Home inspection is an examination of the condition of a real estate property. This usually takes place in connection with the property’s sale. A qualified home inspector can assess the condition of a property’s roof, foundation, heating and cooling systems, plumbing, electrical work, water and sewage, along with some fire and safety issues. In addition, the home inspector will look for evidence of insect, water or fire damage or any other issue that may affect the value of the property.
Potential home buyers often hire home inspectors to research the property and provide them with a written report that details the property’s condition, including an assessment of necessary or recommended repairs, maintenance concerns and any other potentially costly issues. A home inspection should not be confused with a home appraisal, which determines the value of the property. ( For an appraisal to be valid, the authorized person must have a designation from a regulatory body that governs the jurisdiction of the appraiser. The appraiser can use several valuation methods, including the current market value of similar properties, quality of the property, and a range of valuation models. )
Home Inspection and Real Estate Valuation
Valuing real estate can be a challenging process. The result of a home inspection is just one variable in this process. Investing in real estate is similar investing in stocks. Two basic methodologies exist: absolute value and relative value. Discounting future net operating income (NOI) of a property by the appropriate discount rate is similar to discounted cash flow (DCF) valuations for stock. Integrating the gross income multiplier model in real estate is also comparable to relative value valuations with stocks.
In both methods of real estate valuation, it’s critical to choose an appropriate capitalization rate or the real estate’s required rate of return. This is net of value appreciation or depreciation.
Home Inspection and Mortgages
Mortgages are a key concept in any real estate purchase. Following a home inspection, many buyers will apply to their local commercial bank for a mortgage to help finance the home. Rarely can individuals or couples purchase a home in full; instead, they put a certain amount down at the start and then continue to pay in monthly installments until the mortgage is paid off.
In a residential mortgage, a home buyer pledges his or her house to the bank. The bank then has a claim on the house should the home buyer default on paying the mortgage. In the case of a foreclosure, the bank may evict the home’s tenants and sell the house, using the income from the sale to clear the mortgage debt.
Types of Inspections
Home Buyers Inspection Buyers inspections are the most common type of inspection in the United States. The persons purchasing the property hire an inspector to help identify major defects and other problems so they can make an informed decision about the building’s condition and the expense of related repairs.
Home Sellers Inspection A homeowner who is selling their house hires an inspector to identify problems with their house. The seller can elect to share the report with any potential buyers or to make any necessary repairs so the house is known to be in good condition encouraging a quick sale. One home inspectors’ organization offers a program which helps market a house as Move-In Certified, that is, the house is in a condition where the new owners can promptly move in without making substantial repairs.
Foreclosure Inspection Foreclosure inspections are often referred to as REO ( real estate owned ) inspections. Professional home inspectors are qualified to do these, but there are other inspectors that also do only minimal foreclosure inspections: Certified Field Inspectors and Certified Property Preservation Specialists. These inspectors may or may not be qualified to do state licensed home inspections.
Four Point Inspection Insurance companies sometimes require an inspection of a house’s roof and the HVAC, electrical and plumbing systems before providing homeowners insurance. This inspection is usually only required on homes which are 20–25 years old or older and is commonly required in Florida and other coastal states. The name derives from the four areas of interest.
Disaster Inspection A disaster inspection occurs after a natural disaster such as a hurricane, earthquake or tornado in which large numbers of buildings may have been damaged. In the United States, the Federal Emergency Management Agency (FEMA) prepares for and coordinates large scale disaster relief efforts, including the inspection of damaged buildings. Disaster inspectors document conditions of buildings for government disaster relief payments.
Section 8 Inspection In the United States, the federal and state governments provide housing subsidies to low-income people through a program often known as Section 8. The government expects that the housing will be fit for habitation so a Section 8 inspection identifies compliance with HUD’s Housing Quality Standards ( HQS ).
Pre-Delivery Inspection The pre-delivery inspection, which generally applies to newly built homes, is a real estate term that means the buyer has the option (or requirement, depending upon how the real estate contract is written) to inspect the property prior to closing or settlement. These inspections generally take place up to a week before a closing, and they generally allow buyers the first opportunity to inspect their new home. Additionally, the inspection is to ensure that all terms of the contract have been met, that the home is substantially completed and that major items are in working order.
Along with a representative of the builder (generally the construction supervisor or foreman), the buyers may be accompanied by a home inspector of their choice. Any noted defects are added to a punch list for completion prior to closing. Often a second inspection is conducted to ensure that the defects have been corrected. This is called a snag list. In a resale situation, this type of inspection is often termed the final walk-through, and, based on the contract’s provisions, it allows the buyer the opportunity to inspect the home prior to closing to ensure that agreed-upon repairs or improvements have been completed.
A better inspection for a newly built home is to inspect the home during the stages it is being constructed. The typical inspection stages include:
* foundation pour
* insulation, and
Important issues such as structural support, duct routing, and plumbing can not be completely inspected after the drywall or attic insulation is installed.
Illicit Residue Inspection Drug residue inspections are a newer and more common type of inspection in the United States due to the drug crisis and collateral damage caused to real estate. Those purchasing the property hire an inspector to help identify prior drug usage, processing, and clandestine laboratories so they can make an informed decision about the building’s condition and the expense of related repairs or remediation. Most qualified home inspectors offer this service at a reasonable cost to clients.
