Should You Spend Money on a Home Inspection?

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There was a recent post in the BiggerPockets Forums on whether it is smart to hire a professional home inspector.  There were many arguments for getting the home inspection done by a professional and a few arguments against it.  I think it is very important to get a home inspection done on any potential purchase, but I don’t think you always need to pay for it.  There are certain circumstances where a professional home inspector is a waste of money and may even cost you a deal.

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Experience

The decision of whether to get a professional home inspection done will depend greatly on the amount of experience an investor has. 

I think almost every new investor should get a professional home inspection done.  As a new investor you need to learn every detail you can about properties you want to buy and about what repairs to look out for in future properties.  As a newbie, I would actually walk through the entire inspection myself with the inspector and pick their brain about everything.  Ask about the roof, foundation, electrical, plumbing and anything else the inspector looks at.  Your are paying at least a few hundred dollars for this inspection, so get your monies worth and grill that inspector!

A new investor may be shocked at the amount of items a professional inspector will find wrong with a home.  The inspector’s job is to find everything that is not perfect on a home and most do a very good job of finding faults in properties.  I am a Realtor, and I have had quite a few buyers scared off by the little things inspectors find in properties.  I always try to show buyers the serious faults in a home and hope they will look at the minor issues as just minor issues.   I have even been scared off by a home inspection, because of all the little things that were found and I ended up missing out on a great deal!

What a Home Inspector Actually Does

In my experience a home inspector goes through the basic systems and looks for any obvious issues.  If he finds obvious issues, he usually advises the potential buyer about why he thinks there may be a problem and then advises that an expert be brought in to evaluate the situation further.  For the experienced investor who is paying the home inspector a large fee for his services, this can become frustrating.  You pay a professional for their opinion ( the inspection is an opinion they have no liability in most cases),  then when they find something wrong, they need to bring an expert in to see what is really wrong.  If they find mold, they want a mold expert, if they find a crack in the foundation, they need a foundation expert, a roof expert, an electrician, a plumber etc.  The catch is, the inspector won’t find these experts for you, that is your job an in some cases those experts will charge as well.

If you are a new investor and don’t know how to spot these potential issues, then a home inspector can be a great resource.  If you are a seasoned investor who can spot potential trouble areas in a house, why not bring the expert in to begin with and save the $400?  Better yet, have your general contractor go through the house and find any trouble areas and have him bring in any experts needed.

Repairs That Are Planned

When doing a fix and flip, repairs are almost always required and in some cases a total remodel is needed.  On many of my buy and holds, I do a complete remodel as well.   If you are buying a home that you know will need new electrical, new plumbing, new roof, new paint and new floor coverings, why are you hiring an inspector to look at the plumbing, roof and electrical?  Decide what parts of the house you want to save and have an expert inspect those areas of the home.  It seems silly to have an inspector go through the entire house when you know you are going to remodel half of it in the end.

If you still want a professional inspection done on a home you know needs a lot of work, see if the inspector will negotiate with you.  Ask him if you can get a price reduction on the inspection if he skips the roof, skips the plumbing or doesn’t have to test every electrical outlet.   A great idea I heard on the forums is skip the written report from the inspector.  It takes a lot of time for the inspector to write up a report, download pictures and make it all look pretty.  If he only has to give you a run down without that fancy report, he may be able to reduce his price as well.

HUD Inspections

I am a HUD listing broker and I have to mention HUD inspections for those who are not familiar with them.  I wrote an article covering the basics on HUD homes here, but I want to get into HUD inspections again.

HUD has an inspector do an inspection on every HUD home before they are listed.  Even though an inspection is done on the home, please do not depend on it for your inspection.  When the HUD inspector is looking at the house, the electric, gas or water is usually not on.  That means he can’t test the furnace, hot water heater, or the plumbing, except for an air test.  The inspector looks at the roof, by visually inspecting it from the ground.  I have had many HUD inspectors say a roof is fine, when it had hail damage and needed replaced.  If you are buying a HUD home, do not depend on the HUD inspection to tell you everything.

Investors are given a 15 day inspection period from HUD after they have a bid accepted, but it really means nothing.  HUD will not give an investor their earnest money back if they cancel due to inspection results.  Even if the HUD inspector said the plumber held pressure and it turns out there are 30 leaks, HUD will not return the investors earnest money.  HUD will not make any repairs based off the inspection either.  Please do your due diligence before making a bid on a HUD home so you do not lose your earnest money.

REO Inspections

I list homes for many banks and asset management companies as well.  Unlike HUD, some banks like Fannie Mae will turn the water and utilities on for you for your inspection.  In some cases, the bank will even repair the plumbing for you if they find leaks when they are de-winterizing the home.  I always find it beneficial to get an inspection done on a bank owned home, because you might get some free repairs out of it.  That is, unless you are in a bidding war and you decide to remove your inspection clause to get the house.

