BOOK 1

INSPECTORS GUIDE SERIES

Practical help for the real estate Industry

ABOUT THE AUTHOR:

Chris Rither received his technical training in the building industry as an industrial science major at Humboldt State University. Chris started his work in Hawaiis real estate industry in 1986. At that time, Chris helped secure and renovate an original turn-of-the-century plantation managers estate on Kauai, for Hawaii Teen Challenge. He also helped build the main meeting facility at the Oahu Center. After moving to the Big Island of Hawaii in 1988, he began a commercial and residential building repair and remodeling company called Maintenance Hawaii. Most of his work was with the property management divisions of real estate firms and local franchise and business owners. Maintenance Hawaii provided a full range of services, including electrical, plumbing, carpentry, roofing, flooring, painting, appliance repair, finish work, remodeling and structural work of all kinds. The clients included nationally recognized companies such as Century 21, Coldwell Banker, ERA, Borders Books, YWCA, Avis Rent-A-Car, and other local business, including Island Chevrolet, Waikea-Kai Shopping Plaza, Cost-U-Less, Charlies Bar and Grill, Koehnens Interiors, Hawaii Island Board of Realtors, Y. Hata Transfer, Brian Delima Attorney at Law, and many others. Over the years Maintenance Hawaii became known for its competent work, dependability, and comprehensive services. The business was sold at the beginning of 2003. In 1998, at the request of a local real estate firm, Chris began to provide inspection services for property and business owners who desired to place their homes or commercial properties on the market. The original intent of Island Inspection Services was to identify and quantify any potential liabilities or structural problems and to repair or replace them as part of the maintenance company. Over the next few years, the requests for inspection services began to grow, and by the year 2000 the real estate market on the East Side of the island began to prosper. In response to the increasing demand and complexity of services to be provided, Chris enrolled at the Inspection Training Associates in Oceanside, California. There he received his advanced training and certification in eleven inspection fields, and in 2003 he completed their commercial inspection training program. Over the years, Chris Rither has worked island-wide on thousands of buildings in both the inspection and construction industry. Because of his technical training and hands-on experience, Chris is competent and knowledgeable both as a consultant and an inspector for all styles of residential and commercial buildings. Chris is a member of National Association of Certified Home Inspectors, International Code Council, Hawaii Island Board of Realtors, and Foundation of Real Estate Appraisers. He is also the author of book two in this series entitled Common Problems In Hawaiis Homes. ISLAND INSPECTION SERVICES P. O. BOX 6566 HILO, HI. 96720 (808) 969-907O

www.islandinspections.com

INSPECTORS GUIDE FOR REALTORS

INTRODUCTION The number of people and amount of work involved in the purchase of a house is often staggering and overwhelming to the new homebuyer. Most often it involves a number of realtors, brokers, bankers, appraisers, surveyors, escrow officers, repair people, utility companies, loan officers, lawyers, pest control companies, inspectors -- and paperwork, paperwork and more paperwork. At times even real estate agents become overwhelmed with the complex system of rules, regulations, codes, laws, ethics, and principals that govern the real estate industry. This booklet has been designed to help the home buyer, seller and agent better understand the home inspection process. The home inspection industry evolved out of two basic principles. The first, which will be covered later in detail, was an attempt to shift a significant portion of the liability risk away from the real estate agent. The second was the desire to provide a service to the homebuyers whereby they could get, in essence, a second opinion about the condition of their prospective purchase. Across the nation, there are some set standards in regards to the home inspection process. However, each state and real estate firm may have their own laws, opinions and reasons for having property inspected that may differ even within the same region or state. The purpose of this book is to give realtors practical hands-on advice. It is designed to help clarify the inspection process and to provide helpful hints with the realtor in mind. We will cover the history of home inspections, what happens during the inspection process, who the inspector is, why have homes inspected, and other useful information. HISTORY OF THE INSPECTION INDUSTRY The home inspection industry is, when compared with the real estate industry in general, in its infancy. Before the mid to late 1970s, very few people hired an outside agency to help them understand the design and condition of the properties they purchased. Most real estate agents saw no actual need for a new type of service for buyers. If their client was concerned about an issue, they could always hire a local contractor to check it. The necessity of the inspection industry was made obvious by the passing of a law that greatly increased the liability of the realtor if a problem with a property arose after the sale. The first event to emphasize the importance of the inspection process occurred in September of 1973 with the passage of The Deceptive Trade Practices Act (DTPA) by the Texas Legislature. The act is summarized at <www.dodiligent.com >: This consumer legislation provides for triple damages if deception takes place during any sales transaction. This act caused great problems with real estate transactions because Brokers and Agents would make general statements about the apparent condition of the property while showing properties that may not have been true (before inspection became prevalent to disclose the condition of the property). Lawsuits became commonplace for triple damages ($10,000 foundation repair cost $30,000 plus attorneys fee). The Real Estate industry began to foster the Home Inspector (HI) industry to protect Brokers and Agents in the transaction. (http://www.dodiligent.com/History.html). After a few years it became apparent that a new industry was necessary to limit the liability of realtors and provide a needed service for homebuyers. The passage of the DTPA could be described as the catalyst for the entire inspection industry. Yet, the process of actually regulating the inspection industry began in September of 1985. Once again Texas would become the first state to help set the standard of the inspection process by enacting legislation to require state certification of home inspectors. In 1985, new legislation in Texas required the licensing of home inspectors. The licensing required 90 hours of core education before taking a standardized test with an additional thirty hours of education required, plus eight hours of yearly certification requirements. Over the next four years, the process of establishing and defining certification procedures was finalized with the signing, in May of 1991, of the New Licensing Act for Home Inspectors. This

