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Inspecting a Red-Hot Market
by Ariane Herwig, Assistant Editor
The incredible home buying demand that real estate agents, appraisers, and home inspectors are witnessing (and working through) is nearly unprecedented. And the rapid home price appreciation over the last 18 months is one for the history books.
In other words, the U.S. real estate market is hot—red hot!
This real estate boom has been a welcome and well-deserved development for home inspectors who experienced a severe slowdown or a complete shutdown in the early months of the COVID-19 lockdowns in Spring 2020.
But this “boom” has not been without its challenges for home inspectors. Larger inspection firms that had downsized during the lockdowns were whipsawed as demand surged back in the fall of 2020. Additionally, in an effort to be more competitive, homebuyers are waiving their appraisal and financing contingencies—with some even forgoing the home inspection.
Here is a look at the challenges and opportunities facing inspectors in today’s current market.
Waiving the Inspection
A recent article published by RedFin shows that 13.2 percent of successful buyer offers waived the home inspection contingency over the last six months. Anecdotal data from home inspectors confirms this. Inspectors are reporting that anywhere from 10 to 20 percent of buyers are waiving the inspection—with the results varying depending on the local market.
While a 10 percent decline in home inspections isn’t going to put any inspectors out of business, it has a negative effect on the bottom line and offsets a portion of the growth that inspectors would otherwise enjoy due to the hot real estate market.
As buyers rush to waive the home inspection contingency, the popularity of verbal or “walk-through” inspections has begun rising proportionally. In these scenarios, a homebuyer will hire a home inspector, usually at a reduced fee of $75–$150 per inspection, to simply “walk through” the property and spend 30–60 minutes checking the major home systems per the buyer’s request. This necessarily limited inspection may be verbal or it may include a written component, depending on the inspector’s business practices and/or the buyer’s demands.
The potential problems in this scenario should be evident: no matter how good the walk-through is, a homebuyer is not getting a full picture of the house being purchased and its potential issues. And as for the home inspector, you are facing reduced revenues, while taking on a significant amount of liability for a paltry $75 to $150 per “inspection.”
Isaac Peck, President at OREP Insurance, a leading provider of home inspector E&O insurance nationwide, advises home inspectors to steer clear of walk-through inspections strictly from a liability standpoint. “We are advising our insureds to decline these types of assignments. Limited home inspections increase your risk and decrease your revenues. Many home inspectors think they can protect themselves with iron-clad disclaimers and liability limitations in their client Agreements, but that is not a 100% guarantee. The inspection industry has decades of legal precedents where liability limitations and restrictions have been challenged in court. It remains to be seen how these types of contracts will hold up in court,” reports Peck.
If you decide to do these types of assignments, it’s important to make sure your E&O insurance will cover you. Peck advises home inspectors to check with their E&O agent to confirm coverage. “The coverage for these kinds of inspections can vary between insurance policies and can depend on whether or not a written report is delivered. Some policies will only cover a home inspection if a written report is delivered, while other policies may allow coverage for verbal inspections. If an inspector is going to do this type of work, it is very important that they make sure they are covered. So they should ask their agent,” says Peck.
Additionally, in instances where no written report is delivered, the liability increases exponentially as it can quickly turn into a “he said/she said” situation. The homebuyer can claim that the inspector never mentioned something or told them verbally that the issue was “not a big deal.”
Another potential pitfall home inspectors might fall into is defining the services performed as “NOT a Home Inspection.” This is problematic, Peck says, because inspector E&O policies are written to insure a professional for their “Professional Services” and nearly all inspector’s policies provide coverage for, you guessed it, “Home Inspection Services.” (See Insurance IQ: Defining Professional Services)
In other words, there could be a coverage issue if you are signing a contract that says the service you are providing is NOT a home inspection, while your E&O policy provides coverage specifically for “Home Inspection Services.” The result is that you might be inadvertently excluding those services from coverage. “From what we’ve seen so far, this coverage question has not been raised or resolved yet, so proceed with caution. If you do choose to do these types of inspections, you can help yourself by calling them “Limited” or “Restricted” home inspections. If you are doing these types of assignments, you definitely want to run your client Agreement by your E&O agent,” advises Peck.
Walk and Talk Inspections
Dave Klima, co-founder of InspectedHouses.com and President of Aardvark Home Inspectors Inc., says his firm tries to avoid “walk-through” inspections. “We haven’t been doing many Walk and Talks. We’ve done some major component inspections, but we still provide a written report. Instead of looking at every room, we focus on major systems and/or on areas where the client is particularly concerned. The client might tell us that they are more concerned with the roof, the attic, the foundation, HVAC, etc.,” says Klima.
From a business standpoint, Klima says that it just isn’t feasible to do a lot of walk-through or even limited major system inspections. “The lower revenues associated with these assignments don’t make sense for our business model. Whether it’s a major systems inspection or just a Walk and Talk, you still have to schedule an inspection slot, drive out there, etc. That’s less money that our inspectors make per inspection slot. We still have to document everything that we see. For our Indiana operations, if you get paid to inspect anything in a house, you have to put those inspection findings in writing,” says Klima.
