A Careful Look At the Home Inspection Process
A home inspection is an investigative effort made by a professional to uncover certain defects in the home and make suggestions for repairs. When you hire a professional to conduct a home inspection, you will get an extensive written report of the inspected items and the recommended repairs that are needed.
How Does Home Inspection Work?
In a real estate transaction, the potential buyer or the seller may pay for an inspection, or the costs can be shared equally at the closing of the sale. Sometimes, a seller gets a home inspection before putting a home on the market for sale and then makes the recommended repairs before listing the property. This is done to sell the house for the highest possible price.
What Is a Home Inspection?
According to the Standard of Practice from the American Society of Home Inspectors (ASHI), a typical home inspection includes inspecting everything, which is in a category of the standards (described below), and providing the client with a written report.
What Does a Home Inspector Look For In a Home Inspection?
The inspected items must be0readily accessible, visually observable, and systems/components that are installed , which include the following items:
Structure
Exterior
Roof
Plumbing
Electrical
Heating
Air Conditioning
Interior
Insulation and Ventilation
Fireplace and Solid Fuel Burning Appliances
Other items that are inspected at an additional cost include the following items:
Pool and Spa
Deck
Radon Mitigation System
Be aware that some exclusions and limitations identify things, which are not inspected. Anything that cannot be easily accessed and visually seen, such as the foundation or pipes under a home, is not inspected. The inspector will not enter a narrow crawl space to look at things under the home or an unfinished attic. The same goes for defects that are not visible, such as a broken pipe within a wall or dry rot.
A home inspector is not required to determine the following items:
Systems and components, which are in a dangerous location or inaccessible.
The condition, adequacy, or remaining life-expectancy of systems and components.
The operating cost of systems and components.
Any estimate of future conditions.
The causes of any deficiencies.
The methods, materials, and costs for the repairs.
If a property is suitable for specialized use, such as evaluating the acoustical properties of certain rooms.
If the construction meets past or present building codes.
The market value of the inspected real estate.
The presence of any harmful animals, insects, pests, molds, bacteria, or other bio-hazards.
The presence of environmental hazards including allergens, carcinogens, electromagnetic radiation, noise, radon, toxins, and contaminants in building materials, soil, water, or air.
The effectiveness of installed systems to control suspected hazards.
The condition of any soil or underground water sources (wells).
Any items subject to recall, litigation, or product liability, and other adverse claims.
The working function of manual safety/shut-off valves or automatic safety controls.
Any systems or components that are shut down and do not respond to normal operational control.
Any decorative items that are installed.
Detached structures besides a garage or carport.
Any items that are not installed (e.g., a refrigerator).
Outdoor cooking appliances (installed or not).
Any personal property (e.g., furniture) even if included in the sale.
Is a Home Inspection the Same as an Appraisal?
No, a home inspection is completely different from an accurate appraisal. An appraisal estimates the value of the property. A home inspection tries to identify any defects that need repairs.
Who Can Conduct a Home Inspection?
In many states (30 as of March 2023), a home inspector must have a license in the state where the home is located.
In a state with those requirements, before hiring a home inspector, ask for their license number and then check with the online public records from the state where the home is located to ensure the license is active and in good standing.
It is illegal in many states to offer professional home inspection services to others without having a qualified license. In those states, no lender, escrow agent, title company, or other real estate professional should rely on any home inspection report unless it comes from a licensed home inspector.
There are 21 states and Washington DC that do not require a state license (March 2021) to be a home inspector. These states are Alaska, California, Colorado, Delaware, Georgia, Idaho, Iowa, Kansas, Maine, Michigan, Minnesota, Montana, Missouri, Nebraska, Oregon, Pennsylvania, Utah, Vermont, Virginia, West Virginia, Wyoming, and Washington DC.
State regulations may change, so be sure to check with the state where the home is located.
Can You Get a Home Inspection For Free?
Anyone can follow a home inspection checklist and inspect their home. A licensed building contractor can inspect a home to make an estimation of any repairs needed. It depends on each state's laws whether a home inspection may be offered for free in a real estate transaction or to get a listing of a home that is for sale.
How Much Does a Home Inspection Cost?
Bank Rate says that a home inspection costs around $400 for a home with 2,000 square feet. The price may increase to around $500 or $600 for a larger home and add-on any special inspections, which are not usually included.
Who Needs a Home Inspection?
seller
Many homeowners, who are thinking about selling their home, find it wise to have a full home inspection to determine the things that need to be repaired before selling the home. This can help avoid things that may come up as a surprise to the parties in a real estate transaction and potentially kill a deal.
It is possible to use the inspection, along with estimates from contractors for the cost of making the repairs, and then discount the home’s sales price. This is one way to handle these issues if these defects are considerable and the current homeowner cannot afford to make the repairs.
lender
Some lenders may not agree to lend money to purchase a home unless it passes an inspection.
buyer
A potential buyer may require an inspection as a contingency in any offer. In such a case, the buyer is usually the one who pays for the home inspection. If the inspection finds things that need to be repaired, the buyer may negotiate for either the repairs to be made before the escrow closes, the price to be reduced by the cost of making the repairs, or may cancel the transaction.
Do I Need a Pest Inspection In Addition to a Home Inspection?
A home inspection does not include a pest inspection. It is critical that a potential buyer also get a pest inspection to look for hidden damage by termites, dry rot, and other infestations that can require costly repairs. The only time a home and/or pest inspection is not required is when you are buying the home “As-Is.”
An “As-Is” purchase is typically a home sold for a steeply-discounted price at an auction, acquired as a short sale, or as a “fixer-upper.” The buyer takes all the risk of the costs of any necessary repairs to bring the home back up to market value.
