House Detective: Making the Most of Home Inspection

The House Detective:  by Barry Stone, Certified Home Inspector

Dear Barry: We are buying a home and have received the sellers’ disclosure statement. The sellers say they received an insurance payment for hail damage on the roof, but they admit that the repairs were never done. We have two questions about this: Did the sellers commit insurance fraud by receiving payment for roof damages, without completing the repairs?  And, are the sellers obligated now to repair the roof?  Jen

Dear Jen: The sellers would only be guilty of insurance fraud if the claim for hail damage had been false. If the insurance company paid for actual damages, then the sellers had the choice to spend the money on repairs or to accept the money as compensation for the loss. What matters in this case is that the sellers honestly disclosed that there are unrepaired roof damages.

The sellers are currently under no obligation to repair the roof, although you can request repairs as part of your negotiations with them. What is needed now is a professional evaluation of the roof by a qualified home inspector or roofing contractor. Once you know the extent of the damages, you can decide whether repair or replacement of the roof is needed. With this information, you’ll be better prepared to negotiate with the sellers.

The House Detective:  by Barry Stone, Certified Home Inspector

Dear Barry: I bought a small commercial building about 4 years ago. Recently, I discovered evidence that there was once a fire in the basement. This was never disclosed by the seller. Now the seller says that the tenant in the building had the fire, but the seller provided no details. I have just listed the property for sale and don’t know what I should disclose to buyers. What do you recommend?  Mary

Dear Mary: If the fire was a substantial one, the fire department was probably called, and an insurance claim may have been filed. In that case, the fire department would have an official report of the event. Therefore, you should check with the local fire authorities to see what their records show.  If they have a fire report on file, it may indicate whether the owner of the building was aware of the situation. You should also ask the seller to provide the name and policy number of the insurance company so that you can learn what claims may have been made.

If the fire department and the insurance company were never notified, then the fire may have been small and the damages cosmetic in nature. In that case, you should disclose to future buyers of the property as much as you know about the situation and about your unsuccessful attempts to learn more. You should also hire a professional inspector to evaluate the condition of the property, including the fire evidence in the basement.

Dear Barry: Construction of our new home was recently completed, but four days before the closing, vandals broke into the house. They stopped up all of the drains and turned on the faucets. The builder found the mess in the morning. He immediately replaced the carpeting and some of the drywall, but he dismissed the possibility of mold. We are confident that he can repair all of the water damage but are concerned about future health issues in the home. Because of this, we may walk away from the transaction. Do you think we are overreacting?  Ken

Dear Ken:Your concerns about mold are reasonable, but this should not become a deal-killing point of contention. Mold may or may not be an issue in this situation, but the matter needs to be determined, one way or the other.

Mold typically occurs when there is a prolonged moisture condition. In this case, the moisture may have been addressed before mold had a chance to develop. A mold report would provide the answer to that question, and the builder should be willing to go that extra step to resolve your final concerns in the aftermath of the vandalism. Instead of dismissing the issue, he should hire a qualified mold inspector to evaluate the property and provide a comprehensive mold report.

Aside from the health effects of mold, there is another consideration in this matter: the issue of future disclosure. Flooding of the home is now a part of the property’s history. When you eventually sell the home, this will need to be disclosed to future buyers. A clean mold report can prevent that disclosure from raising major concerns. On that basis, the question of mold needs to be answered by a qualified professional.

The House Detective:  by Barry Stone, Certified Home Inspector

Dear Barry: As a real estate instructor, I teach many programs on ethics and disclosure to agents and people preparing to become agents. These same subjects are often addressed in your column. From your perspective, what can we Realtors do to enhance our ethical approach to real estate disclosure?  Janice

Dear Janice: Realtors are often advised, in seminars and trade journals, to disclose defects and recommend home inspections to clients. The reason given for this advice is to reduce liability and avoid lawsuits. That recommendation has merit, but it offers a narrow view of the issue. Reduced liability is a fringe benefit of disclosure. It is not the primary motive to disclose.

The best reason to disclose property defects is simple: It is the right thing to do. It is the way each of us wants to be treated in business. The focus, instead of liability, should be promoting the best interests of clients. Agents who pursue that approach, rather than a legalistic one, enjoy three primary rewards: They build a lifetime reputation for honest, ethical business practice; they receive the repeat business and referrals engendered by a solid gold reputation; and they reduce the likelihood of claims and lawsuits for undisclosed defects. From that perspective, here are some simple ways to put this into practice.

