Home Inspections: What You Need to Know | PREI 084
On today’s show, we’re going to talk about properly inspecting your rental properties before you buy them or even after you’ve purchased them. All of our clients at Norada Real Estate, we insist that they order a professional home inspection as part of their due diligence after they put a property under contract. That’s true for every single property they buy. Why? Because it’s important that you know the condition of the property and if there are any issues or red flags. There are still some amount of education that goes around this topic of home inspections.
I wanted to bring on a professional, someone who really knows not only the industry, but the nuts and bolts of doing the actual inspections. My guest today is a gentleman named Tim Tucker. He’s with US Inspect. Tim is the Director of Business Development for US Inspect. They are the nation’s leading employee-based inspection services firm. They’re headquartered in Northern Virginia, but they have a very large network of inspection teams nationwide.
If you missed our last episode, be sure to listen to What Clients Want to Know… Marco Santarelli on the Other Side of the Mic.
Enjoy the show!
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Home Inspections: What You Need to Know
Tim, welcome to the show.
Thanks for having me, Marco. I really appreciate being here.
I bumped into you down at the IMN event in Miami, Florida about a month and a half ago and gotten into a conversation with you there. I found it very interesting how knowledgeable you are with inspections. I was impressed to see that you actually have a nationwide company, which I don’t come across very often, so I was a little surprised that I never came across you before then. I asked you if you would come on the show and you graciously said yes. Let’s start off by you telling our listeners a little bit about yourself and something about US Inspect.
US Inspect, as you mentioned, is the nation’s largest employee-based inspection company. We’re not a franchise, so our employees are W2 employees. We started back in 1987 doing corporate relocation inspections across the country. Later, that expanded into us performing home inspections for just regular home buyers. At the time, we didn’t have that large employee base. We actually were working with a network of inspectors across the country. Back in the late 1980s into early 1990s, we were vetting home inspectors across the country. Now, that database has just exploded. We have a network of inspectors ranging from Alaska, into Canada, all the way down to the southern tip of Florida. Outside of that, we have those W2 employees, so we truly are the nation’s leading employee-based inspection services firm.
About myself, I started back in the early 1990s, 1993 to be exact. I have performed to date over 10,000 inspections ranging from residential homes, all the way up to industrial buildings including a lot of skyscrapers and big industrial parks. Currently, I have about 33 certifications starting off as an ASHI Home Inspector, which is the American Society of Home Inspections. Then, going on to the Building Performance Institute as a Certified Building Analyst Professional and an Envelope Professional, that’s covering the energy side. I also have a license with the Indiana State Chemist Office for pest. I’m certified to do Radon. Outside of that, I have almost every single International Code Council certification that you can get. Currently, I’m a Certified Building Official and I’m one test away from getting my Certified Fire Marshal.
I believe that it’s important to be a student and to understand everything that you can possibly understand about the product in which you’re employed in. For myself, that deals with the home and then all the way up to commercial buildings. I’ve been fortunate enough to be with a company that’s allowed me to be able to pursue that. I’ve taken that knowledge and have pushed that out to our inspectors. The top of education and quality of training that our inspectors have is second to none. Even though maybe a third of all states have some licensure or certification requirement or a registration, they may not have the greatest education requirements to get into the industry. Whereas US Inspect, it’s a little bit different. We try to find the most stringent requirement that’s out there and make sure that all of our inspectors meet that. That’s what you get with US Inspect. That’s a little bit about myself and a little bit about the company.
Tim, choosing a good inspector, obviously, is one of the most important investments that our clients can make as part of their due diligence. This is post contract, not pre contract. How does an investor choose a good inspector? There’s just so many people in every city. You could literally do a Google search and come up with 10, 20, 30, 50, 100 of them. How do they know if they’re getting a good inspector or not?
What you want to look for is the inspector’s background and education, where they come from. If I myself, as an investor, am looking to hire an inspector in a location that I’m not familiar with, clearly one of the biggest things is making sure that they obviously meet the state’s requirements and that they have education behind them. You want to make sure that they’re not just meeting that state’s requirement. If they have some International Code Council experience or Building Performance Institute experience, understanding a little bit about energy or mold, you want to see that they can go above and beyond just that home inspection.