established the Texas Real Estate Commission (TREC) as the licensing agency with concessions to inspectors. The law also empowered the Inspectors Advisory Committee (IAC) to help develop all regulatory rules that would govern Licensed Home Inspectors and to develop a Standards of Practice (SOP) for the state. The last legislative act in Texas to effect the inspection industry was enacted in June of 1998 with the regulatory action of adopting standardized inspection reporting requirements for all home inspectors. Since 1985, a total of 18 states have passed laws regarding home inspectors in the areas of training for licensing and certification. These states are: Arizona, Connecticut, Illinois, Mississippi, Nevada, Oklahoma, South Carolina, South-Dakota, Oregon, Texas, Maryland, Alabama, Arkansas, Rhode Island, Wisconsin, New Jersey, North Carolina, and Louisiana. The remaining 32 states have no real licensing or certification process; however, all states have set building and business regulations and guidelines to which they adhere. These laws and requirements provide a basis for what is generally accepted in the building industry. All markets, over time, begin to form standards and principles of practices that are accepted by those in the industry -- with the inspection process being no different. A SELF-REGULATED INDUSTRY? As stated above, the inspection industry is regulated by only 18 states. Over the years other states and organizations have made attempts to provide direction and rules in regard to the inspection process. Since the mid 1970s there have been a number of private organizations formed to help regulate the industry and to provide training, standards of practice, and support for inspectors and realtors alike. There are also a number of franchises, training schools and courses for inspectors. Listed below are just a few of the larger organizations; it is recommended that realtors who refer their clients to an inspector choose one that is a member of at least one of them. ASHI: In 1976, a group of visionary home inspectors established the American Society of Home Inspectors, a not-for-profit membership organization. Their goal was to build consumer awareness of home inspection and to enhance professionalism by developing high Standards of Practice and a Code of Ethics. Today, ASHI is the largest and most respected professional association for home inspectors in North America, with 6,000 members. ASHI's Standards of Practice, covering all of a home's major systems, are specifically noted in state and federal legislation and recognized by consumers as the definitive standard for professional home inspection. (http://www.ashi.com/about/) NAHI: The National Association of Home Inspectors, Inc. (NAHI) was established in 1987 as a nonprofit association to promote and develop the home inspection industry. The mission of the National Association of Home Inspectors is to promote excellence and professionalism in the Home Inspection industry; to provide a standard of practice and a code of ethics; to educate its members; and to inform the public of the benefits and scope of a professional home inspection. NAHI now has over 1300 members in 49 U.S. states, Cayman Islands and Singapore. (http://www.nahi.org/about/) FREA: In 1996 FREA created a home inspection division, offering the same benefits to home inspectors as they had been offering to appraisers, including low cost E&O insurance. Due to the large numbers of members, FREA has substantial buying power with insurance companies, helping to keep the program strong while other insurance providers have fallen by the wayside. Today, with over 8,000 members, FREA is the largest professional organization for appraisers and home inspectors in the country. FREA provides E&O insurance, education and other benefits to its members. Its sister company, NDCdata.com, provides state of the art, low-cost online data to more than 2000 appraisers in California. FREA also publishes the

