Editor’s Note: Setting fees can be agonizing for some small-business professionals. Here, a handful of seasoned inspectors discuss how their fees are set and how they figure the true “cost of doing business.”
Inspectors: How to Establish Fees
by David Brauner, Editor WRE
According to a recent online discussion, most of the inspectors who do not charge a flat fee per inspection use some or all of the following criteria to set fees: age of home, square footage, location (drive time), gas or electric or both, extras- such as pool, spa, sprinklers, additional mechanical equipment, slab/or pier and beam, vacant or occupied. Other factors that affect fees are if the property is a foreclosure and if additional services are performed, such as a wood destroying insects report (WDI).
“I use square feet and add $25 per 25 years of age. If I run into a really large deck, I add for that,” said Stuart Brooks.
“I’m now at .13-.14 cents per square foot livable space (rounded up to nearest $5). I add two dollars per year for every year a home is over 25 years old (example: add $70 for a home that is 60 years old). I add $35 per crawlspace, $40 for a pool, $20 for a spa. For foreclosures and repos, I charge .17 cents per square foot. After calculating all of the above, I now add $30 per inspection for a fuel and insurance surcharge,” reports another inspector (name withheld).
“If a house is over 60 years old, I charge more; if it’s over 100 I charge a LOT more- sometimes as much as double the fee,” says Jack Feldmann. “While I ask if the house is vacant or occupied, it has no bearing on my price. I have found that when someone tells me it’s vacant, that might mean the people have just moved out but left all their furniture and belongings. As far as square footage goes, I ask my client or the person booking the inspection. Most of the time, they are pretty accurate. If I come out and find they have miss-quoted the footage by a bunch, I bring it up right away. But I have over priced many homes because they miss-quoted the footage the other way, so I don’t get too excited if I’m there longer than I expected.”
“I have found that it is easier for me to have a simple price structure,” said Peter Drougas. “Some buyers get too confused with add-on fees. Plus, it looks better if I am not charging extra for detached garages or difficult areas to access. My fees are near the top of my market and I still did 380 inspections last year. I have one fee for single family homes ranging from two to four bedrooms or one to three bathrooms. I have separate fees for condos and multi-family units of course. This plays along with the idea of getting a job at one price rather than not getting the job at a higher price. If I am already at the property, it will not affect me to check a detached garage or some other feature (even a crawl space). So I don’t charge another $25 to $75 for these so called ‘add-on’ items because I am satisfied with my general fee for doing a full inspection.”
“After awhile in business I realized that callers were not fazed by my price, so I raised it and continued to creep pricing upward until I lost about five to ten percent of the callers,” says Corey Folsom. “This lets me know that I’m in a good zone. I am glad to let those go because then I work with a higher quality client (less hassles). I am happy to let the lower-priced inspectors use up their time with those junk clients/junk houses. I’m still not the most expensive but I am higher than the average inspection fee. I offer component costing, starting at $175 to give repair cost estimates. There is a $500 threshold, meaning that if it is under $500 to fix, I don’t include it in the cost analysis. I also charge $175 for a single-component verbal inspection- $195 for a written report. The most common is the roof. I recently inspected just the grading/drainage on a home.”
Bruce Thompson has a slightly different take. He says, “I’ve noticed the best clients are not always the purchasers of the high-end homes. Generally speaking, my highest quality clients (in terms of friendliness) are purchasers of average homes.”
“I also charge based on square footage,” says Thompson. “I ask them for the square footage when they call. If they don’t know it, I try to get the MLS number or ask the agent. I generally don’t tell them the price per square foot because most don’t care. I ask them the square footage plus other questions about the foundation, pool and other extras and then give them a price. My minimum price always ends in a ‘9’ – ($239 as an example) and all my up charges are in increments of ten dollars so the final price also always ends in a ‘9’. I don’t know if it’s psychology or not but I can count on one hand how many I didn’t sell.”
Checking out the Competition
First, if you call the competition to learn what they are doing, be aware that most everyone now has caller ID and that it’s not hard to figure out when a fellow inspector is on the other end of the line; most do not ask the same questions as the average consumer. “We can usually spot you a mile away,” says Feldmann, referring to phone calls from competing inspectors. “First, you are wasting our time and tying up our phones. If we spot you early on you may not get accurate numbers. For example, ‘Uh, how much do you charge for a 2,000 square foot house, with a crawl and two HVAC units?’ If we think it’s an inspector asking, we may say ‘$1,200’ or if we feel like it, the answer may be, ‘this week’s special is $149.’”
