The process of purchasing a first (or any) property can be nerve-wracking, not to mention downright expensive. While it may seem tempting to try and cut costs, investors should resist the urge to skip the home inspection.
A home inspection helps buyers identify health and safety issues, defects, and other needed repairs that they should address with the seller before closing. It can also uncover items that may need to be remedied shortly (such as an aging roof, furnace, or water heater). Some items may be minimal and seem nitpicky; however, it is the inspector’s job to find out as much information as they can about the property.
Think of the home inspection as an insurance policy. For investors, it is a necessary business expense. In some cases, the inspection may save a buyer from making a very costly mistake when purchasing.
Full transparency, the inspector may not find all issues with a home—like a leaky pipe in the wall, for instance. However, they normally will find evidence of issues and note them for further investigation.
The inspector follows a checklist. They may suggest additional inspections by other qualified professionals in areas such as:
- Sewer scope (important to do for a home that has clay piping)
- Pest control
Point blank, the inspector is an invaluable part of an investor’s purchasing team. But choosing a home inspector is not cut and dried and should be done carefully. So, let’s go over finding a great inspector and what to do with the inspection report.
How to find a great inspector
A great inspector is worth their weight in gold. Therefore, homebuyers should aim to find a reputable one familiar with the issues of the homes in the area. It is a huge bonus if they are an investor themselves and can give additional insight into the market as a whole.
Here is how to generate a list of inspectors to contact:
- Do a web search: “home inspectors in [submarket].” Create a shortlist of inspectors and look at their reviews on BBB (Better Business Bureau), Yelp, Google, and similar sources.
- Look at online forums like BiggerPockets to find inspectors who are active in the area.
- Ask for recommendations from friends and family who have recently worked with a home inspector.
- Ask a real estate agent and/or property manager for referrals. Get a shortlist of three or four people that they have regularly used.
- Ask other investors from the area. This is an easy team member’s name for most investors to share (unlike their realtor or deal finder).
More on home inspections from BiggerPockets
How to vet a home inspector
Choosing a home inspector can be daunting since there isn’t a national certification process to become a home inspector, and requirements can vary greatly state by state. For example, in some states, the requirement to be a home inspector is just 60 hours of education, while in others it is 400.
There are professional organizations that investors can turn to for home inspectors with the right credentials. One such organization is the American Society of Home Inspectors (ASHI). Their members have strict guidelines and a code of ethics they need to follow. ASHI inspectors have made a minimum of 250 paid home inspections, have to pass exams, and stay up-to-date with best practices.
It is also a good idea to ask to talk to references of a potential inspector’s past clients. Some of the questions you should ask are: Did the inspector know what they were doing and seemed knowledgeable? How was the customer service, i.e., were they thorough and patient? Was the inspector on time? And, of course, how comprehensive was the report?
Even though references can be a valuable source of information, they really are not that important in this day and age. (And think about it—an inspector is only going to direct you to their happiest clients.) There are plenty of websites with reviews of services, such as Yelp, Angie’s List, TaskRabbit, or Google. Those reviews will most likely be more truthful than a reference handpicked by the inspector.
If the realtor suggests home inspectors to hire, it might be a conflict of interest. The realtor may be trying to be helpful, but at the same time, they have a vested interest in making a sale. Ultimately, it will depend on the situation. If the investor genuinely trusts the realtor to make a good referral, that will be in the investor’s best interest.
Remember, investors need to seek out a “rockstar” inspector. They should be choosing a home inspector who has done more than just a three-day course. Other red flags to look out for include: the inspector charges a low fee; the inspector’s company is not bonded and insured; the inspector wants to visit the property alone and not with the buyer; or the inspector does not want to provide a sample report.
In the end, all the research, credentials, and references may not be that effective in finding a great inspector. It all depends on the situation, the investor, and the inspector. But doing their due diligence should not hurt the investor’s chances of finding the right inspector.
Additionally, investors need to find someone with whom they can build a long-term relationship. To save some time, they can do their homework and try to find the answers to the following questions before hiring anyone:
Experience and qualifications
- What kind of certification and training does the home inspector have?
- How long have they been a home inspector?
- What trade were they in before? (if they are new to the trade)
- What kind of experience do they have in the asset class in which the buyer is interested?
- What type(s) of inspections do they do? (single-family, multifamily, etc.)
- If this is an investment property inspection, are they an investor themselves and investor savvy? (This can double as a way to “pick their brain” on the neighborhood and home as an investment.)
Location and service area
Where does the investor do the main part of their business? Again, the inspectors should be very familiar with the location and the asset type the investor is interested in purchasing.