As we’re going to be talking throughout this podcast as far as some of things that aren’t covered under the home inspection, you want to find that home inspector that has the education, the experience, the numbers behind them. You can call and ask them for, whether it’s referrals, how many inspections have they done, what type of insurance do they have available, can you see a sample copy of an inspection report, do they have standards of practice or a scope available that they can send you, and their background. You just want to make sure that they have more than just a home inspector’s license.
Do they need to be bonded and insured? Or is that just something that is optional?
No, on the bonded part. As far as the insurance, about a third of the states have some licensure requirement or a certification. If you want to know what your state has, you could actually go to the American Society of Home Inspections, they have an interactive map or you can just Google, ASHI state licensure requirements for home inspectors and there will be an interactive map that pulls up and you can see what is required. Most states do not require E&O insurance. They only require liability insurance. That liability insurance is only going to take you so far. Most of your smaller operations, E&O insurance coverage is so expensive that it’s just not something that many are able to do. They just are only able to do the liability. Whereas a company like ourselves or maybe even the larger franchise companies, they are going to have that type of coverage. You definitely want to look for that.
A related question is, there seems to be a large number of certifications out there for inspectors. You yourself have a long list of them. Are there certain certifications or trainings that you want to make sure your inspector has before hiring them?
Meeting the state’s requirements, that’s first and foremost, and that they have attended at least a training school because you want them to have a basic understanding. It’s nicer that they come from a trade background, whether they understand carpentry, which is the structure part of it, or they understand plumbing or the electrical, that they have some good solid base behind them. Beyond that, then you start looking at what is it that we look for when we’re actually doing a home inspection. A lot of the stuff is based off of code. A home inspection is not a code inspection. It’s not, but a home inspector should have a good knowledge of the code standards, because a lot of that is really how we base some of our findings.
The International Code Council has a great program and certifications that are laid out there for just the regular residential inspector. If they have that certification behind them, that means that they actually understand what the code is. Code is going to vary. If I’m looking at a house that’s in the 1950s, that’s going to be a complete different data set because it depends. Most jurisdictions, they didn’t have that back then. Most of that didn’t come out until the ‘70s, the organized code. It’s going to be a little bit different. You want to look for that, it would be a good one. If you’re wanting an inspector to look more for the energy stuff, then you’re looking for the Building Performance Institute, which is one of the nation’s leading on the energy scene inspectors. Most of the other things like Radon, for instance, National Radon Safety Board is a really good one, or the National Environmental Health Association is also a good certification body for those that are doing Radon. In each of the big fields, there’s going to be a certification body behind them.
You can’t really separate local building code from the inspection? It’s part and parcel, is it not?
There is a difference. Building inspectors is employed by a city or a county and their job is to inspect residential or commercial new construction, addition, repairs and alterations that are under an active permit. A home inspector is usually hired by a buyer prior to that pre purchase or even after to check again for damage, not working equipment or needed repairs that are not associated with any government agency. The inspector should have a good base knowledge of code so that way when they’re looking, “The size of that guardrail, is that safe or not?” There is a standard for that, it’s actually in the code. “Stair steps, foot risers and tread depths, is that something to where it’s going to be safe?” There’s already a standard in place for that. Yes, they should have a good knowledge of code.
Maybe a better way to ask this question is this: Is it the inspector’s responsibility to point out something that doesn’t meet local building code?
The code is only during an active permit and that’s it. Once the code official has signed off on it, then it’s good. Things obviously, are going to be grandfathered. Me, for instance, though with the background that I have when I was doing all inspections, when I was looking at an issue, if I saw a 1940s house and the baluster spacing obviously isn’t set to today’s requirement, I would still point it out and make a recommendation that they update it. That was only based on the reasons as to why the code had changed or was brought up to today, was because children were falling through. I saw that as a potential safety risk. It wasn’t that I called it out that it had to be repaired. I was at least notifying that buyer, “There’s an issue here. There’s a reason why this is here. You want to go ahead and make sure that you make those necessary repairs.” Yes, I do feel that they should be at least making the buyer aware. It’s not necessarily that the seller has to do it because it was something that was correct at the time. The inspector should be making the buyer aware.
Let’s shift gears and start talking about the actual inspections. There are so many parts to a property that could be looked at and inspected. A high level question, do inspectors use some standardized checklist? How do you know if what the inspector’s doing is thorough? How do you know if it’s a complete and thorough job or if they’re omitting certain things?
