Editor’s Note: The following is reprinted from Working RE Inspector, a nationwide print magazine delivered to 16,000 home inspectors nationwide. OREP insureds get guaranteed delivery. If you are not a subscriber, you can read it here.
Why Home Inspectors Fail (or succeed)
By Isaac Peck, Editor
Many home inspectors enter the industry with high hopes and big plans to achieve professional and financial success. The prospect of owning one’s own business and then scaling it to achieve steady growth attracts many entrepreneurial folks eager to build a highly-profitable business. A booming real estate market makes home inspecting even more attractive.
The truth is that many home inspection businesses fail in the first few years. There are no hard numbers on the “survival rate” of home inspectors over the short and long term but industry experts estimate that well over half of new inspectors who enter the profession fail to establish a sustainable business model and quit the industry within the first few years. Compared to the typical small business, home inspection may present steeper than typical odds of failure, with the Small Business Administration reporting that over 66 percent of small businesses usually survive their first two years.
But even if you make it past the first two years or so, a number of factors can pose serious threats to survival: economic changes, a downturn in the housing market, new competitive threats, and more.
This raises an important question: why do some home inspectors succeed and others fail?
Dan Bowers, full-time home inspector for over 30 years and a long-time educator and author of numerous home inspector training courses, says that 10 years ago he began surveying his home inspector students one year after they completed his 80–120 hour introductory training courses. What he found is that after completing classes, a little over 60% of the attendees are not in business—either because they started and failed or they never began in the first place.
“This 60 percent failure rate astounded us! Shortly after the first survey, I had dinner with a principal of one of the largest training schools in the country for new home inspectors. He indicated they see the same percentages we did and for many of the same reasons,” says Bowers.
Stepping Up to the Plate
In the same way that you can’t hit a home-run if you never step up to the plate, you can’t have a successful home inspection business if you don’t try. Bowers found that just because an individual completes home inspector training doesn’t mean they will automatically open a business. Bowers explains that many inspectors give up before they get started. “Some tell their employer they are leaving and are given a promotion and/ or more money to stay. Some do not realize the potential liability involved and got scared off during the classes (this was a big one). Maybe their uncle Bob has a stroke and asks them to run the family business or their spouse develops a health issue and they can NOT afford to quit the existing job. The reasons are many but it turns out that many inspectors are unable to take the plunge into starting their own business,” reports Bowers.
Bowers says a fair amount of inspectors fail because they aren’t prepared for the harsh reality of building a business from scratch. “Some of these guys think that because they have a technical background (like carpenter, electrician, remodeler), home inspecting will be a breeze but once they get out there they realize they don’t have the people and/or marketing skills required. In many cases, they are under-capitalized. They quit their old job, get a little business going BUT find that in six-12 months they are still going through savings AND are forced to take a full time job just to meet expenses and never come back,” says Bowers.
Inspectors sometimes enter the profession with overly-rosy expectations on what running a home inspection business actually entails. Jerry Peck (no relation), a veteran home inspector, builder, litigation consultant and resident pro at InspectorAdvisor.com, says that this is due in part to the way many home inspection schools market to prospective students, with slogans like “Earn $90,000 to $120,000 per year as a home inspector,” and “you may not need any formal training at all!” Peck says this causes many inspectors to believe that it does not take much to build and sustain a successful company and make a good profit. “Many inspectors jump into the business only to get blindsided by the facts. While it is easy to get into the business, it is a difficult to become established to the point that you are actually making money–which is a major requirement for staying in business,” says Peck.
Experienced inspectors typically recommend that new inspectors need:
• Enough savings to carry them through at least one year; and it is best to have enough for up to two years.
• A spouse or partner who has a good paying job and will be able to support the family while the inspector is starting and building the business.
• Another job that will support them while they invest the time, effort, and money needed to build their business.
Having sufficient savings and start-up capital is an important factor, according to Peck. “The days of low start-up costs disappeared at least a decade or two ago when advanced equipment became a necessity for inspectors, such as: report writing software; moisture meters; thermal imaging cameras; a professional website and proper training,” says Peck. “If you do not offer services which are competitive with other inspectors in your market, you are at a disadvantage from the very start.”