Conclusion

I went off on a bit of a tangent their with HUD and REO inspections, but I felt that was important information for buyers.  I think every investor should have an inspection done, but that does not mean they have to have a professional inspector do the job.  Every house is different, but look at the repairs you know need done and determine if an expert can check out the rest for you or if you can get the inspector to reduce his price for you.

Finally, let me close with a story of a deal that I let get away.  I had an inspection done that found mold, foundation cracks and a ton of other minor issues on a short sale I had under contract.  I was going to use this home as a long-term rental, but decided to cancel due to all the repairs needed.  A few months later, another investor had purchased the house for the same price as I had it under contract for, and flipped it for about a $30,000  profit.  I let all the minor stuff get into my head and I made a bad decision.  I’m not saying you should ignore the minor repairs, but make sure you analyze the cost carefully.  I let the inspector talk me into how bad the home was and did not run the numbers, I just cancelled.  Rookie mistake!

Photo: Todd

About Author

Mark Ferguson

Mark is Real Estate Broker and investor in Greeley, Colorado. Mark invests in long-term SFR rental homes and also does 8-15 fix and flips a year. Mark started a blog this year that focuses on investing in long term single family rentals.

29 Comments

  1. Even though I’m very well qualified I can miss things. A first time buyer should have a home completely inspected incase of a major problem. REO’s- roof, foundation, plumbing and electrical are the major ones that need inspected because they are the most expensive. An inspector “good ones” aren’t going to try to “sell” like a roofer or plumber would. For an example: because of a small leak, a roofing company said I needed a new roof. Problem- it was a new roof, found a gutter nail angle wrong which cause the leak, fixed it and no more leak.
    If you’re buying a home, get it inspected before buying. Investment property, just the roof, foundation, plumbing and electrical will cover most bases. Your local Building Inspector Office can answer a lot of your questions. Getting a home inspection is cheap insurance unless you like surprises.

  2. I always appreciate the detailed information you bring to your posts Mark.

    I missed on the forums where you could skip the written report from the inspector and save some money there. That’s a great idea! I also really like the idea of bringing in your own GC instead. My GC has offered to do a walk-through on any house I am interested in flipping.

    When I purchased my first investment property, my realtor suggested bringing in an electrician and plumber to check out those areas rather than a whole house inspection. Part of her reasoning was that the house had just had a full FHA inspection done a few years ago when the sellers had purchased it.

    Also good to know about the possibility of free repairs on the results of an inspection done on an REO for one I’ve got my eye on, except of course in the case it becomes a bidding war.

    • Thank you Michelle,
      I have yet to try the technique of getting an inspector to lower his price for doing less work, but it makes sense to me.

      I have had quite a few plumbing systems repaired by banks, when they discovered they could not turn water on due to leaking pipes. No gay

  3. Thank you for point #2. I never get professional inspections since I think they are a waste of time and money. I go straight to the pros, and am happy to pay them for their time. Much better for everyone-I get a real opinion, and an estimate. Inspections are useless for negotiating; estimates are priceless!

  4. Thank you for the comment! I completely agree!
    If I ever see an inspection request for repairs or price reduction, I ask for a bid, not a guess from the inspector or buyers. My contractors will happily get me bids and inspect work without charging me.

  5. Nice post Mark. I would imagine anyone buying turnkeys out of state should get an inspection done. Some buyers do not visit the house themselves and even if they do they may not be aware of local problems that an inspector is.

  6. When I bought my brand new, out of town rentals, I spring for an inspection, even though my own agent said I probably didn’t need it. I didn’t expect the inspector to find anything, and he really didn’t. But I figured $400 for a $136,000 cost me about 0.29%, making it a reasonable bit of insurance. I asked my inspector to get me an extra batch of digital pics since I was out if state. He agreed with no issue. $400 was a reasonable amount of money for some peace of mind.

    P.s. since all four units that I bought were next to each other he gave me a discount, not having to drive all over the county.

  7. If it is obvious, the property is going to be a major rehab candidate or, if the price is right {which sometimes happens with bank repossessions here} then we will forego the professional building inspection.

    However, most of the time we have an inspection performed. Though my partner and I are experienced, the decision to bring in an inspector is usually one of time not ability. Just like learning my time is not best spent on the end of a hammer, I have also learned that $500 – 800 for a comprehensive building inspection {our inspector spends 6-10 hours on site} is a far better use of my time than crawling through attics and slithering into crawlspaces.

  8. I’ll share this story. I wrote parts of the ASTM E2018 standard for inspecting commercial properties (apartments, factories, high rises, hotels, etc.), so decided not to have an inspection done on one of the houses we bought in Atlanta. You guessed it – I missed something. I’m 6′ 1″ and was wearing nice enough clothes that I did not crawl though one attic access, so did not see that one furnace had been gutted. They apparently ran out of money to fix it, getting only as far as dismantling it. I could easily have negotiated a price reduction to cover a new furnace if I had known that ahead of time.