In most states, there are only a very few standards that are in place to determine which items should be covered during a home inspection. From third to about half of states actually have specific guidelines to govern home inspections. That’s to ensure that critical systems like your heating, your plumbing, foundations actually get the attention that they should. Rather than leave the scope of your home inspection up to the inspector, make sure that you take the time to hammer out an agreement ahead of time, so that both parties know exactly what’s covered. If you need any ideas, there are free checklists that are provided by the American Society of Home Inspections and also the National Association of Home Inspectors. Ask the home inspection company, “Do you have a scope? What is it that you’re looking for?” At least, at the minimum, investors should be looking at the roof, the structure, the plumbing, heating and cooling and the electrical. It’s the big five. Those are the biggies. That is at bare minimum.
Those are the most expensive components. I simply refer to those as the mechanicals.
Many other companies do the same. We have a home inspection that we do that meets the state’s guidelines. Then obviously, we can customize that. We also do major components, because it’s at the minimum. Because most investors, when they go into the home, if they’re actually able to be on site or they have great property management company, they can go through and look at the carpet and walls themselves. Those big fives, at a minimum, those are the things that should be done.
What does that mean when inspectors say they, “Don’t know what’s behind the walls”?
The biggest and most expensive home repair issues are often those that are hidden behind those walls and floor coverings that we can’t see, such as rotten wood, old wiring and yet even the best home inspectors are probably not even going to notice those at all. Home inspections are largely noninvasive, which means that we don’t extend beyond the point of finished surfaces. As an inspector, we may peel up an edge of a carpet to check the subfloor below, but we wouldn’t be able to do the same for ceramic tile or for items hidden in walls or ceilings. To make our job even harder, you have unethical homeowners may use paint or other materials to cover up like water damage just long enough to get through the inspection and selling process.
While there’s little that the investor be able to do to protect themselves from this risk, you just have to really trust in your inspector’s experience and knowledge to be able to gather up as much information as possible before you decide that purchase. We have ran into that several times where a home that we had done had mold and the homeowner had covered it up with a quarter inch drywall. After a while, it was discovered and after things went into legal, the homeowner was liable for that because they were actually hiding it. We do run into that and that’s why you have to really hopefully trust that they’re filling up that sales disclosure sheet truthfully. There really isn’t much because again, it’s a non-intrusive, noninvasive inspection.
I had a situation like that come up with me personally. I’d purchased a property that had the basement drywall. Everything looked fine, you couldn’t see anything. You could kick the drywall and you can hear that it was hollow, so obviously it was a false wall. It was just a drywall in front of the concrete foundation. Later, we tore it all down because we were refinishing the basement and it turned out that the foundation was cracked and it wasn’t something simple. It was actually a pretty major job because we had to raise and brace the entire foundation. That was an expensive job. Without tearing that drywall down, you would’ve never known or seen that problem. Stuff like that happens.
Another thing is that home inspectors may not be able to reveal some of the biggest dangers that are in a home. The majority of home inspectors do a great job sniffing out problems with home’s basic structure or systems. In some cases however, more serious issues can easily slip through the cracks; like wood-destroying organisms or insects, asbestos, lead, mold, which are typically not covered by home inspectors. Most states require special licensing and training to deal with these special types of inspections. Even in states where no special certifications are required, the average home inspector is simply not equipped to detect asbestos or lead and may not be adequately trained to spot mold or wood-destroying insects. Most companies purposely exclude these high risk elements because of the extreme liability associated with them. That’s something to think about, especially if you’re purchasing a home that’s pre-1970s when there is a risk of lead based paint or there is a risk of maybe asbestos materials.
Tim, is it fair to say that most inspections or all inspections are not perfect, they’re not 100% fool proof? There’s almost always going to be stuff that is missed; not intentionally, but just the nature of the beast.
That is the nature of the beast. What we say as home inspectors is that we’re given two to three hours, which is typically the time that it takes to perform a home inspection, to do a Polaroid picture, so to speak, of the home and its condition at the time that we were there. Weather conditions play a major role on this. If it were me buying a house, the best time to do an inspection is when it’s absolutely just pouring down rain where it’s been wet for the past couple days. Because for us, I want to see if it’s a basement or a crawlspace, do I have any water intrusion? What’s the water intrusion like in that home? Am I going to be able to find any roof leaks, leaks that are coming into the ceiling? On those days where it’s just absolutely beautiful, sunny, that old water stain that may look old to an inspector and they nonchalantly maybe put it down in the notes but it doesn’t make it to the actual inspection report, was active. Or water that we would’ve seen coming in around the window that the seller had been drying up. There’s going to be some things that we’re not going to be able to see, because again, it’s that snapshot in time.