Eleventh Month Inspection In the United States, some states require a builder to warranty a new house for one year. An 11th-month inspection is an inspection of the new home before the warranty ends to discover any defects requiring warranty service.
Structural Inspection Structural inspections report on the foundation and supporting elements of a home. When performing a structure inspection, the home inspector will look for a variety of distress indications that may result in repair or further evaluation recommendations.
[ In the state of New York, only a licensed professional engineer or a registered architect can render professional opinions as to the sufficiency structural elements of a home or building. Municipal building officials can also make this determination, but they are not performing home inspections at the time they are rendering this opinion. Municipal officials are also not required to look out for the best interest of the buyer. Some other states may have similar provisions in their licensing laws. Someone who is not a licensed professional engineer or a registered architect can describe the condition of structural elements ( cracked framing, sagged beams / roof, severe rot or insect damage, etc. ), but are not permitted to render a professional opinion as to how the condition has affected the structural soundness of the building. ]
Plumbing Inspection During a home inspection, a home inspector carries out a visual observation and general operation of the plumbing system. The inspection will consider readily accessible pipes, fixtures, and components while noting recognized adverse and material defects present at the time of inspection. Minor defects may also be reported. The inspection typically reviews the visible water supply and waste removal sewage system. Furthermore, a plumbing inspection often involves a closer observation than just the outside, especially in the case of galvanized pipes, which may not appear to have defects superficially. A plumbing inspection may also include the sewer line. The inspector will use a high definition camera. This camera will be inserted into the main sewer lateral access point. The sewer lateral will be investigated for defects and deficiencies such as steps, offsets, cracks and root intrusion. It may also denote wear and tear condition.
Water flow performance is judged by running water through the pipes and sewage systems in normal modes and in a representative manner. The water heater is usually inspected for heating of the water and safe operation which may include venting ( gas / oil/ butane models ) and the temperature and pressure relief valve. Water heater types include storage tank and on-demand systems using a variety of energy sources ( typically electric or gas ).
Most homes obtain water supply from a city, nearby town, cooperative or private source. Water may be obtained from a lake, river, reservoir, or well. If the source of water happens to be private or non-approved, the home inspector should recommend the client opt for an expert to evaluate the integrity of the water supply. Testing private wells for contaminates is important. Ideally, the inspection intends to reduce the risks for the buyer by reporting observed material defects. A defect may be a repair, maintenance or improvement consideration with or without a safety association.
Heating, Ventilation and Air Conditioning (HVAC) Inspection A heating, ventilation and air conditioning ( HVAC ) home inspection reviews the heating and cooling systems of a home from a performance perspective. The inspection usually does not inspect or compare to codes or manufacturer requirements. Heating is provided typically by a forced-air furnace distributed by ductwork or a water / steam boiler using radiators or convectors, but space heaters, heat pumps and other methods are also in use. The energy source is usually natural gas, fuel oil, or electric, but other sources include butane, wood and geothermal. Cooling can be described as a split system, packaged unit, fan coil, heat pump, an evaporative cooler, or window/through-the-wall air conditioning unit.
A typical inspection will carry out a visual observation and operation of the HVAC system. The inspection will consider visible and readily accessible components while noting recognized adverse and material defects present at the time of inspection. Home inspectors are not required to disassemble the equipment. The home inspection report may include a description of the system by its key components. Ideally, the inspection intends to reduce the risks for the buyer by reporting observed material defects. A defect may be a repair, maintenance or improvement consideration with or without a safety association. An optional statement on perceived useful remaining life may be provided but is not required. According to the InterNACHI Residential Standards of Practice, a home inspector is not obligated to make estimates on lifespans of home systems including the roof, HVAC, plumbing or electrical.
Thermal Imaging Inspection A thermal imaging inspection using an infrared camera can provide inspectors with information on home energy loss, heat gain/loss through the exterior walls and roof, moisture leaks, and improper electrical system conditions that are typically not visible to the naked eye. Thermal imaging is not considered part of a general home inspection because it exceeds the scope of inspection standards of practice.
Pool and Spa Inspection Inspection of swimming pools and spas is not considered part of a general home inspection because their inspection exceeds the scope of inspection standards of practice. However, some home inspectors are also certified to inspect pools and spas and offer this as an ancillary service.
Tree Health Inspection Inspection of trees on the property is not considered part of a general home inspection because their inspection exceeds the scope of inspection standards of practice. This type of inspection is typically performed by a Certified Arborist and assesses the safety and condition of the trees on a property before the sales agreement is executed.
Acquisition Loans, Asset Finance, Bridge Loans, Business Credit Lines, Construction Loans, Corporate Finance, Debt Finance, EBITDA, Equipment Finance, Equity Finance, Factoring, Hard Money Loans, International Finance, Investment Funding, Joint Venture, Mezzanine Finance, Secured Loans, Term Loans, Trade Finance, Unsecured Loans, Venture Capital
Serving these sectors:
Accommodation, Aerospace, Agriculture, Biotechnology, Commercial Real Estate & Development, Construction, Energy, Entertainment, Health Care, Hotels, Infrastructure Development, IT/Telecommunications, Manufacturing, Mining, Natural Resources, Oil & Gas Exploration & Pipelines, Power Distribution, Power Generation, Power Plants, and Renewable Energy
THE WEB LENDER
The Web Lender exists to facilitate corporate and real estate finance