“While knowing what others in your area are charging may be good information, one really has to set their fees to make a living and make a profit,” says Feldmann. “Everyone in this field needs to know their own cost of doing business. I had a conversation the other day with an investor about the $175 inspector in my area. He probably has no idea of his true cost of doing business and is going broke with every job- he just doesn’t know it yet. His cost for each inspection is likely way higher than mine, yet I’m charging twice what he does. E&O insurance is a good starting point. His insurance is probably around $3,000 per year. He is probably going to do maybe 100 inspections this year. My insurance is close to that but it also covers the guy working for me and we will probably do between 600-700 inspections.”
Time is Money
“My fees are based on how much time I will have invested in the inspection, including the report,” says Scott Patterson. “On a large property (over 7,000 square feet), I charge by the hour. Otherwise I pretty much know how much time it will take to inspect a home; this type of knowledge comes with experience. I do not have a posted or printed price list. This allows me to adjust my pricing as I see fit. If it is slow and I really want a job, I can adjust my price. If the home is in a bad area or an area that I really don’t want to drive to, I will raise my fee. I don’t add a travel or mileage fee, I just build it into my quote. If you are new, you have to be competitive and charge what the norm is for the area. Once you are established you can charge higher fees.”
“I charge by the hour, which allows me to do as much or as little as my clients want me to do,” says Jerry Peck. “Over time, clients wanted more detailed inspections. Because my inspection fee is ‘by the hour,’ I do not have to try to do two inspections per day or one inspection per day to make a living. If my clients want me to, I can spend a day and a half or two days at a property, which ultimately grew to be my typical time frame. I also may spend up to a week on large homes, checking as much as my clients want, documenting it for their builder to repair, for potential legal action if their builder does not repair it or for the seller to address.”
“Pricing seems to be a regional issue,” says Donald Sutherland. “I’m in an area where I have little or no competition; the nearest inspector is over 80 miles away. My fees are based on square footage, with the average being about $400. My driving range is about 30 miles one way, with the majority within a seven-mile radius. I’ve been doing inspections for about eight years. The local agents recommend my services and I receive many calls from local ads and referrals. I’ve been able to increase my fees about five percent each year. I also do new construction code compliance inspections with fees based on the old ICBO fee structure.”
“I estimate that my extra time to process a payment through escrow is 45 minutes with the faxed cover letter, invoice and fee request letter, as well as the follow up calls,” says Folsom. “I charge a $90 billing fee to go through escrow. No one turns it down but the rare balk can be lowered to $75. I call it a ‘delayed billing fee’ so if they end up paying outside of escrow the $90 charge still applies.”
Dealing with “Tag-along’s”
“For those clients who wish to tag along I personally give them a notepad and a pen and tell them to write down anything they might have concerns about so I can address the items at the end of my inspection,” says Rick Hurst. “I let them know if they continually follow on my heels asking questions, I may possibly over-look an important issue. They get the idea and most back off. Most are really interested in what you find and don’t really mean any harm.”
“Funny how we all can perceive things differently,” says Brooks. “I and a lot of inspectors in this part of the country encourage client participation and questions. In order to keep things manageable, I ask them to let me have a run through first while they review the contract and Standards of Practice. I then take them around on a review of the property, problem areas or good things noted.”
Dealing with Price Only
“When I get that initial question asking ‘what’s your price’ or ‘I am just calling to get your prices,’ I go ahead and give them the price but I follow up with this statement, ‘I understand that price is an important consideration when choosing an inspector but don’t let it be the only thing you consider,’” says Sean Bacon. “With no hesitation I then tell them what the inspection entails. I usually end up talking about 10 minutes and though I haven’t been successful every time, I’ve had more wins than losses when using this approach.
Cost of Doing Business
<“While this might seem obvious to many of you, I find my cost of doing business by taking the information from my taxes for all business expenses,” says Drougas. “I divide that by how many inspections I did and I now know what it costs me per inspection. What’s left over can then be calculated with how many hours I average per inspection to give me my salary. I was surprised to see that about a third of my total fees go to running this business. That includes everything, just as I submit for taxes.”
Thanks to InspectionNews.com
About the Author
David Brauner is Senior Broker of OREP, providing E&O insurance for inspectors, appraisers and other real estate professionals (www.OREP.org) in 49 states. He can be contacted at email@example.com or (888) 347-5273. Calif. Insurance Lic. #0C89873.