Even inspectors ourselves, we are human. There’s days where we’re going to have great days, there’s going to be days where we have bad days. How we left home or if it’s the third inspection of the day or the second inspection of the day and it’s been a long day, an inspector could just easily miss something. That’s why with most of your bigger franchise companies and especially with US Inspect, we have actually a checklist on either smartphones or a tablet that requires our inspectors to look at specific things and to actually take pictures of them. What that does is, we, as a company have a quality controlled check so that once an inspection is done there’s still a second pair of eyes that’s looking at it. That’s because of things like that have happened in the past. We, as a company, have been proactive about that and making sure that that doesn’t happen.
What about the roof? How important is it that the inspector walk on the roof?
That one comes up quite a bit. Most states, as I mentioned, their standards of practice, usually what they end up using is something like the ASHI Standards of Practice or the NAHI or InterNACHI, they’ll use one of those. Those do not specify or require the inspector to walk the roof, and the reason being is because it’s tough to come up with a guideline to say, “You should go up on this roof,” especially if it’s a second floor roof or the roof slope is too steep for the inspector to walk. We, as a company, because of our insurance requirements, we tell our inspectors that if it’s below an 8/12 pitch, we want you to walk it. If it’s steeper than that, we don’t want to risk the inspector falling off the roof. However, the inspector still should take the ladder, lean it up against the roof covering to really get a good feel of the roof. They can do that in multiple spots. It’s very important.
We already know, we highlighted on it just a little bit, how important it is to look at that roof covering because it is one of the major systems. Not only if they can’t look at it, you still have those flashing points that are important. There’s the chimney or the plumbing vents, those are primaries that require routine maintenance. We haven’t even talked about that. We talked about pre-purchase home inspections. We haven’t even talked about what happens if I had the property for three to five years. Should I have a maintenance inspection done? That’s something else that investors should think about. Getting on the roof is something that we strive for inspectors to be able to do if they can. If not, then we try to take every means necessary to make sure that’s it’s viewed.
There’s one more question I want to ask you about, which is something that I think most investors don’t think about. In fact, it probably doesn’t come up very often. When we think about an inspection, we’re thinking about the property itself from roof to foundation. Then there’s the question of, what’s on the ground surrounding the house? What about inspecting other components all around the grounds outside the property?
Just go back to those standards of practice. Those standards of practices that have been adopted by most states and then also those that are in all professional organizations do not require us to look at anything that’s outside or that is not attached to the structure. If there’s a detached out-building, even septic tanks, they’re not required, or buried oil tanks or swimming pools, hot tub Jacuzzi, or a dock that may be out if they have a pond or a lake. Those are things that are not required. Even sprinkler systems.
What about the garage?
As long as it’s attached. As an investor, it’s up to the investor to contact that company and say, “What is your standards of practice? What is the scope that you inspect by?” Because it may be something that’s going to be an extra fee once you tell them that. Just make sure that you do your due diligence to ask them what it is within the scope of what they’re doing if that’s going to be covered and if it’s not, what is that extra fee.
Changing gears here. You had mentioned that some inspectors may not reveal the biggest dangers in a property. What are those typically? Why wouldn’t they do that?
We alluded to asbestos and lead, which does actually take equipment to test and verify. Really all an inspector would be able to do would be able to take samples. There are some inspection companies that actually have equipment that they can bring out on site that could actually do a lead test, but those are completely specialty things. Some areas as far as for asbestos, even before they can even take samples, they have to actually go through a certification process. Those are the two biggies.
Then you have mold. There’s mold everywhere. It’s just that it’s only when it’s visible, that’s when it’s normally noted by an inspector. That’s usually when it’s something that’s of a concern. For that, you’d need special equipment to be able to test. What we do is we do a visual assessment and we also do air sampling, we can do tape lifts and there is special training that you can go through in order to know what areas should you be looking at and what areas should you be testing. Most states don’t have anything specific. The EPA has a few things that are out. One document that will be good for your investors is what’s called, Mold, Moisture and Your Home. It’s an EPA publication and that would be a good read for your listeners.
