Lessons from the Pros

Real Estate Article

Is Spending $300 to $500 on a Property Inspection Really Worth It?

When buying real estate always request a property inspection, even if you are purchasing the property in an AS IS condition.  You might wonder why? This is a large investment, and to downsize risk, it’s important to know all the variables.  After the inspection, you’ll have a better understanding of the property’s needs and its issues. This allows you to make decisions with confidence.

According to the National Association of Realtors, 84 percent of buyers request a property inspection as part of their contract. An inspection is very important for peace of mind and as a negotiating tool.  When you hire (we’ll talk about how you find a good inspector a little later in this article) an inspector, always request a written report. If legal in your state, ask for an estimate of the repairs needed.  This can help you negotiate deferred maintenance easily.

I’m often asked, “With all your years (okay, decades) of experience, why do you still spend the money on an inspection?”  There are several very good reasons.  There are hundreds of things the inspector looks for including: structural elements, exterior evaluation, roof, plumbing, attic, foundation, electrical, appliances, HVAC, mold etc.  There’s also the element of obtaining an impartial, third-party opinion.  Even though this process should be unemotional, being that it’s an investment property, it can still be difficult to remain completely objective.

Let me cover a few more things about the inspection process before we move on. Many people wonder if they need to be present for the inspection. Well, you’re paying for it and you’re purchasing the property, so the answer is YES.  This gives you the opportunity to observe what the inspector is doing and ask questions as they go along so you’ll have a clearer understanding when you receive the report.

A couple of the most common questions: 1) how long does it take? and 2) what is the cost?  A typical inspection will take several hours (a property 1500-2500 Sq Ft will last 2-4 hours).  You’ll have to typically wait 24-48 hours for your written report, although some inspectors now have the technology to print the report on the spot.  Cost varies depending on the size and complexity of the property, and also your geographic location.  For your typical 3 bedroom –  2 bath house on the West Coast, an inspection runs about $400.

How do you find a good property inspector?  Of course you can always ask your realtor  for a referral.  Here is a list of things to look for:

Licensing – not all states require an inspector be licensed.  You can find out more information about your state by going to the National Association of Property Inspectors and clicking on State Regulations.

Training – the legal requirements for training once again vary from state to state, however you want to look for an inspector that was professionally trained recently.  For many years inspectors were experts in one trade. No single trade can qualify someone to be a truly professional inspector.  Ask the inspector which formally recognized training school they received their education from.

Experience – it’s more important the number of properties the inspector has done than the number of years they’ve been in the business.  A study was conducted by the American Society of Property Inspectors in 2005,  in which 80 percent of the respondents said they were full time property inspectors;  however, 40 percent said they had performed less than 100 inspections.  Ask an inspector how many inspections they do in a year and in their career.  A good rule of thumb is over 200 in a 3-4 year career.

Continuing Education – as with any industry, things change and true professionals continually update their skills and knowledge with education.

Price – you get what you pay for.  If you are going to have the inspection, have it done right by a professional, which means it might not be the lowest price.

Other things to ask about: Association Membership, referrals, insurance, bonding and will the inspector be available for follow up questions.

In my experience inspectors are worth every penny spent.

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.