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Fraud Facts: How unreliable home inspections can cost you

Gina Bliss

Spring is home buying season. A year ago, a young friend of mine bought her first home. Alana did her research. She was careful in choosing a real estate agent. She looked at many homes. She focused on location and potential resale value. Her purchase offer was contingent on the home inspection. Alana took her agent’s advice when selecting the home inspector. Everything went well and soon Alana was a homeowner. She was thrilled with her purchase.

Alana noticed she couldn’t store anything in one corner of the basement. It was always wet there. She called a contractor to look at it, and learned that the moisture problem was so long-standing that a portion of the foundation was rotting and needed to be replaced. In order to do that, a corner of the house would have to be jacked up. The estimate was for thousands of dollars.

What about the home inspection? The home inspector’s report did not mention moisture or any other problem with the basement. According to New York’s Department of State Standards of Practice for Home Inspectors (Subpart 197-5), the standard would be for the home inspector to report on any deteriorated or damaged structural component, including the building foundation, and also to report on visible signs of water penetration.

Since the home inspector didn’t adhere to standards, does Alana have any recourse? Generally, the contract you sign when you hire a home inspector strongly limits their potential liability. It often limits liability to the fee paid.

Alana’s problem is all too common. The television network, HGTV, has popular programming based on this issue. The Canadian television series, Holmes Inspection, features general contractor Mike Holmes. The show’s focus is on homeowners who have been victimized as a result of poor home inspections.

In the Rochester area, we have our own home inspection expert. Jim Salmon, a full-time home inspector and radio personality, told me that poor inspections are a huge issue for a couple of reasons:

In 2006, New York state enacted licensing for home inspectors. The licensing act set a very low bar in order for a home inspector to be licensed. Before licensing there were approximately 800 home inspectors in New York. Now there are 2,500 to 3,500. Licensing does not equate to competence.

The better the job you do as a home inspector, the fewer referrals you will receive. Most home inspectors get much of their work through real estate agent referrals. A thorough home inspection with significant findings will reduce the selling price, and ultimately, the realtor’s commission.

According to Jim Salmon, it’s hard to be successful as a home inspector without those referrals. Jim suggests never using the home inspector referred to you by the real estate agent. Always check references. Ask about qualifications and experience. Be present during the home inspection.

I spoke with a real estate agent about home inspectors. He said he does refer clients to a couple that he knows will do a good job. He feels he maintains his good reputation by only referring to qualified home inspectors. In addition, he has no problem with clients who want to use someone else.

The most important thing to remember is that the home inspector should be representing the buyer in a real estate transaction. The home inspector should be independent of the real estate agent.

This is addressed in the Code of Ethics and Regulations for Home Inspectors. Section 197-4.7 says, “The duty of every home inspector shall be to the client. Home inspectors shall avoid conflicts of interest or activities that compromise their professional objectivity, or have the potential of creating an appearance that their professional objectivity has been compromised.”

Alana’s foundation was a big problem for her, and might have been something the former owner of the house should have been responsible for repairing. Luckily, Alana thought of calling her insurance agent to see if her homeowner’s insurance would cover it, which they did. Alana is still concerned there might be other issues with her house since now she knows her home inspection was not thorough.

There’s a lot of peace of mind in knowing that your home inspector works for you and does a good job.

Gina Bliss, CPA, CFE, is a senior manager at EFP Rotenberg LLP, Certified Public Accountants and Business Consultants, who specializes in internal audit, fraud audit and forensic accounting. She may be reached at (585) 295-0536 or by email at gbliss@efprotenberg.com

 

 

2 comments

  1. Thanks for the great share! I also like the idea of Home Inspections. The best part I like is this: The reliability and availability of modern energy sources cause people to tend to assume that it will always be accessible. And as for the case of non-renewable energy sources, most people do not know or maybe even refuse to accept that it will eventually run out.

  2. Home inspections are very important, especially for buyers who know nothing about home ownership or home maintenance, which is most of the population. Any home needs constant maintenance, anything can break or go wrong at any time. We recently had a home up for sale inspected by the great Jim Salmon, and a lot of his faults were lies. Home inspectors are not liable to the buyer or seller, so what good are they? They are not licensed electricians, plumbers, contractors, masons but place a price on expenses. What a fraud.

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