There’s just a lot of hype around mold. There are so many different kinds of mold. The one that gets a lot of attention, especially here in California, is this whole thing with black mold. It’s like the plague. Avoid it at all costs. It’s a liability. Yet I’ve talked to many people who said black mold is not a big deal. Just take some bleach and water and spray it down and just clean it up. What’s the truth?
Stachybotrys is what you’re referring to as the black mold. Stachybotrys is something that can be very life threatening for many people. It’s known to cause issues with kidney and with your brain and with liver. It’s not something that you should be overlooked. Mold that may look black may not actually be Stachybotrys necessarily. The only way to determine that is by testing. The EPA booklet that I mentioned earlier, Mold, Moisture and Your Home, says that if it’s less than nine square feet, it’s something that you can take care of yourself. I don’t know of anybody that recommends that you use bleach. There are different types of solvents that you can use, most of which is actually just soap and water. Not only that, you have to identify, that is the result of an actual issue.
The result is it could be that you have moisture intrusion, whether it’s from a roof leak, like a flashing issue, or constant leaks. We got to address the problem first. Once the problem has been addressed, then we could take care of the mold. If it’s more than nine square feet, that publication recommends that you hire a professional mold remediator to come out and actually take care of the issue. I highly recommend that your listeners review that publication. As mentioned, before somebody to walk up and see that Stachybotrys, there’s literally no way they can do that. It could look black and it actually is maybe Penicillium, which is normally an olive color but it may look black. Either way, any visible mold is not good. It doesn’t matter.
Is this an issue in every state, and is remediation available or necessary or required in every state? I just don’t want people freaking out over the fact that there’s some type of mold and then just assuming the worst.
If it’s less than nine square feet, which is a three foot by three foot, it’s something that should be able to be dealt with fairly easy. But if it’s larger than that, then that’s when you want to go and hire a professional. Here’s the reason why: Mold, once you visually see it, it’s already started to expand and is also airborne too. When you have that heating system or those ceiling fans on, it’s circulating throughout the entire house. It’s in the carpeting, it’s on the furniture, it’s on your clothes. We’re not talking about freaking out about it because once we get it under control, then we’re okay. But it starts going into the ductwork as well, it goes into the heating system or it gets on to the coil and all that moisture allows it to spread even more. That’s why it’s usually important to get a professional out there so that way they can go ahead and not only address what’s visible, address the repair, but also take care and clean other areas that may have been affected that you may not see.
Taking it back to inspectors, is that something that they would note and point out if they see it?
They should. If there’s any visible evidence of mold, then most of your inspectors that have a back training in what mold looks like would usually or typically point that out. That goes back to the fact that you want to make sure that you’re hiring somebody that actually has experience. If they’re less than a year or two, they may not have actually had that kind of experience or training. You just want to make sure that they have the numbers and the years of experience behind their business.
Up to this point, we’ve been talking about basic home inspections, but there are other kinds that I know of too. Looking for Radon gas, wood-destroying insects, maybe septic, I know you mentioned that before. When would an investor want to check for these other types of items? Because that’s above and beyond the basic inspection, if I’m not mistaken.
That’s correct. As we mentioned, that scope or that standards of practice is going to really dictate once they sign that contract with that inspector, what’s going to be done. Typically, wood-destroying insects is something that’s outside the scope. The inspector would need to be specifically trained. Wood-destroying insects and organisms are going to be usually region specific. You want to make sure that they have that certification or training or license behind their name before you hire them. When you ask them, “Is this something that you can do?” Make sure that you ask them for their certification.
There are certain key hotspots and those that are in the south or even in the Midwest, termites are the thing. You need to make sure you’re looking for Subterranean termites and Formosan termites. There are just all different classes of wood-destroying insects. You have carpenter bees and carpenter ants and old house borers and Powderpost beetles. They’re all things that the inspector would have to have specific training in order to identify what’s what. On the surface, Powderpost beetle damage doesn’t look that bad. It looks just like a little bitty dots on the wood until you hit it with a hammer or you grab a hold of it, you squeeze it. Then the inside of the joist is nothing but powder. Those are things that need to be looked at, and you can ask the inspector.