Communicator magazine, ("The Voice of our Nations Appraisers & Home Inspectors") which has a quarterly circulation of over 150,000 readers. (http://www.frea.com) AII: The American Institute of Inspectors was formed in 1989 by five men. These men had searched for a uniform credentialing body with mandatory standards for home inspectors. When they discovered The American Institute of Inspectors is a non-profit corporation none existed, A.I.I.TM was born. established as an inspection trade association. The purpose of the association is to promote a high level of professionalism in the inspection industry by certifying qualified individuals as inspectors. This is accomplished through approved training and examination of those who apply for certification. (http://www.vip-certifications.com/html/aii_history.htm) WHO IS THE INSPECTOR? In the early 1990s, few inspectors had any formal training in the inspection field. However, over the past ten years many companies and organizations have begun to provide proper support and instruction for those who desire training and certification. Those who are members of the associations listed above are usually required to undergo testing and to complete ongoing training in the future. The best inspectors will continue to expand their field of expertise and to be aware of trends and styles in the building industry. Inspectors are building generalists and are not required to be experts in every field. Most inspectors have an area of expertise and are usually involved in one aspect of the building profession. Due to the complexity of the profession, most inspection companies are managed by individuals who are sole proprietors. There are also a few inspection franchises that can be purchased. Many inspectors will be self-motivated and aggressive in their fields due to the nature and scope of owning and operating an inspection business. It is also vital that the inspector be competent in their report style as well as punctual both at the job and with the report. As in every profession, you will find a range of personalities and delivery styles among inspectors. Due to the nature and scope of inspection, the presentation of the findings is often just as important as the findings themselves. If you have been through a number of inspections you will notice that the manner in which the inspector relays the information will often determine how the client responds to that information. The inspector must be both competent in the building field and as a communicator. The personality and delivery style of the inspector will become more crucial if there are a number of issues identified in the inspection report. Inspectors who have been in the field awhile recognize that the inspection process is not just about finding problems and being a building expert. To become successful they must also be friendly, organized, knowledgeable, and articulate -- and above all else, they must be good communicators. All these are equally important for the inspector if they dont want to become known as a deal breaker. WHY HAVE HOMES INSPECTED? The reason for the inspection process varies from state to state. Some states, such as California, allow the report to be used as a negotiation tool and as a means to have repairs done or to lower the sale price. Other states, such as Hawaii, use the inspection process mainly as a tool for the due diligence period. When a client chooses to have a home inspected, it may prove to be the determining factor in their decision to purchase. The term deal breaker, as mentioned above, can be professionally fatal to those in the inspection field. It is applied to those who usually make wild or speculative statements and are overly critical. It is the communication style and reporting skills of the inspector that often define them in the minds of the realtors. This is why it is crucial for those in the real estate profession to familiarize themselves with both the inspection process and the inspectors themselves.