Does a home inspection look for lead-paint, asbestos, mold, radon, or other environmental hazards on the property?
No, these types of inspections are special ones that need to be paid for in addition to the standard home inspection. Homes built before 1974 may have lead-paint. A regular home inspection does not look for asbestos. Older homes may have asbestos hidden in the walls.
Mold, radon, and checking for specific environmental hazards (e.g., water-well purity) require a specialized inspection with additional scientific testing and equipment that is not part of a standard home inspection.
Does a real estate agent or broker have to disclose any defects in the home that they are aware of to a potential buyer prior to closing?
In most states, a Realtor® must disclose any material defects of a home that they are aware of to a potential buyer. This is true even if the seller has them under a confidentiality agreement and even if the home inspection does not discover the defect. A Realtor® is required to physically walk-through a home that is the subject of a transaction and must disclose anything they know about the home to a potential buyer, which is considered a material defect.
How Does a Home Inspection Stop a Real Estate Deal From Closing?
If the home inspection finds a serious problem while the home is in escrow, this can stop the deal. This happens if the buyer makes an offer “subject to” passing a home inspection.
Additionally, if a lender requires the home to pass an inspection, the loan may be withheld if the home does not pass. Typically, a lender does not require a home inspection and only requires the appraisal to come in at a certain amount.
To learn about your deal's requirements, check the fine print of the lending documents with the help of your title escrow agent or real estate attorney if you are using one.
Sometimes, a deal is made that allows a certain amount of money in the escrow closing to be reserved and used to make minor repairs that are discovered when the home inspection is conducted.
When a home inspection comes back with a surprising defect that is expensive to repair, the parties may have the option to re-negotiate the deal. In some cases, the buyer may cancel the deal if the re-negotiations are not satisfactory to the buyer. This is why it is usually a wise strategy for a seller to have the home pre-inspected before putting it on the market for sale, to avoid such deal-disrupting surprises.
If the Home Inspection Report Suggests Repairs, Can I Make My Own Repairs?
If the home inspection is paid for by the seller in advance of putting the home on the market, then a do-it-yourself type is free to make any repairs on their own. If the home is in escrow, the ability for a do-it-yourself type to make the repairs depends on the terms of the purchase offer and the flexibility of the parties to accept the work by the homeowner.
Many home sales that enter escrow have offers that require any major repairs to be done by a licensed building contractor according to the current building codes. If a repair requires a building permit, this may suddenly become a major unwanted expense for the home seller.
One horror story that I know of was a home that had a very thin, almost unnoticeable crack running down one wall. This could have been patched, sanded, and the wall repainted, and that would have fixed it.
However, when the building contractor took the job to make the repairs, the contractor opened the wall to replace the sheetrock. The contractor found structural damage that was hidden. A major support beam had a defect, which was why the home settled a little, which led to the wall showing a small crack. To fix this was a huge expense and required a building permit. This caused a long delay, almost blew the deal, and was very costly for the seller.
Later, the seller learned that there was as easy retrofit that is used for earthquake-proofing a building that could have been applied to the structural beam, and the repair would have been much less expensive.
This story's moral is that for most home sales where the condition of the home needs to be perfect, it is a very wise strategy to get a pre-inspection before putting the home on the market to make sure everything works and no major issues are discovered later.
How Do Lenders, Title, and Insurance Companies Rely on Home Inspections?
They will typically rely on the home appraisal and not be interested in the home inspection unless a serious defect is discovered that significantly reduces the value of the home.
The one handling the escrow close will follow the detailed specifics of the written purchase offer agreement. If the home inspection does not meet the requirements of what is written in the purchase agreement, then the deal cannot close escrow until either it does meet the specific requirements or the buyer signs a waiver removing that specific condition.
These companies rely upon a declaration of a homeowner as to the known condition of the home. If a material defect is discovered by the home inspection that later becomes subject to an insurance claim after the home is purchased, the insurance company will likely deny the claim. If the buyer knows of the defect and went ahead with the purchase anyway, an old home inspection can be used as proof for the claim denial.
If a homeowner knows of a material defect and does not disclose it to a potential buyer or to an insurance company, depending on the intent of the homeowner, this may be criminal fraud or insurance fraud in some states.
Homeowners should understand that the knowledge they obtain from a home inspection is something that cannot be undone. They cannot wish it away and hide a material defect from a potential buyer or insurance company.
What Happens If There Is a Dispute Over a Home Inspection Report?
A home inspector who makes a detailed home inspection report may take many photos and do an extensive write-up that is 40 to 60 pages long. Nevertheless, this document is only a professional opinion, and it can be wrong.
If there is a dispute about the contents of a home inspection report, the parties to the transaction may agree to order another home inspection using a different inspector to see how the two reports compare to each other.
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Conclusion
State laws that cover a seller’s disclosure rules govern the instances where a seller has an obligation to pay for the repairs discovered by a home inspection. For everything else that is not subject to state disclosure laws, the party who pays for the repair is determined by the negotiations between the buyer and the seller.
A common contingency is to use as a phrase in any purchase offer, which says the offer is subject to a home inspection. It may contain a “safe exit” phrase that states the purchase offer is null and void if the home inspection recommends repairs that cost more than a certain dollar amount.
This common contingency of being subject to a home inspection is normal in any real estate transaction. However, almost every home inspection is highly-likely to uncover some problems that have gone unnoticed. It may be something as simple as burned-out light bulbs or a drippy faucet, which is very easy to fix. Finding minor problems is nearly 100% likely because a home inspector who does not find some problems feels like he or she has not done a thorough job with the inspection.
A potential buyer needs to have a reasonable attitude, especially when purchasing an older home, and not expect perfection. The only thing you want to avoid as a seller is a major defect being discovered as a surprise to everyone.