The National Pest Management Association has a map on their site, which I believe discusses the wood-destroying insects and organisms by region, where the hotspots are. For Indiana for instance, Subterranean termites and carpenter ants and carpenter bees, old house borers and Powderpost beetles, those are the biggies here. Most inspectors that have been doing inspections for a while really already pretty much know some of the key areas or cities that usually have those, the type of insects and what’s the hotspot. Then going into Radon, Radon is the same thing. If you look at the EPA, EPA has a map of where the zones are, where you’re more likely to find elevated levels of Radon by region. That’s there as well.
Let’s just say an investor hire you guys or another inspector. They go to the house, they do an inspection, it’s in good condition, but they make a note that there are signs of wood-destroying insects. What would an investor need to do or should do at that point? Should they hire another inspector to take a deeper dive into what that could be and how much damage there may have been?
When we do a wood-destroying insect inspection and we discover, let’s say, termites or even carpenter ants, the inspector should be noting on the form where they saw a visible damage or live insects or previous signs of insects. It should also be in an inspection report as well. Then typically, the buyer would normally respond back to the seller to have that repaired. The seller or the buyer, whoever, would have a contractor specifically go out and actually do invasive probing to see how much damage is actually present.
As an inspector, I may see in a bedroom and I only see some minor damage on some floor trim or maybe I see it around a windowsill or a door jam. Little do you know that it’s actually completely spread up maybe five feet horizontally, and it may go all the way up into the attic area. That’s something that you’re not going to know unless you do a destructive testing. What they would do from there is it could be anything from core sampling to drilling to cutting out drywall and removing it to check to see how bad is the damage. Typically, someone’s going out to treat the insects, hopefully, that’s going to prevent them from doing any more damage. Once the contractor’s out there, they should be doing spot checks around other areas just to see. Most wood-destroying insects require some moisture source to thrive on. That would be looking at a lot of areas where you have gutter discharge on crawl spaces if there are any previous plumbing leaks or if it’s an area of a crawl space with high levels of humidity, to control that demolition.
Even though a property has been treated once, it doesn’t necessarily mean that they’re gone. I’ve seen properties that have to be treated multiple times. It just depends on where you’re at. Make sure that you’re with a company, when they treat, that’s going to be actually coming back periodically. Whether it’s on a monthly basis or on a quarterly basis to see if that treatment has taken effect. Some, you just pay a fee and they just go out and treating them, that’s it. You want something a little bit more than that.
There’s some amazing treatments out now. The latest was orange oil, which was pretty effective and pretty popular here in Southern California. There’s a new product, which is even better and faster and more effective than orange oil. I can’t remember what it’s called. I actually had that treatment done to my house. Basically, you just inject it in different places around the house. The termites find it, eat it, take it back to their queen or whatever it is and they basically just destroy the entire colony from within. It’s fast and effective.
That’s the amazing thing about termites, is that if you can get to the queen, then you take care of the whole entire colony.
You mentioned repair work a couple of times here. Here’s an ethical question. Can an inspector or should an inspector perform or even refer out the repair work from an inspection?
Reflecting back to the standards of practice, within our profession, if the inspector is affiliated with ASHI or NACHI, some of those big organizations, within their standards of practice, they also have a code of ethics. That code of ethics, and even in most states that have licensure, prevents a home inspector from going out and actually performing repairs because it’s a conflict of interest. It will be too easy for a home inspector to say, “Yes, this roof covering is bad. It’s not sealing down correctly. You have some flashing issues. There’s plumbing issues under the crawl space.” Usually, it’s going to be in areas where that particular buyer wouldn’t be going anyway. That’s a conflict of interest. It’s the same thing, we get asked a lot, who would you recommend? Because they trust the inspector. You really make sure that you trust the inspector because sometimes they may be referring a company that may be somewhat related to them or related by family or friends.
We, as a company, make sure that our inspectors really aren’t doing that unless they really know and have no financial relation with that company. We’re looking more towards national companies that vet contractors that guarantee and warrant work. Companies like Resolve, which is also powered by Lowe’s, or SMS Assist. Those are two big ones. There are other companies that are out there, like US Best Repairs. Those are some place that you could go as an investor, set up accounts, online accounts, and be able to put in whatever deficiency that was there. They reach out to the specific contractor and then get back with you. They take care of coordinating everything, you just end up paying whether it’s Resolve or SMS or US Best Repairs, and they take care of everything else.
