Changing HI Industry

[John McKenna]

Changing HI Industry

Barry Stone:
Ask the Inspector
Inspectors under the gun, thanks to a rise in home prices, legal actions

June 24, 2007

Question: Fifteen years ago, I didn't know what home inspections were. Today, they seem to be center stage in every home purchase. Why has the demand for home inspections increased so strongly among home buyers? Why has the number of liability claims against home inspectors also increased? And what role, if any, do mortgage lenders play in selecting home inspectors?

Answer: The growing influence of home inspections on residential real estate sales has been rapid and unmistakable. Two reasons stand out:

First, home prices in major markets have increased dramatically. Buyers typically seek the most expensive homes they can afford, leaving little or no reserves for repairs that might be needed later. By disclosing unseen defects, home inspections help avoid unexpected costs.

And second, the litigious nature of today's business culture arouses caution among all parties to real estate transactions. Agents and brokers have been particularly affected, causing many to become advocates for defect disclosure in general and home inspections in particular.

With the growth of home inspection services has come an increase in liability claims against inspectors. Two circumstances stand out as primary causes.

Some claims are the result of inspector negligence. A contributing cause has been the rapid growth of the industry, prompting an influx of inexperienced and unqualified inspectors. The result has been incomplete or incorrect reporting of property conditions; hence, claims.

But many claims, on the other hand, are frivolous. Although unqualified inspectors are subject to claims arising from incompetence, the best inspectors may be targeted, regardless of whether they are truly at fault.

Many home inspectors carry errors and omissions insurance to avoid such costs, but the deep pockets of an insurance company can be the very magnet that attracts frivolous claims.

Finally, there is the question of mortgage lenders in relation to home inspections. Surprisingly, most lenders show very little interest in home inspection findings. Whereas banks and mortgage companies typically require a termite report, they seldom ask for a home inspection. This means that lenders regard termite damage as more significant than foundation settlement, roof leakage or the safety of electrical wiring and gas-burning fixtures. This perspective is likely to change, but so far, change has been slow in coming.

http://www.latimes.com/classified/re...l-buying-tools

[whandley]

"Finally, there is the question of mortgage lenders in relation to home inspections. Surprisingly, most lenders show very little interest in home inspection findings. Whereas banks and mortgage companies typically require a termite report, they seldom ask for a home inspection. This means that lenders regard termite damage as more significant than foundation settlement, roof leakage or the safety of electrical wiring and gas-burning fixtures. This perspective is likely to change, but so far, change has been slow in coming."

I think he's a little off the mark on this part. The mortgage lenders rely a great deal on the appraiser's findings. I receive inspections every month from mortgage lenders who want to further inspect and or evaluate the concerns/findings on an appraiser. This may include cracking and or deflection in floor, wall and ceiling surfaces, water intrusion, possible mold growth, unsafe electrical wiring, etc...

BTW, this scenario is one of the few circumstances where I agree to do something less than a full blown inspection. The mortgage lenders typically don't want to know all the problems in or about the structure, (That information would get passed along to the underwriter - Who would have more concerns). They just want you to satisfy the appraisers concerns. I normally charge maybe 75-80% of my full inspection price for the same structure, but spend far less time on location and writing the finished report. The mortgage lenders don't seem to mind, they're just trying to close the deal.

[John McKenna]

You hit the nail on the head Will. The mortgage brokers just want
to push the loan through. Why mess it up with an inspection?