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Aardvark is a larger multi-inspector firm that operates in Michigan, Indiana, and Ohio, so Klima is careful to note that every market is different. “Our Fort Wayne, Indiana location has done a few Walk and Talk inspections but our main focus is really on providing full home inspections. Walk and Talks devalue the inspection process. I am concerned about the client. I want them to be 100% protected by getting a full-blown home inspection,” argues Klima.
Real estate agents are ultimately the ones who are “steering the ship” when it comes to waiving the home inspection process, but Klima says that not every agent is happy or comfortable with the situation. “What real estate agents don’t realize is that in the long run, waiving a home inspection could cost them money because when a client moves into a house and they find a bunch of problems, first and foremost, they are going to blame the agent. Even if they don’t sue that agent, they’re never going to use that agent again. But in a worst-case scenario, they are going to sue the listing agent, the buyer’s agent, and the seller,” reports Klima.
Always an Opportunity
The best way to address this red-hot market, according to Klima, is to step up your marketing. “In a pre-COVID market, let’s estimate that normally 95 out of 100 homes were getting inspected. And today in my local market, maybe only 80 out of 100 homes are getting inspected. If my firm kept our same market share, we would naturally suffer that 10-15% drop, all other things being equal. So, we need to market harder than ever so we can get that increased market share. We need to get a bigger piece of the pie. And if the pie is growing due to increased transaction volume, that’s even better,” says Klima.
Aardvark is marketing straight to the general public about the importance of getting full home inspections. Klima says Aardvark makes Facebook posts, runs Google Ads, and then boosts some of those Facebook posts to the local area.
As part of its strategy to reach homebuyers directly, Aardvark is actively promoting the benefits of post-closing, pre-move-in inspections. “We have been putting the word out on social media and in all our direct communications that we have with potential homebuyers. Our message is: ‘Don’t waive your inspection to make your offer more attractive, but if you’re absolutely going to waive the inspection, then inspect it after you close.’ People learn so much more about their house when they have a full-blown home inspection. So, if a homebuyer is in a situation where they have to waive the inspection to get the deal, it absolutely makes sense for them to get the home inspected before they move in,” reports Klima.
On its website, Aardvark promotes post-closing, pre-move-in inspections as a way for homebuyers to:
1. Make sure there are no health and safety hazards.
2. Document the condition of the home before moving in.
3. Learn about the home’s systems and how to maintain the home.
4. Get an upgraded / additional home warranty.
This is a great example of how home inspectors can turn a business challenge into an opportunity. Klima recently posted a video to his social media accounts where he interviews one of his buyer-clients who purchased a post-closing, pre-move-in inspection. The buyer explains that he and his wife waived the inspection in order to get the deal done, but still wanted to have the home inspected for safety and maintenance reasons, as well as general peace of mind. Aardvark is successfully using this approach to increase its volume and give homebuyers peace of mind before they move in.
Capturing Buyer Leads
Lastly, Klima has been using his own service, InspectedHouses.com, to connect with buyers directly as well as to build his connections with real estate agents. InspectedHouses.com is an entire marketing suite that can also be used to capture buyer leads directly for both the agent and the home inspector. “We’ve built a system where we work with agents and create custom yard signs with a phone number that interested buyers can text for more information about the home. We do a custom sign (or signs) for each of the agents we work with. The sign has both our and the agent’s logo. The agent puts the signs in the yards of their listed homes—we don’t have to do anything. When potential buyers text the number on the sign, the agent gets the buyer lead and we do too. If they get just one lead per listing that turns into a sale, it’s an incredible benefit to them,” says Klima.
The result is that InspectedHouses.com brings a steady stream of homebuyer leads in the door for both Aardvark and for the agent/broker. “Being able to market directly to potential buyers in this way is absolutely key for us, plus being able to offer this to our agents is a great way to build relationships. We just brought on a new real estate agency that we’d been trying to win for years. We showed them the program—they really liked it and now they’re sending us all their buyer’s inspections. We place lead capture signs in the yards for houses that are for sale. Not only do we get a steady stream of direct homebuyer leads, but the Aardvark logo is in that yard for 30-90 days at a time. That’s good marketing for us—better than flyers sitting in real estate offices,” argues Klima.
Professionals with an interest in the real estate market are increasingly talking about if and how the market will shift. Klima argues that it’s not a question of if, but when. In his local market, Klima is already seeing a rise in the number of homes on the MLS, homes staying on the market longer, and a shift back to a “normalized” market. At press time for this issue (early Fall 2021), similar sentiments are being reported in other local markets across the country. Hopefully, the result will be fewer home inspections that are waived and a retreat from the extreme seller’s market of the last 18 months.
About the Author
Ariane Herwig is the Assistant Editor and Graphic Designer of Working RE magazine and the Marketing & Design Manager of OREP. She graduated with a Bachelor of Arts in Visual Arts with an emphasis in Graphic Design (magna cum laude) from University of Maryland Baltimore County. You may reach her at firstname.lastname@example.org or (888) 347-5273.
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