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Marketing and getting the phone to ring are undeniably one of the most important factors that will determine whether a new inspector or any inspector fails or succeeds as a business owner. Home inspector veteran and President of the Millionaire Inspector Community (MIC), Mike Crow says that 80 percent of inspectors who fail do so because of poor marketing. Many can’t get enough business to pay the bills. “Many inspectors don’t know how to make the phone ring. If you can make that happen, quite honestly, you can overcome just about everything else. The most important skill a home inspector must learn is how to make the phone ring on a consistent basis, whether you are in a good market or a poor market,” says Crow.
Oftentimes inspectors will start off strong but fail to maintain a consistent marketing effort. “It’s not hard to get started as an inspector. But once they do, many back off their marketing and aren’t consistent with it each and every month. Before they know it, they are upside down. They are usually very committed to marketing when they first start out because they know they have to market to get their name out there. But once they have a little work, they think that it will just grow on its own. So one of the biggest mistakes you can make as an inspector is not being consistent and persistent,” says Crow.
In terms of the best marketing strategies, Crow says that a strong marketing approach begins with networking with real estate agents and building a strong network of referral “mavens.” “The numbers are very simple. I’ve been measuring them for 30 years,” said Crow. “An inspector must visit 10 real estate offices per week to get their business up and running and survive. Most inspectors will visit one or two on a given week and then they won’t visit any for weeks at a time. Without being consistent on that 10 per week, things start sliding away from them. Unless they’ve been to one of my presentations, they often don’t realize they need to visit that many and that often but I’ve been measuring home inspector success over the last 30 years and that’s what it takes,” reports Crow.
Of course, visiting real estate offices isn’t all it takes. The inspector must also network and properly present their firm. “When visiting real estate offices, an inspector needs a professionally designed brochure, a professional business card, and most importantly, a reason to go in and out of the office. Putting brochures in the office is not a reason. Many inspectors attempt this strategy but don’t get past the gatekeeper because they are approaching it at a very self-serving level. You need to have a servant mentality. Ask yourself what they need? How can you help? How can you deliver value? That’s why we create special flyers for our guys; one for each week of the month and one for each personality type. We also recommend chocolate bowls and other goodies. You need something to take in with you that makes the agents happy about working with you,” advises Crow.
This approach has been proven time and time again, according to Crow. “I just had a case study where one of my students, an inspector in FL, was starving for work and couldn’t even afford to run the flyers and candy bowls. I agreed to front him the money if he would just run the big bang marketing strategy we teach at MIC for eight weeks. He went from 2-3 inspections a week, to 14 inspections a week. It’s really as simple as getting in and out of the office with the right materials,” says Crow.
Crow acknowledges that marketing isn’t the only reason home inspectors fail. While he estimates that 80% fail because of poor marketing, Crow says some fail because of poor inspection practices and others because of a failure to manage their risk and liability. “From my experience, 15% fail because of bad inspections, meaning they either don’t have the technical skills to perform a quality inspection or fail to create inspection reports that customers want. I’ve seen reports that are 40, 50 or 60 pages, with 100 photos. This may seem like the best inspection report ever to the author but the buying public often finds it too complicated and therefore not useful,” says Crow.
Lastly, the final reason for home inspector failures is liability and risk. “The remaining five percent get taken out because they don’t manage their liability correctly. Part of this is that they don’t properly understand the risks of the job. They make a big mistake and don’t have the proper protection (insurance) in place, and it’s over,” says Crow.
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Many home inspectors don’t adequately consider the liability aspect of the profession, according to Bowers, who says he has seen many inspectors fail because they didn’t buy insurance early on. “They get started on a shoe-string and don’t buy insurance, then six months in they miss a foundation issue, bad roof, etc. and have a $10,000 debt they need to pay off. They’re out of business overnight,” reports Bowers.
Christopher Chirafisi, Product Manager at the American Home Inspection Training Institute, echoes Bowers’ advice. “Insurance is not a particularly fun topic for most business owners, but it forms an essential part of a home inspector’s business infrastructure. Errors and Omissions (E&O) insurance is cheap enough today that it makes no sense to accept that kind of liability hanging over your company, family or personal assets. You can be the best inspector in the business and have done nothing wrong and still end up with a huge liability – it DOES happen,” says Chirafisi.
Home inspectors should also review their insurance policies carefully to ensure they are properly covered, according to Chirafisi. “One crucial way to protect your business is to review your E&O insurance, as well as any other policies you may have. Look beyond just what the policies are costing you. What are you really covered for? Will your provider have your back if needed? Have you had your insurance carrier review and approve your agreements and how you document your entire inspection process? Spend some time reviewing your business insurance and make sure that what you are working so hard to create is protected. You, your family, and your team members deserve it,” advises Chirafisi.