Agents should determine which home inspectors are the most experienced and most thorough, and they should provide a list of those inspectors to all of their clients. Articles and seminars often advise agents to provide inspector lists as a way to avoid liability, but the competence of the inspectors who appear on such lists is rarely mentioned. The problem here is obvious. If the list contains mediocre inspectors, then it fails on the ethics scale, while increasing the agent’s liability. If the client chooses an inexperienced home inspector from the agent’s list, disclosure will be incomplete, and disputes may occur after the sale.

Real estate brokers should be proactive about disclosure, even when they are not directly involved in transactions. Many brokers are laissez faire in their approach, uninvolved in the home inspector choices made by agents. This lack of oversight increases a broker’s liability. When a lawsuit for a faulty home inspection is filed against an agent, the broker is usually named in the suit. To avoid this liability, brokers should influence the inspector referrals made by their agents. The message should be, “This brokerage cannot afford disclosure related lawsuits. If you work for this company, you must recommend only the most thorough home inspectors available. Here is the list of inspectors we have found to be the most qualified.”

Brokers who wish to maximize this approach can test local inspectors to see who qualifies for the referral list. Inspectors can be hired to inspect a representative home, and the findings can be compared to see which inspectors provide the most complete disclosure.

Real estate professionals are in a service business. Success in any service business comes from treating customers the way you want to be treated. Homebuyers want to know what they are buying before they buy it, not after the sale is closed. Agents and brokers who approach their profession from this perspective will build reservoirs of repeat business for years to come and will simultaneously reduce their liability.

The House Detective:  by Barry Stone, Certified Home Inspector

Dear Barry: We’re about to buy a six-year-old home that originally had a mold problem. Fortunately, the builder removed all of the affected materials from the building. If we buy this home, are we required to disclose the initial mold issue to our home inspector, or should we wait to see if he notices any evidence of mold?  Jack

Dear Lars: What possible advantage could there be in withholding information that would assist your home inspector in evaluating the property you are buying? The inspector is your hired consultant; there for your exclusive benefit; to provide you with essential decision-making data. Any information or other assistance you can provide toward full evaluation of the property is to your advantage. If the property has a history of mold, let your inspector know about it. That way, pertinent moisture conditions and related defects can be carefully considered and evaluated during the inspection.

Testing your inspector, rather than lending your trust and assistance can have costly consequences. Here’s a true story that illustrates the point: The buyers of a home had been told the property was located within a flood plane, but they never mentioned this to their home inspector. The inspector observed no evidence of potential flooding and therefore made no disclosure of it in his report. The buyers therefore dismissed the issue of possible flooding and proceeded with the purchase. After the close of escrow, the first heavy rains caused ground water to flood the interior of their home. They blamed the home inspector for this “surprise” and filed a lawsuit for nondisclosure, even though they had withheld prior knowledge of flood potential on the day of the inspection.

If you alert your home inspector to the history of mold infection, then potential moisture sources such as plumbing leaks, roof leaks, and ground drainage problems can be given particular attention during the inspection. By withholding that disclosure, there is greater likelihood that a significant issue could be missed.

Be aware also that home inspectors do not make determinations regarding the presence of mold. Since the property has a mold history, you would be prudent to hire a mold expert to affirm that there is no residual mold infection in the building.

The House Detective by Barry Stone, Certified Home Inspector

Dear Barry: I’ve purchased six homes during the past 20 years and have always gotten home inspections. But I recently bought my first commercial property, a four-unit office building, and opted to forego an inspection on the advice of my agent. The agent explained that commercial properties are different from homes and only need to be checked by a structural engineer. I didn’t question this advice and am now lamenting that error. It’s been six months since the close of escrow, and complaints from the tenants are endless. The plumbing is bad, the heating rarely works, and the roof leaks like a screen. Why would a commercial agent advise against an inspection? Larry

Dear Larry: The failure to recommend a property inspection is a common problem with many commercial real estate agents. Fortunately, this is not the case everywhere. In some cities and towns, commercial agents routinely recommend inspections to their buyers, while in other locales, the misguided belief that commercial properties don’t need to be inspected leads to major breaches in defect disclosure.