What I like about Resolve is that they have someone go back out to verify that the work has been done correctly. We, in US Inspect, we don’t have any financial ties with these companies. It’s just that when we’ve been asked before, we wanted to find somebody that was going to be able to vet contractors and actually guarantee and warrant the work. That’s what these companies are doing.
When inspections come back and our clients are looking at it and they’re reviewing it with our investment counselors, I break it down categorically into three areas or three buckets: the must be done stuff, the should be done stuff and the could be done stuff. Every inspection report will always come back with a certain amount of could be done stuff because if you didn’t have that, you’d basically be getting a blank report back. There’s always going to be could be done stuff. I call it filler sometimes, but it’s just stuff.
What we don’t want to see are issues, red flags, things of great concern, the must be done stuff, because those things are definitely things that need to be cured. Should be done is not necessarily a deal breaker or critical, but it’s there and maybe it’s a matter of discussion. Often, the companies that we work with, our providers, the builders and rehabbers, they’re pretty quick to jump on that and address it or fix it. That’s rarely an issue. It’s the must be done, the red flags, the mechanicals, the big issues that we want to make sure that are not there. That’s how we break it down.
It comes down to the point of, the should be’s are always going to be your habitability issues and safety issues. If you look at a house without emotion and you look at it as just being a box, number one thing is we want to keep water out and we want to keep energy in. Those are the must along with those habitability and safety issues to the occupant. Those that should be done are usually anything that doesn’t affect habitability or safety. That’s obviously going to be maybe drywall repairs or damaged doors, those types of things. You’re right, habitability and safety.
My last question here is, just talking about liability for a minute, is it true that home inspectors are not responsible if they miss deficiencies?
It depends upon the state in where there’s license certification. That’s what’s going to tell you what is required, just if it’s a liability or E&O. The majority of the times, when you’re looking at an inspection contract, is that they’re only liable for the inspection fee. When you’re looking at a service contract, you’re looking for that language. Most states only require liability insurance because those small operations just cannot afford E&O insurance policies. When you’re looking at a bigger franchise or a company like ours, not only do we have the liability, but we also have that E&O insurance. Because as thorough and as attentive as we are, there’s times where things could be missed. Inspectors in general, whether they have a complete oversight, it could be that as they were walking by something that was a deficiency, something else grabbed their attention and so they completely missed it. That’s why you have that insurance there, the E&O insurance. You want to make sure that you ask them. Again, read the service agreement that you’re signing.
Is it fair to ask you, for an example, of when that would happen? I’ve never heard of that happening and I don’t want to put you on the spot, but I’m just thinking that some of the people listening might be wondering, “At what point is a home inspector actually liable? How do I even prove that?”
Liability insurance is, if I’m inspecting a home and I damaged the property while I was there, there’s your liability insurance. I’m walking through the attic, my foot goes through and I caused some damage. My liability insurance takes care of that. E&O insurance is going to be if I overlooked an electrical issue that was something that I reported was acceptable that was not acceptable. Let’s say that I said that the house had tin coated copper wiring when it actually had an aluminum wiring and there was an electrical fault and then the house burns down or causes a life, then that’s when the E&O insurance would kick in. If I didn’t have that, then you’d still take the person to court, you might get something out of it out beyond that. Your chances of actually recovering are going to be better if they have E&O insurance.
Is there anything, Tim, that I didn’t ask you that I should’ve asked you?
I know we’re trying to gear this one towards the inspection phase of it, but as investors, when you have an inspection company, the use of an inspection company, it’s way beyond just a home inspection. You’re looking at whether it’s a tenant move out or move in inspection, we’re already trained to look at these and we’re a third party. Whether having staff go out there that may only do these maybe once a year or just periodically, you’re having somebody that’s trained to document it and it’s a third party, it looks better when it goes to court. That’s something that they could be used for.
Also, contract repair verifications. If you are purchasing properties and you’re not using a property management company, which you should be, so definitely talk to Marco about that. But if you’re not, you want to make sure that you’re having somebody go behind the contractor to verify that the work has been done. We have found that 80% of the time that we go out to do a contract repair verification, work is not done correctly or the materials were never even there. You want to make sure that you’re checking that contractor’s repairs up before you end up paying them. That’s something that an inspection company can be used for. Also, as I mentioned earlier, when you’re doing your capital expenditures or you’re just looking at your properties, you want to make sure that you, maybe once every three to five years or every two to three years, have an inspection done just to check the maintenance of the properties or to check their current conditions.
