Death of an anti-Salesman. Say goodbye to the home inspection as we know it.
by Keith Tripp, February 2021
Real estate activity is crazy right now (February,2021) in the GTA, and in other parts of Canada. If it continues, it may well spell the death of the home inspection as we know it.
Home inspectors are hit with a triple whammy right now during the pandemic. Real estate sales have moved paradoxically to the pandemic, especially for non-condominium. Inventory is down and demand is way up, with people deciding this is time to have a real home to work from. Resale home inspections are not happening because most sales are going to multiple offer situations where any offer with conditions attached simply will not succeed. Houses are selling for up to 50% over and above asking price. I was recently tracking a house that was listed for just over $1MM and it sold for just over $1.5MM. I just saw another sale come across my social media from a respected salesperson I know. Listed at $1.6MM and sold for $2.2 MM. In Ontario, during the pandemic restrictions, home inspections are allowed if part of a real estate transaction, because real estate was deemed an essential service (go figure!).
Many home inspectors also do “warranty” inspections on new houses. These inspections and reports give homeowners the info they require to submit issues through the provincial Tarion warranty program. These inspections have been delayed by pandemic related restrictions, and even when allowed, homeowners and inspectors are reluctant to risk the amount of contact involved for what could be considered a non-essential service. Warranty inspection business can be a viable supplement to a home inspector’s income, as they can be scheduled to fill the voids as the resale market goes through ups and downs or just to fill in the gaps within a week. So, the second whammy is that warranty inspections have disappeared along with resale inspections.
The third hit is that because real estate has not officially been shut down, access to loans and supports for a home inspection business is difficult. Most inspectors pay about $2500 a year for liability insurance, plus about another $1000 for association memberships. When these renewals come up, expect to see a lot of home inspectors “pivoting” out of the business.
One format of inspection that may prosper in this environment is the so-called prelisting inspection. This inspection is done for the seller as the client, rather than the buyer. The sellers name usually will be on the inspection report, even though in some cases the listing real estate salespeople may pay for or subsidize the inspection. The selling parties will offer access to the inspection as part of the selling info package.
I recently did some house shopping with a family member. This exposed me to the full process from the buyer’s perspective. I of course was dragged along to look at houses in my unofficial capacity as Uncle Bob the know-it-all about houses guy. The kids just started calling me Dwight (as in The Office) because supposedly he does some pretty cool home inspection at the bosses’ party. I provided everyone with awesome powerful flashlights so we could look intimidating during the 15 minutes we had to look at the various million-dollar money pits.
We were quite interested in one house, and obtained the pre-listing “Inspection Report” from the sellers. I had made a business decision many years ago to not provide pre-listing inspections. A true home inspection report is a list of defects. The purpose is to prepare the buyer for future budget requirements, and possible issues of lack of comfort or safety associated with the home. The true home inspection does not list good features of a home. By exclusion, if an item is not listed as a defect or future risk in a home inspection report, then it is deemed to be OK. No balance is required in a home inspection report by identifying good features. The balance is provided in the process through all the sales pitches. Balance is the job of the salespeople, sellers and perhaps lawyers or appraisers, but not from the home inspector. If you ask a lawyer what the role of a home inspector is , they will probably say it is to discourage the potential buyer from proceeding. The most balance I ever provide to a client may be saying something like: “The list of defects is relatively short based on age and size of the house”.
My reports are typically a list of defects 30 to 50 issues per house. Some of these issues are long term risks that can’t be eliminated with a quick fix. Some of the issues are educational. I had decided that my reports, with lists of defects only, would not be suitable as sales tools.
I reviewed the “inspection report” provided by the selling parties, and it was even worse than expected. Not only was did it fall short on identifying risk, and frankly even fully describing the house, the writer had gone out of his way to add positive comments about the house. The client name on the inspection report was the listing agent.
The first line to catch my eye was: Structure: Overall well built house. This was listed in a section called Summary: Significant items. This section is intended as a summary of significant defects.
In the Summary, across the 8 sub categories, there were only 2 negatives mentioned.
To put the magnitude of failure of the report in perspective, this home was almost exactly 100 years old. I spent about 20 minutes in the house, and made a mental list of risks to convey to my family shoppers. There were additions at the front and rear of the house. The foundation was a stone foundation, mostly not visible. Stone foundations are considered high risk compared to other foundations of that era such as brick or block, because they can fail without much warning. The front of the house had been modified, possibly related to street infrastructure work, which resulted in a garage being installed in what was originally the basement. Floors had noticeable humps and dips. The inspection report even noted that the separation between the units in the attic was inadequate and this should be improved for fire separation, however this expensive repair issue did not show in the summary. Some gaps in the garage indicated some structural movement. Heating ductwork had not been updated since the early days, and would not serve the house well. Electric floor heat had been installed in some rooms, no doubt to compensate for inadequacy of the ductwork. Furnace had signs of leakage and failures that could even pose an immediate safety risk. Two windows had failed thermopane seals. Some of the drain plumbing was the original cast iron pipes.
Not only is the comment “overall well built”, an insult to improvements in building over the last 100 years, it is misleading for a buyer who may think everything is as good as new. It would also be extremely misleading and deficient for a anybody relying on that report that may not have seen the house, such as an absentee buyer. All home inspectors know that these 100 year-old houses have inherent risks based on construction methods and ageing of components. But more importantly, the positive comment has no place in an inspection report that should be a list of defects.
In total, the report had only 8 actions recommended, and 2 of those are what I consider trivial and could have been left out of the report.
The other aspect of the report, was that even though some improvements were recommended, there were NO risk statements. For example there was a recommendation to install some GFCI protection, but no statement of the risk existing with the current situation. This was true of all of the issues identified.
This report was a complete failure of what an inspection report should be. What is more disappointing is that the inspector was fully qualified as a Registered Home Inspector and a member of OAHI, the Ontario Association of Home inspectors.
If you are a home buyer, be aware that any so-called inspection report provided by the sellers is likely to be grossly deficient in identifying the brick and mortar risks associated with the house.
The last few years have seen dramatic swings in home inspection activity, as the GTA market, or segments of the market move through the cycles of sellers and buyer’s markets. What we are seeing in 2020 and 2021 is the most extreme seller’s market to date. If it continues, the home inspection as we know it could disappear completely. What does the future hold? I predict services being shifted to a different phase in the buying cycle, with home inspectors sharing their knowledge with buyers during the shopping process, and even accompanying the house shoppers as they visit properties. This will require bending the existing rules, which are mostly driven by insurance providers, that prevent inspectors from doing part inspections or modified inspections without full reports. As they say in pandemic language, the pivot is upon us.
Keith Tripp is a professional home inspector in Toronto, Ontario, Canada.