Inspection Necessary?

Question

On distressed REO properties, how many of you would recommend to get an inspection done? A friend of mine was telling me it was absolutely necessary because of the chance that there would be faulty wiring and such. I just thought a close walk-through of the house was enough.

Phil * · Answer

If there are multiple offers, Yes. If you are the only offer, probably not.

Jon Holdman · Answer

Sorry Jim, missed your questions. At this point, it would depend on the property. There are two main benefits to an inspection is that it gives you bargaining power with the seller. In addition, it gives someone a couple of hours to look over the property in detail. If I could spend the time looking at the place carefully before making the offer, and the systems were ones I understood (i.e., no boilers), and I was satisfied with the price I thought the seller would accept without the need for post contract adjustments, I would just skip the inspection. If I though I could leverage the inspection to get a price reduction, or if there was some system I didn't understand, I'd spring for the inspection.

John Chan · Answer

Do you guys think inspection clauses hold any weight on whether you get the contract or not when you make an offer on a REO to the bank?

Phil * · Answer

If you need an experienced inspector, by all means get the inspection, however if the property is new and they get multiple offers, many of the offers will be 'stronger' if they waive contingentcies (inspection and pay cash). They may take a slightly lower offer with no inspections.

Jim Doine · Answer

Jon, to make it short and simple, would "you" have a potential investment inspected or not? Jim

Jon Holdman · Answer

Maybe this is true in some locations. Not here, and not anywhere I've bought property and had inspections done (CO, TX, CA). The inspection is purely informational. I just looked at the last one I had done and it says: The inspection provides you information, and might or might not notice significant problems. It provides you absolutely nothing in the way of any recourse if something is missed. Attorneys go to school for many years, and then have to pass a bar exam. Even a licensed tradesman has to apprentice for some number of years then pass an exam. In CO, and many other states, there is absolutely no requirement for licensing or experience of any sort to be a home inspector. There are classes available to "help you start your home inspection business". Even Texas, which does require licensing, requires 328 hours of classes. 41 days. For comparison, a 12 credit hour load at a university would be about 180 hours of classroom time, plus additional study time. So, the Texas requirement is fairly significant. Hardly compares with four years of undergraduate school and three more years of law school required to be an attorney. I'm not saying an inspection is useless. If you know little about houses, it can help you identify problems. But of the inspections I've had done, 90% of the report was either boilerplate or pointing out minor issues like missing doorknobs. And don't expect anything at all from any inspector when (not if) you find something the inspector didn't notice. I would also say that I've never had a home inspector who was willing to make any comments about termites or any other pest. In places like TX where termites are an issue, a separate termite inspection and certificate was required. That one does actually have something behind it. Similar for any structural, electrical, plumbing or HVAC problem. At the most, the inspector will make a comment saying "recommend evaluation by a licensed electrician" or whatever's applicable.

Douglas Christian · Answer

Jon I would have to disagree that if the inspector misses something major, like major termite damage or a structual issue then you can get his insurance to cover that that is why he is suppose to be licensed and bonded. It no different than an attorney if that was the case then all your licensed trades people why do they need the license. The reason why is to cover any major damages that they might have overlooked. Electricians, plumbers, and HVAC guys this is why they go to school and have to take many hours of training to see what the average person can not. Sure they might miss something, but if it is major then they will have to pay for it.

Michael Rossi · Answer

No-one will do a better job of inspecting your potential property than you (assuming of course that you know what you're doing). Mike

Tom C · Answer

Will, I think it depends on the property. I am certainly not going to spend $250 on an inspection for a $20,000 home when I am perfectly capable of doing it myself.

Jon Holdman · Answer

I've always paid for inspections on every property I've bought. And one I didn't. Yes, he pointed out some issues. But he missed some others. So, I'm not sure its really worth it to continue to plunk down $350 (plus another $250 for "dewinterization") for every house I get an accepted offer on. The more complex stuff, like furnaces, he punted to a furnance guy anyway. Not saying don't do it. I've always done it. I've just become sort of disillusioned.