. Where your client falls on this scale will help answer this blog's posted question. For example, a low risk tolerant Buyer with "minor" inspection items, yet with the potential to become a bigger problem regardless of likelihood of occurrence, is more likely to request the Seller correct the items or provide an allowance. I see this often, with the Realtor frustrated in trying to understand why the Buyer is being "nit-picky" or assuming the home inspector lead the Buyer to this position. Regardless, I find this to be a very common occurrence that could be a useful means for a savvy Realtor to come out as a hero for their client by simply understanding the client's level of risk tolerance.
Negotiation Savvy of the Buyer - Many Buyers just don't know what options they have or how the purchase inspection negotiation process works and are not the subject of this Blog question or discussion. However, other Buyer's are pretty sophisticated and actually look forward to using whatever inspection information they have to negotiate a better position with the Seller. This may include a strategy of asking the Seller for everything, sometimes even upgrades. Their approach is that they don't know what the Seller will do until they ask, so why not ask for everything as a starting point and make trade-offs from that point. I've often heard back from Realtors how they were surprised the Seller agreed to correct or make financial allowances as requested by the Buyer. I've seen banks with foreclosed properties under contract in "as is" condition give up concessions on repairs because the Buyer (or their savvy Realtor) simply asked for them.
Here's another noteworthy observation. I've had investor clients ask me not to share the inspection report with their Realtor because they "didn't want the Realtor to interfere in their negotiation strategy."
Anyhow, if I were a Realtor, and it should be apparent that I'm not, I would understand my Buying client's mindset and expectations going into an offer with respect to your question and the position points I've observed and stated above. Knowing this would then enable me to best advise and serve my client in meeting their needs with regard to handling inspection items and negotiation expectations. I would also be respectively open to the Buyer's decision to negotiate whatever they want, even if my professional advice was contrary.
I hope this helpful. I welcome other insights and comments.
Saturday, October 31, 2009
BOO! BE AWARE, TAKE ACTION!!! Don’t Let Your Halloween Turn Into a TRIP HAZARD Nightmare!!
Halloween can be the worst time for trip hazard falls, injury and liability as kids and parents of all ages walk and run onto your dark property eager to receive treats.
Any small to large and irregular surface displacement can be a trip hazard and action should be taken to minimize risk.
Suggestions: Use Halloween decorations as a means to obstruct and slow down foot traffic at sidewalks, driveways, patio, etc.; any walkway path that may pose a trip hazard. For example, Caution Tape over a saw horse or hay bale across the hazards. Use your imagination, for anything that might overt, alert and avoid a trip. Adequate lighting will also help!
Oh yeah, get it fixed as soon as you can ;))
I.D. Property Inspections, Inc. wishes everyone a safe and enjoyable Halloween.
Tuesday, August 18, 2009
The home buyer encountered many home condition surprises and incurred about $11,000 in unplanned repairs. She cites the home inspection and inspector as missing these issues. She was very disappointed.
Without knowing the details, it’s hard to speak to this case. However, there are some very distinct considerations anyone hiring a home inspector should consider.
By comparing the following criteria and shopping for a qualified inspector an educated consumer should reduce the risk of disappointment or worse and should improve the likelihood of being very satisfied with your home purchase decision.
Realtors and Consumers should consider the following criteria at a minimum:
- Do they carry general liability and errors & omission (E&O) insurance?
This protects the inspector, the referring Realtor, buyer and seller should physical damage occur or major devastating errors from the inspection.
None of the other criteria should be considered if the inspector does not carry proper and complete insurance.
#2: STANDARD OF PRACTICE
- What, if any, standard of practice do they base their inspections (e.g., American Society of Home Inspectors (ASHI))?
- If another, how does it compare to the nationally recognized ASHI standard in terms of proven and broad state-level acceptance?
- What source & level of training, experience & education do they have?
- Are they CERTIFIED with a reputable organization such as ASHI (e.g., qualified with proctored exam, peer reviewed reports, 250 inspections min. level of experience) or simply an online internet test?
- Do they maintain continuing education?
- How many Home Inspections have they performed? Not counting years in related services, such as remodeling or construction trades.
- How much time do they typically spend on an inspection?
- What additional inspection techniques and tools do they use?
- Are they impartial (e.g., independent of anyone with a financial interest in the results except the client)?
#6: REPORT COMMUNICATION, STYLE & QUALITY
- How are their reports presented, organized & written? How much detail?
- Is it prepared on site? Do they include pictures, diagrams, etc.?
- How well does the inspector communicate with all involved parties?
#7: REPUTATION & OVERALL SERVICE
- How do they present results? Are clients encouraged to attend the inspection?
- What do their clients say? Do they guarantee client satisfaction?
- How much is the fee and what is it based on? Is it competitive for the services and qualifications provided?
- How important is this service to the client’s home buying/selling investment?
- How do their qualifications compare to the price? - Client must decide.
http://www.id-inspections.com/, near the bottom of the home page.
Don't make an all too often mistake on a major purchase. Shop and compare when looking for a professional home inspector.
I.D. Property Inspections, inc.
Wednesday, August 12, 2009
How well have you really considered the liability you're exposed to in your business?
Do you know someone that's been sued, settled out of court or compensated someone else to avoid legal action, lawyer expenses and negative publicity? Have you encountered a situation that made you think, "That could've been me" or "that situation could have gone really bad?"
How often have these situations involved hidden surprises in the condition of a home, inaccurate or misunderstood disclosure or even a client's false expectations in their purchase?
Adding to the potential risk of liability is the fact that the State of Colorado and Federal Government does not regulate or control home inspectors or home inspections. In Colorado there is no governing set standard of practice. There are no governmental requirements for basic skills, training or proof of competency. No insurance requirements. There are no background checks on individuals that are literally given the keys to people's homes.
So, how closely have you looked into the liability risks of Home Inspections? What does this mean for a Realtor? What about liability to a home buyer or a home seller, your clients? Do home inspections potentially increase or decrease their liability in the transaction? Are there practical ways to minimize you and your clients' risk?
Although professional home inspection training emphasizes reporting techniques and language designed to minimize liability, significant liability risks still exist. This is where errors and omission (E&O) insurance can help offset the risk to all parties involved, not just the inspector.
E&O insurance not only protect the consumer from human and gross errors in an inspection, most policies carry a rider to indemnify the referring Realtor.
So why wouldn't a Realtor only refer professional home inspectors and insist that the inspectors also have E&O insurance? As a Realtor, do you? How many Realtors do you know that at a minimum only refer professional home inspectors carrying E&O insurance?
There can't be too many, as it has been informally estimated that only around 10% of the national home inspectors carry E&O insurance. This percentage is consistent with what I'm aware of among home inspectors operating in Northern Colorado.
Working with a professional home inspector that carries E&O insurance seems like an easy, responsible and prudent practice to protect yourself and your clients.
- Jon Rudolph
I.D. Property Inspections, Inc.