At the root of the problem is a failure to apply common sense. The kinds of defects that would be reported during a home inspection are just as likely to be found in a commercial building, whether it be offices, stores, a restaurant, a medical clinic, etc. Roofing materials, for example, are subject to the same installation standards and are just as likely to become worn with age. Electrical violations involve the same issues of personal safety and fire prevention, whether the building is a house or an office. Plumbing problems are just as costly and annoying whether they occur in a master bathroom or a janitorial utility room. And the lack of heat on a frigid morning is just as unpleasant where you work as where you live.

Your agent’s advice to hire a structural engineer would have been wise in addition to, not instead of, a full property inspection. After all, what can the engineer tell you about the wiring in the breaker panels, the grounding of wall outlets, the function of the heating and air conditioning systems, the condition of the roofing, the safety of stairs and railings, the functional conditions of toilets and sinks, the water pressure, and so on?

In matters of defect disclosure, the same rules and reasons that motivate the hiring of a home inspector apply to the purchase of commercial property. Failure to recognize this fact can be a costly error for buyers and is a breach in the professionalism of far too many commercial Realtors. The purchase of commercial property involves enormous financial commitments, and the risks inherent to that kind of investment can be reduced by knowing more about the condition of the property being purchased. This should be common knowledge among agents who specialize in commercial property. Those agents who have not yet realized this need to reconsider the matter. Detailed property inspections are financially beneficial to commercial buyers and reduce the disclosure liability of commercial agents and brokers.

The House Detective by Barry Stone, Certified Home Inspector

Dear Barry: As a buyer of homes in several states, I find the practice of real estate disclosure to be an unethical mess. In some states, disclosure is mandatory for sellers and agents, while in others, the laws are full of loopholes. Sellers rarely know what defects to disclose, and the agents wouldn’t recognize a defect if it was labeled. But the real slap in the face is from agents who recommend incompetent home inspectors. I never know the true condition of a home until I move in. If I then complain about the lack of disclosure, the sellers claim that they didn’t know, the agents pass the legal buck to the home inspector, and the inspector recites a list of disclaimers in the inspection contract. Disclosure, it seems, is a sad joke, but everyone is safe behind the letter of the law. This may be a rhetorical question, but what ever happened to disclosing defects simply because it’s the right thing to do? Harold

Dear Harold: Defect disclosure is hampered in two significant ways, and you have raised both issues. The first is the inability of many sellers, agents, or home inspectors to provide adequate disclosure. The second is a failure of some to recognize the ethical importance of disclosure.

Sellers in most states must provide a written statement of known defects. These disclosure statements rarely contain pertinent information because the majority of residential defects involve issues that homeowners seldom see and probably wouldn’t recognize, such as improper wiring in a breaker panel or a chimney defect in the attic. Sellers who are serious about disclosure should hire a qualified home inspector for a presale inspection.

Realtors in most states are required to disclose what they know. Degrees of compliance vary from one individual to the next, depending on what they learned in kindergarten. But the real litmus test of disclosure ethics involves the choice of home inspectors that agents refer to their trusting clients. Agents become familiar with the relative abilities of local inspectors. They know which inspectors are more or less thorough in their findings, and these impressions are widely discussed within real estate offices. For the agents who are truly ethical, only the most thorough inspectors will do for their clients. For the ethically disabled, those who had problems learning sandbox etiquette, the best inspectors are known as “deal killers.”

Home inspectors vary widely in their abilities to discover and disclose defects. The reason for this disparity is that home inspection is a learn-as-you-go business. It is not possible to be qualified at defect discovery without having been a full-time inspector for several years. This means that new inspectors must learn their trade at the expense of the first customers. After several hundred substandard inspections, the new inspector begins to catch on. After a few thousand, true competence begins to manifest. To paraphrase an old adage, “There are new home inspectors and true home inspectors, but there are no new, true home inspectors.”

Buyers can obtain adequate disclosure if they understand these realities. When you buy, don’t expect much in the way of disclosure from sellers or agents. They probably don’t have much to disclose and may or may not be committed to the ethical demands of the disclosure process. Instead, try to find a home inspector who is truly qualified: someone who has many years of experience, who has inspected thousands of properties, and who has a reputation for detailed, uncompromised thoroughness. A top-gun home inspector will provide the disclosure you’re seeking, and for once, you’ll know what you’re buying, before you buy it.