    • Thanks for the comment F. Stephen
      Sometimes things are missed if you don’t get an inspection done and sometimes they are missed even with an inspection! It is all a numbers game. We buy about 15 homes a year either as fix and flips or buy and holds. That is $6,000 a year in inspection fees at $400 a pop. Overall, I doubt we miss that many issues in the properties we buy. I never ask for a price reduction or repairs to be made after inspections. I feel part of the reason I get so many deals is I have a reputation for closing deals once I write an offer. The other agents know I won’t come back at them on the inspection.

  9. Good article Mark. We have a company in Dayton, Ohio and we purchase REOs to either keep as rental properties or sell straight up to homeowners. We never get home inspections at the time of purchase. Occasionally, we will have one of our contractors do a walk through. In most instances we replace all of the major components and will assume that they need to be replaced at time of purchase. If we get lucky on HVAC or something else, that’s just a plus. If the deal is that marginal that we need to know the condition of components that are probably bad, then there is probably no deal anyways. The biggest unknown is usually the condition of gas lines and water lines coming into the property from the street since the utilities are generally not on when we purchase the properties. On average, one in 10 properties needs either a new water line or gas line. At an average cost of about $2,000 that works out to an average of $200/house. Since are average rehab is in the $20-$25k range that is not even a consideration.

    After we complete our rehabs, and before we put the houses on the market (the one’s that we will sell straight-up to homeowners) we do, in fact, get a whole house inspection. We have learned the hard way by losing deals after the new buyer secures their whole house inspection and becomes scared by items that we missed or did not properly address. By getting our own inspection on a preemptive basis, we save a lot of grief when the actual end buyer comes along and gets their inspection. Since we do several houses each month, we are able to get a good discount from the inspector who inspects our houses for us.

  10. Hey mark,

    Nice post. I agree with you on the rehab. Unless I’m looking at something serious, like a structural problem, I usually skip the home inspection too and use the money to do a repair. But, I also like to use the home inspection as a weapon to get repair credits. Perhaps for an estate or a house that isn’t a total rehab but has been on the market for a long time.

    Best,
    Dave

    • Thanks Dave, I stay away from asking for credits after an inspection. Maybe it is because I have a ton of listings and hate it when buyers do that. I like to think it helps my reputation with other agents. We are in a relatively small community 100k people and most agents know me and that I won’t hit them up for anything else on the inspection.

  11. We will pass on an inspection as my partner is good. We are looking at a single fam.,3 beds, 2 baths in a desirable town. It is an estate sale and needs $25,000 to make it beautiful. Another house there sold for $250,000. They are asking $190,000. We want it for $175,000 cash and then rent it for at least $2,000/mo no utilities so we have a positive cash flow. Is this a good plan?

  12. Hiring a home inspector is a very good investment. They know what to look for a signs of any potential problems. If you are buying a home or think you might have problems with your own, hire a home inspector.

  13. Shirley Johnson on

    We just bought our first home and took the HUD inspection, after closing we went back into the house and noticed that they had went in and painted over a leak in the bathroom and smeared a lot of tar on the roof in two spots. We saw the spot on the ceiling when we first looked at the house but looked like an old leak. So we went with the words of the inspector (HUD). All said and done we now have to hire someone to fix this problem. Do you think there is anything we could do at this point. We have also heard that the shingles that are on the house are possibly in recall with a case pending on them. Any advice will help, Thanks Shirley

    • Do you mean what can you do regarding the home inspector? First you need to realize a few things.
      1) I’m sure it states somewhere in the report of the contract that the inspector cannot guarantee spotting everything. I’ve seen a case where someone sued the inspector and managed to bring two other expert inspectors that testified the first inspector should have spotted some termite damage. Do you have other inspectors or contractors that can testify to that?

      2) The case I saw, the plaintiff was suing for thousands in order to compensate for the repairs he had to make. He only got $500 because the contract with the inspector clearly stated all liabilities were capped at $500. Does your contract with the inspector specify a cap? If so, is it worth it to go after the inspector for said amount?

      Sometimes this all boils down to lessons learned. The next time you buy a property, perhaps you need to factor in a cushion of cash. Or look into buying a home warranty. There is no way an inspection report can catch everything. And your risk of missing something can go up based on the age of the unit.

    • Hi Shirley
      Are saying you only used information from the HUD inspector or did you hire your own inspector? A HUD inspection is never very thorough. HUD homes are sold in as-is condition, once they are sold there is no recourse to HUD for condition issues.

  14. Mark,
    Very good article. I am a newbie who is looking to purchase my first investment property to buy and hold. The information provided sheds excellent light into the purpose and importance of home inspections.

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