David Brauner, Senior Broker at OREP.org, a firm that has specialized in home inspector E&O insurance for over 15 years, reports that quality insurance coverage is now more affordable than ever. “The average inspector claim costs $25,000 to defend and that’s whether you win or lose,” said Brauner. “If you lose, the judgement is on top of that. More importantly, it’s hard to keep your business going with something like that hanging over your head. It’s better to be able to just turn it over to professionals to handle and go back to the business of home inspecting.” Brauner continues, “Insurance premiums with our program begin around $1,000 for very broad coverage, so E&O is much more inclusive and affordable than it used to be. You can do the numbers whether being covered makes sense, given that one claim can cost $25,000 to defend—win or lose.”
Brauner says a good agent will explain the coverages you’re getting and the ones you aren’t. “Ask what coverages you get with the ‘base’ policy. Obviously, the more coverage the better,” says Brauner. “It means broader protection with less expense.”
Brauner says you can also do things to prevent problems, as that is the key to profitability. “It takes time and energy to respond to complaints and claims. It’s a distraction and hurts business even if it’s frivolous and winds up costing you nothing,” Brauner says. He indicates that, as you might expect, claims do result from an inspector’s lack of knowledge and/or sloppiness but many also stem from poor preparation and poorly written reports. “A lot of problems can be avoided by setting proper expectations in the scope of work and by making sure your inspection agreement is professionally-prepared and signed by the client up front,” Brauner says.
Indeed, a well-written inspection agreement is an inspector’s best defense. The absence of one, or one that is not signed by the client, can lead to problems. “Not communicating issues properly and clearly in the report, contradicting written findings verbally during the walk-through and other mistakes can cause problems,” says Brauner. “We provide our OREP insureds with discounts for a professionally written inspection agreement by a noted national home inspector attorney as well as guidance on how to properly communicate and report. You can be the most knowledgeable inspector in the world about the systems of a home and one of the most careful too, but if you fail to set clear expectations up front in your agreement–—that the inspection is more a snapshot of the condition of the home and not a home warranty for instance, then you’re taking a risk. Or if your agreement is confusing or vague, a client may seek recourse if something goes wrong. While there is free pre-claim assistance and other help available with a quality program like OREP’s, a misunderstanding can still wind up costing you time and aggravation—whether the issue is frivolous or not.”
Managing the Business
Once your business is up and running, you’ve still got to manage it on an ongoing basis. Home inspectors who don’t track their revenues, expenses, and other business metrics on a regular basis risk losing control of their operations, according to Dan Huber, CEO of the Inspection Support Network, a software platform that helps home inspectors manage their businesses. He argues that to be successful over the long run and throughout the varying phases of the housing market, a home inspector must have a system for capturing his or her business numbers and commit to reviewing them weekly or monthly at least.
Huber says that every inspector should be able to answer these questions about their metrics:
• How many inspections were performed in the last month, compared to the same month the previous year?
• How many inspection referrals did the inspector get from each real-estate agent and each real-estate office in his or her network, per month, as well as overall for the year?
• What is the gross income received from an average inspection, month to month and over the course of the year?
• How many orders is the inspector receiving for each type of service offered? (Can be tracked over any time period.)
• What is the total cost to perform each inspection, taking into consideration expenses such as insurance premiums, truck costs, licensing fees, office overhead, tools, etc.?
Without closely monitoring these numbers, an inspector won’t have the information necessary to maximize profitability or to adjust to changes in the market, Huber asserts. “The home buying market changes rapidly, and you can’t make sound business decisions if you’re relying on faulty data,” he notes.
Tools to aid home inspectors in the management of their company have matured significantly in the past few decades. There is now a wide array of industry-specific tools available to help an enterprise grow and sustain itself.
Huber says that comprehensive business software systems such as Inspection Support Network, when combined with integrated professional call centers and after-inspection products and services, can help an inspector compete with their peers and make the inspection process a smooth and integrated one for agents and clients. Huber says having a wellthought- out “system” in place often makes the difference between business success and failure for home inspectors.
So whether you have a successful inspection business or are just starting out, there are “dos and don’ts” every successful business person should know.
About the Author
Isaac Peck is the Associate Editor of Working RE magazine and the Director of Marketing at OREP.org, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 49 states. He received his Master’s Degree in Accounting at San Diego State University. He can be contacted at Isaac@orep.org or (888) 347-5273.