The House Detective by Barry Stone, Certified Home Inspector

Dear Barry: I’m a Realtor and have recently found fault with your advice. You often emphasize the importance of hiring a home inspector who is highly experienced and who has a reputation for thoroughness. One of my listings was recently inspected by a very experienced inspector, but some of his findings turned out to be inaccurate. For example, the insulation in the attic was reported to be 5-8 inches deep. The inspector said this appeared inadequate for a relatively new home and he recommended that we check with the building department for insulation requirements. I called the contractor who installed the insulation and he said the insulation had settled but that it still had the same R-value. The other inspection error also occurred in the attic, specifically the work platform at the furnace. According to the home inspector, the platform should be 30 inches wide. But a carpenter I know said that a 24 inch work platform meets code. What good is an experienced home inspector if his disclosures are not reliable? Dennis

Dear Dennis: When differing disclosures arise in a real estate transaction, the wisest approach is to seek a third source of information, rather than to assume that one or the other disclosure is correct. It is also a good idea to weigh the relative credibility of each source. For example, when a home inspector says the attic insulation is not deep enough, this could be regarded as an unbiased opinion, whether or not it is correct, because the inspector has no vested interest in the quality or quantity of the insulation. He is simply expressing a professional opinion. The installer of the insulation, however, has an undeniable interest in the outcome of the disagreement. If the thickness of the insulation is substandard, then the installer is in a position of professional embarrassment and is liable for the cost of correction. Why then would his opinion be given greater weight than that of the home inspector? It should also be noted that there is a factual error in the installer’s response: When insulation settles, the R-value does not stay the same. It is a recognized fact that thickness and R-value are directly proportional. But final judgment between the installer and the home inspector should be determined by consulting the local building authority, as the home inspector suggested.

As for the work platform at the furnace, Section 307.3 of the Uniform Mechanical Code requires that the work platform be 30 inches wide. The 24-inch requirement pertains to the flooring that should extend from the attic access to the furnace. Common sense, in any event, would tend to favor a home inspector over a carpenter in matters of construction standards. As someone who has been both a carpenter and a home inspector, I can attest to this difference. Again, the conflict of opinions should have been settled by consulting the local building authority.

To assume that a home inspector is wrong, without verifying this assumption, allows faulty conditions to remain as is. This could lead to renewed disputes or other consequential damages at a later date.

The House Detective by Barry Stone, Certified Home Inspector

Dear Barry: I recently purchased a home from an investor who renovates and then resells old houses. Everything was going well until our main circuit breaker started tripping. An electrician told us that our new 100 amp service panel is connected on a 60 amp service line. He speculated that the seller installed the new panel himself, without a permit and without hiring an electrician. None of this was reported by our home inspector. In fact, he didn’t even remove the panel cover during the inspection, and now he claims that anything that was not visible is not within the scope of the inspection. Who is liable, the home inspector, the spec seller, or both? Chris

Dear Chris: Your home inspector should have removed the panel cover to inspect the breakers and wiring within. This is standard procedure for a competent home inspector. Inspection of the electrical system, if the inspector does a thorough job, should also consider the relative capacities of the service lines and the service panel. For the inspector to dismiss these oversights as conditions that were “not visible” is baseless denial.

When home inspectors correctly disclaim electrical defects that are not visible, they are referring to conditions that are concealed within the construction, hidden by personal property, or buried underground. But this disclaimer does not excuse blatant failure to remove the cover from a breaker panel. Inspectors who overlook this essential part of an inspection are professionally negligent.

The seller, of course, was also negligent, but this may have been a matter of electrical ignorance, rather than ill intent. On the other hand, replacing a breaker panel without a building permit is illegal, and a professional real estate investor should have known this. If a permit had been obtained, the municipal inspector would have required an upgrade of the service line, consistent with the capacity of the new panel. To address this issue now, an as-built permit should be obtained from the local building authority, and the power company should be notified that the service line needs upgrade.

But before you commence any repairs or upgrades, the home inspector and seller should be notified of the problem and given an opportunity to respond. Both are individually liable for lack of disclosure. If neither will take responsibility, you can provide them with formal invitations to small claims court. If you do this, be sure to have plenty of photos of faulty conditions and some written reports from electricians and other professionals.

As a final thought, a home inspector who did not remove a panel cover probably missed other issues in the course of his inspection. Therefore, a second inspection of the property is warranted. Find out who is the most thorough inspector in your area and get a second opinion on everything. You may find that additional defects should be addressed with the seller and with the first home inspector. If it becomes necessary to take legal action, consult an attorney for procedural advice.