Home Inspections: Are they worth the cost?

Home Inspections: Are they worth the cost?

Ken DeLeon and Michael RepkaJanuary 10, 2014
Palo Alto Daily Post

 

So you found that perfect property and ask your real estate agent whether you should hire an inspector to give it their stamp of approval.  Unfortunately, there is no one answer that applies to all situations.  The potential buyer may want to consider related questions like:  Has the seller provided inspection reports?  What is the buyer going to do with the property? And, what is the cost of the inspections?  The final question is a very personal one: how much risk is the buyer willing to assume? 

Has the Seller Provided Reports?

It is very common for Silicon Valley sellers to hire inspectors to inspect the property and prepare reports prior to marketing the home.  A practice popularized many years ago by Gwen Luce, an innovative agent that saw this as a possible way to protect the sellers from some liability and make the buyers feel more comfortable in multiple offer situations.  In addition to the common property and pest inspections, some sellers provide more specific reports that cover items such as the roof, chimney, foundation or pool.

The real question is whether these reports are enough or should the buyer commission their own reports.  On the one hand, it is generally good to get a second opinion; however, the cost of the reports may be a deterrent.  Sure, there is the cost of the inspections themselves, but this obvious cost may pale in comparison to the cost of weakening the offer by making the buyer’s obligation to move forward with the transaction contingent upon their subjective satisfaction with the results of the inspections.  

To ascertain the sufficiency of the seller’s reports, the well-advised buyer will consider the reputation and financial strength of the original inspector.  Like other licensed professionals who provide services, home inspectors must perform in accordance with the standard of care applicable to their profession.  What this means to a buyer is that the original inspector has a vested interest in making sure they are thorough and unbiased in their findings because they will open themselves up to liability if they negligently miss something.  While anyone can make a mistake, the more reputable companies should step up if they overlook something another inspector would have found.  An experienced agent will share their insight into the inspector’s reputation.  Put another way, a second inspection may be more important if the original inspector does not have a reputation for quality. 

As a general rule, disclosure packages that do not include seller-commissioned inspection reports should raise a red flag.  In most circumstances, a buyer that intends on living in the home should submit an offer that is contingent upon inspections of the property if the seller does not provide reports.  Buyers that proceed without obtaining their own reports in this situation do so at their own peril.

What is the Buyer’s Intended Use?

The utility of inspection reports is directly tied to the buyer’s intended use of the property.  A buyer that views the property as in “move-in” condition, and that has not budgeted for improvements or repairs, may feel more comfortable knowing that the property was thoroughly vetted.  On the other hand, a buyer that contemplates rebuilding or extensive remodeling may see little if any value in the property or pest reports.  However, the rebuilding buyer may be very interested in report that analyses the soil’s building suitability.      

What is the Cost of the Inspections?

On the surface, the cost of inspections is easy to estimate.  For a “typical” home of about 1,500 square feet, the pest inspection should cost around $200-$250 and the property inspection should come in somewhere near $500.  However, this only scratches the surface of the true cost to a buyer.  To determine the real cost, the buyer has to consider the impact of submitting an offer that is, in effect, functionally non-binding on the buyer.  It is functionally non-binding because the standard form contract used by most real estate agents in the Palo Alto area includes a very broadly drafted and subjective clause that enables the buyer to back out of the contract if they don’t approve “all physical and non-physical aspects of the Property and other matters that materially affect its value and desirability.”  Needless to say, a seller will be inclined to take an alternative offer that does not contain this contingency unless the contingent offer is at a materially higher price. 

Managing Risk

Ultimately, the question of whether a buyer should get inspections comes down to risk assessment.  While it is always safer for the buyer to get their own inspection reports, the cost is only justified when the potential issues are sufficiently significant enough to justify the cost.  Much to the chagrin of many new agents and potential buyers, there is no universal answer.  The client and their agent need to analyze all of the factors. 

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