Some of the other cool new technologies that are out there is doing an inside 3D tour. Many may be familiar with that. At the same time, the technology that we’re getting into is able to actually map out and be able to determine textures between the wall surfaces and the different types of floor coverings and measure them and provide a floor plan; not just a 30,000 view high level, an actual nice detailed floor plan to work in. You can do the inside tour or you can do an inside model. The difference between those inside 360 degree tour would be like you’re walking into the home and looking at it. An inside 3D model would be where that person’s belongings are not there. It’s just a recreation of those measurements.
Also we’re able to capture appliance serial numbers and model numbers, which can tell you the date of manufacture. That way, as an investor, you know per property, “I have a detailed floor plan. I have an inside 360 degree tour or a model that my future tenants can take, so I can have that on my website. Then also, I have all the appliances, whether it’s my furnace, my washer, dryer, the air conditioner, dishwasher, garbage disposal. I have a list of those appliances that are currently there. In that way, if I have a tenant that reports to me that that has failed or reports to their property management company, then they’ll know right off the bat what actually can go back into that hole and what’s in place of it.” Plus, determining the life expectancies, which you typically have on your home inspection report. You can preparing your future capital expenditures off of that as well. That’s just some of the cool technology that’s out there. It would be nice to have if you have a large portfolio.
These are all services provided by US Inspect?
Tim, this has been great. It’s been educational. I’m hoping our listeners have taken away a lot from this. Tell us how we can find you or your company and get more information. Of course, they can contact their investment counselor here.
If they want to reach out to me, my cell number, my direct line is 317-714-9307 and my email address is [email protected]. Our website is USInspect.com/Property-Services. That’s where you can find some of the information that I was sharing with you earlier.
There’s some good information up on your website, so that’s a good resource for these investors that are listening to this. Anyway, this has been great, Tim. I really appreciate your time. Maybe we’ll have you back on in a year’s time to just pick up where we left off here today.
That sounds great, Marco. Thank you again for your time. I appreciate it.
I hope you understand the importance of having a home inspection from this episode. Tim has covered a lot of great information here. It’s really a critical piece of your due diligence after you put a property under contract. Make sure you don’t skip this. We can’t make you order a home inspection, we’ll help coordinate it for you and we certainly insist that you do it. I would say that it’s very, very rare, it’s probably one out of 1,000 investors that bypass this step. It’s not a problem in any way, shape or form, but having a home inspection is very important so you know what you’re buying and what may be coming up in terms of capital expenditures. Usually, there’s no deferred maintenance so that’s not an issue. You just want to know if there are any red flags or safety issues. That’s really the key thing here.
In closing, just as a reminder for our new listeners, we have a great free report, it’s a 40-some page eBook essentially that I wrote. It’s a great, great primer for investing in real estate, especially if you want to take the passive route to investing in rentals. That’s available on our website as a free download. It’s called The Ultimate Guide to Passive Real Estate Investing. Just go to either NoradaRealEstate.com or the PassiveRealEstateInvesting.com website and get your copy of that ultimate guide.
If you are thinking of real estate investing or something you’re planning to do here in the next few months, go ahead and schedule a free strategy session with one of our investment counselors. They can help guide you and determine where you are and where you want to go and help break that into a roadmap for you. Then you can have a clear picture of what the next step is and what you need to have in place before moving forward. If you have questions about real estate investing, by all means, send me an email or just go to our website and click Ask Marco at the top right. I’ll be doing another Ask Marco episode here soon. Just let me know what questions are on your mind. I’ll be more than happy to address them. If not on the podcast, I’ll just reply to your email or I’ll just have one of my investment counselors help you out with that.
Again, if you leave us a rating and review on iTunes, just let me know and I will send you one of our free coffee mugs, the Keep Calm and Invest On coffee mug. I still have a number of them here. I’m more than happy to mail that out to you. Really, that just helps us spread the word to other colleagues and other investors out there in terms of the educational content that we put out. Help us share the education with other people. Just leave a rating and review on iTunes and then send an email to [email protected]. Anyway, thanks for listening. We will see you again on our next episode.
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