When the purchase price has been agreed upon and the sales contract has been signed, the buyer is usually given ten to fourteen days to perform his or her due diligence period. It is during this time that buyers can have their potential property inspected for problems, and can familiarize themselves with specific components in the building itself. The inspection can be done by anyone the buyer desires, but most realtors suggest having it done by a local home inspector. Some clients want to use the report as a negotiation tool, but the seller is not bound by any law in Hawaii to provide a remedy for items found during the inspection nor to lower their price, unless so stated in the contract. A good inspector will not just point out faults but will also point out quality workmanship or items of an excellent nature within a home. Their job is to help the client better understand the components within a home, the building style and materials used, and the condition of the home, and then provide a list of their findings in writing. With this information, the buyer will be more informed and empowered in the decision-making process. The inspection process also provides protection to the agent from any legal or ethical complications in the future in regards to structural and operational conditions of the home itself. It is also recommended that home inspectors carry Errors and Omissions Insurance for the protection of both themselves and the referring agent. WHAT DOES AN INSPECTOR DO? HOME INSPECTION: The process by which an inspector visually examines the readily accessible systems and components of a home and which describes those systems and components in accordance with these Standards of Practice. -- As defined by ASHI on their website A home inspection is an evaluation of a home's condition by a trained professional A thorough written report within NAHI guidelines provides disclosure of visible defects and/or conditions that will affect the function of the home. -- As defined by NAHIs brochure The professional home inspector's task is to visually evaluate the systems and components of a home and report his or her findings to the client. -- As defined by Inspectors Training Institutes website The building inspection industry can be divided into three categories: Government inspectors, Commercial inspectors, and Residential inspectors. The origin of the inspection industry began with the governmental inspector. These inspectors (dating back to ancient civilizations) provided a means for governments to control and regulate the building industry. Examples of these include code compliance, zoning ordinances, uniform building codes, and safety issues. Eventually, a need for commercial building inspectors evolved. The commercial inspection process varies widely and is determined by the needs and desires of the client. Due to the size and complexity of commercial real estate, the inspection process will often include engineers, architects, governmental agencies, contractors, and utility experts, as well as the services of a commercial building inspector. The commercial inspector will usually be called to inspect specific items of the building that are of concern to the buyer, such as roofing, HVAC, electrical, etc. The third and most widely used inspection service is that of the residential building inspector. Nearly all organizations define the home inspection process in simple terms. In reality, the inspection field provides a wide range of services other than basic home inspection. The person who is having their potential home or investment property inspected is really looking for someone to assure them that it is sound. Yet the inspectors job is not to give their stamp of approval, but to provide an accurate representation of the buildings structural issues, operational systems and current condition. Inspectors are not appraisers, nor are they repair estimators. The inspector is hired by the client to inspect the visible and working conditions of a home (preferably with the client present) and to present their findings in a clear and concise report. Inspectors check the house from roof to foundation and will

report on all permanently installed fixtures and appliances. The inspector is only a generalist, and should not speculate or make wild assumptions during the reporting process. Because of liability issues, most inspectors will be hesitant to move any personal belongings. Most inspectors require that the utilities be turned on, including all breakers and water supply lines. The inspector is not required to inspect outlying buildings or unusual components. The inspector is not required to check for code compliance unless it is deemed a safety issue (e.g., stairway consistency, rail width, GFCI, strapping issues, etc.). The style of the report is most commonly a checklist narrative style, but may include general checklists or narrative accounts of the items inspected. Some inspectors will provide maintenance tips, basic cost analysis or contractor recommendations, but there is no industry standard requiring that these items be included. Inspection companies may also provide other inspection services on items such as septic systems, swimming pools, spas, building history, maintenance cost analysis, dry wells, expert witness, etc. HOW MUCH IS AN INSPECTION & HOW LONG WILL IT TAKE? The cost of having a home inspected is usually determined by the market in which the inspectors serve. The most common calculator in Hawaii is by the square footage of the living space plus one half the square footage of decks and garages. In Europe and other areas it is often determined as a percentage of the appraisal price, and some inspectors charge by an hourly rate. In Hawaii, the cost for a home inspection is approximately fifteen to twenty cents per square foot for a standard-sized house. The average cost for a home of one thousand five hundred square feet is about three hundred dollars. The hourly rate quoted by most inspectors is eighty-five to one hundred dollars per hour. Most inspectors require payment at the end of the inspection. The inspection usually takes two to four hours, depending on the size of the home. The reports are generally finished at the time of inspection and the report belongs to the buyer. Inspectors are under no obligation to provide copies to other agents or the seller, but it is generally recommended that a copy be given to the buyers agent. CONCLUSION: Over the past few years, the service provided by the home inspector has become an established part of real estate process. The inspection process is a viable and important part of the real estate industry and it is recommended that all real estate agents encourage their cleints to have their potential property inspected. This not only limits the potential liability of the realtor, but provides the client with the peace of mind that comes from having a complete home inspection. If you have any more questions or need further information call Island Inspection Services at: (888) 606-9070 (808) 969-9070 or visit our website at www.islandinspections.com.

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