- What inspections do they do?
- More importantly, what do they not inspect?
- For a fee, what additional inspections can they arrange? Again, here’s a short list of things buyers might want to add:
- Sewer scope (important to do for a home that has clay piping)
- Pest control
- How long does the inspection take?
- Can the buyer, their realtor, their property manager, and their general contractor be present? If possible, make sure the contractor overlaps with the inspector at the end of the inspection. The inspector can go over the main issues that need to be corrected and the contractor can make sure to add those to the bid. Additionally, if the contractor sees anything they would like a second opinion on, the inspector is there.
- Is the inspector entering the home only one time, limiting disruption to any occupants?
- How long will it take to produce a written report? This is important in case there is an inspection objection deadline for the purchase agreement.
- What is the cost of an inspection, and what does it cover?
- What do they charge for add-on inspections?
Will the inspector send a sample of the type of report they do? This is a situation where an investor should always want more information, not less.
When to call a home inspector
It is worthwhile to start the search for an inspector once the investor is about 90% sure they will purchase a specific property.
Why? They can actually use the inspection objection clause as a negotiation tool to beat out other buyers. Some people have won many deals because they can complete the inspection and present a resolution in five days or fewer, so the seller can rest assured the purchase process is not drawn out.
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You’ve obtained the inspection report… now what?
After choosing a home inspector and having the home inspected, you’ll need to deal with the report. Once the investor has the report in hand, they should review the findings and act quickly to decide if they will proceed with the deal. The last thing a seller wants is to know that the inspection happened and then have to wait days or weeks to figure out if the deal will hold together.
Here are some high-level steps to take once the report is delivered.
1. Post-inspection review
Have a post-inspection review with the inspector and if not crystal clear in the report, ask:
- Do they suggest any additional inspections?
- Is there mold?
- What fire, water, health, and safety hazards exist?
- What should be repaired first?
- What do they think the seller should repair now?
- What would they do if they were the ones buying this property?
- What else do they see that could go wrong?
- How much do they think repairs will cost?
- Will the trees on the property be a hazard down the road?
2. Pass along report findings
Investors should review the report findings with their realtor, property manager, and contractor to determine whether they want to continue pursuing the deal.
Inspection reports can look really scary sometimes (especially on older homes), so investors should make sure they are engaging with their team to help sift through the details and determine what is worth taking on and what is a dealbreaker. Unless there is a true complete deal-breaker, the investor can proceed to the next step of the negotiation process.
3. Determine who should be responsible for what
Break out the report into what to ask the seller to fix and what the buyer can fix.
A contractor can help the investor understand the cost of repairs, while a realtor can help develop the best negotiation strategy/approach with the seller.
If the home inspection is thorough, no doubt it will work as an advantage for the buyer. Buyers can use the inspector’s list of every scratch and little thing wrong with a house (along with pictures) to negotiate with the seller. Let’s say there are 100 repairs needed. The buyer can ask for the 10 biggest repairs that the seller will need to take care of. This way, the seller is more likely to agree to do the repairs since it seems like a fair deal.
A lot of times, sellers will not be able to afford the repairs. That leaves the option of lowering the price. And, if the buyer is handy, they can save a bit of money on the purchase and do the work themself.
4. Present the objection report to the seller
The investor needs to provide the inspection objection report to the seller as quickly as possible.
Clearing this due diligence hurdle quickly with the seller will build up an immense amount of goodwill and respect as they move through the purchase phase. Again, it is good practice to resolve inspections quickly (ideally, in five days or less). If the investor asks for no repairs but a large discount, they should think about providing the inspection report and contractor bid to the seller for substantiation.
5. Expect negotiations
The seller will most likely counteroffer. Before accepting or rejecting the counter, the investor can take a pause and ask the seller this question (if they haven’t already): “What do you need to seal the deal?”
It’s kind of like a Jedi mind trick—the seller should tell the investor exactly what they need to be comfortable moving forward.
6. Sign the inspection objection agreement
The buyer has to sign the inspection objection and/or the inspection resolution agreement. The last thing they want is their hard-earned earnest money disappearing because of a missed deadline or signature.
The inspection process can seem incredibly complicated, especially when there is a large report with a lot of “red ink” all over it. But choosing a home inspector and getting an inspection can be a step in the right direction to secure the property.
And actually, that “red ink” can turn into green you keep in your pocket. Remember, this report is not only part of an investor’s purchase insurance policy (along with the appraisal), but the home inspection report is also a great negotiation tool for a far better deal.