Dear Monty: I have several questions about home inspections. I am speaking to a small group of people about home inspections. I have personal experience and work history in my background that exposed me to property inspections. My questions are should a buyer of new construction have the home inspected; if the home seller has already had the home inspected, can I trust the seller’s inspection; should a home buyer always choose a home inspector that offers a buyback guarantee; do you recommend periodic home inspections for homeowners not selling? I want to ensure I am providing sound advice. I would appreciate your feedback.
No. 1: A new construction buyer should have the home inspected before the transaction closes. The home building business is one where many different sub-contractors and technicians work under the home builder. The builder’s job is to coordinate the quality, timing and completion of the work. Here is a column that offers more information about the new construction process and what can go wrong on the DearMonty website.
No. 2: I believe the seller should provide an inspection report. It does not matter who orders or pays for the inspection. What matters is that the results of an inspection are complete and accurate. Total independence is critical, so choosing a different inspector is the caveat if the seller knows the inspector.
No. 3: A buyback guarantee is not a factor. I suspect a 100% buyback offer is more of a gimmick. I studied an actual home inspection buyback contract and calculated the associated costs to move out and find a replacement. The costs were high, to say nothing of the inconvenience. I also interviewed a home inspector who offered a buyback that a national organization funded. He had been with that company for years. I asked him how many homes the national company buys every year. He responded that he only knew of one home over many years.
No. 4: I would not recommend a periodic or annual home inspection without cause. Visible observations are the basis for home inspections. Home inspections are expensive, and in a short period, one may easily have been able to pay for the repair from the money they saved by avoiding periodic visits. Homeowners can set up a reserve account that they contribute to every month. When something breaks, they have the capital to pay for it. This article describes the plan.
No. 5: Real estate agents, auto mechanics, physicians, financial planners, chimney sweeps, and many other types of services have excellent, good, average, and poor technicians. Additionally, even the best in any industry still makes mistakes. It is human nature to do so.
No. 6: All service businesses have at least one factor in common. The factor is called information asymmetry. Asymmetric information theory suggests that sellers may possess more information than buyers, skewing the price of goods sold. In the best-selling book Freakonomics, Steven Levitt and Stephen J. Dubner brought the term “information asymmetry” into the public domain. Three economists were particularly influential in developing and writing about asymmetric information theory: George Akerlof, Michael Spence, and Joseph Stiglitz. The three shared the Nobel Prize in economics in 2001 for their contributions.
Richard Montgomery is the author of “House Money – An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He advocates industry reform and offers readers unbiased
real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com