Home Inspection: Is it Useful?

There are many aspects in a real estate purchase that cause concern for either buyer or seller or in some cases for both. While the nature of these aspects may be different and have varying criticality they cannot be ignored. Every customer may not be aware of what the right decision or action may be in a given situation. Some of these issues are evident in the 4 cases mentioned below.

Case 1: Mr. Timberwala had booked a 2BHK flat in the Mumbai suburbs 4 years back and was promised possession in 3 years from the booking date. He got possession of the flat 2 months back in June. Yesterday he visited his 6th-floor apartment in the 15-storey building along with his interior designer and Plumber. He is not happy with the fact that the POP work in the living room is falling apart just a month after it was completed and there is water logging in the bathroom attached to the master bedroom.

The Interior designer informs Mr. Timberwala that the POP work was done well but the seepage in the ceiling is the real issue. The plumber too has some bad news for him. The slope in the bathroom is not right hence the water is not flowing to the drain. Waterproofing will have to be inspected in the flat on the upper floor, the source of seepage identified and action to rectify the issue will have to be taken. Bathroom flooring will have to be redone. Tiles will have to be relaid with proper slope. The total expense of more than Rs70000. Could Mr. Timberwala have done anything to avoid this situation?

Case 2: Mr & Mrs. Iyer have recently moved into the 3BHK they purchased 3 months back. This is in a gated community, not too far away from the city center, with a nice garden perfect for their morning walks. They spent the last 12 years of their life in a 2BHK flat along with their 2 kids. With their son now working in a reputed IT company and daughter in college, they could afford to move into a bigger apartment. The inflated property prices meant they could not afford to buy a flat in any new project near the city center. They chose this 10-year-old construction because it came at a bargain price. While Mrs. Iyer had her doubts, everything seemed fine to the naked eyes of all the family members. Mr. Iyer's friend had recently bought a resale flat and was the perfect candidate to consult with. The flat passed the friend's quality check and the deal was done. The proceeds from the sale of the old flat were given as down payment and Mr. Iyer's son took a home loan to pay the rest.

Now that they have started living in the 3BHK home they started to realize that the common bathroom's tap occasionally give mild electric shocks, the laptop misbehaves when it's used with charger connected to the electric plug on the wall adjacent to the balcony, the kitchen platform is leaky, there are few tiles that are broken in the master bedroom, the sliding window doesn't slide anymore, the mosquito nets on all windows are damaged here and there giving unrestricted access to the mosquitoes and other insects, water supplied is coming directly from the borewell in the premises without any treatment and the electric bill they pay is more than double of what they were paying in their old residence although they have not added any new appliances or changed their lifestyle drastically. Did Iyer family have a chance to avoid this unpleasant situation?

Case 3: Mr. Shahane is looking to sell the 1BHK he owns in the Pune Suburbs. He has owned it for last 20 years and was his first real estate property purchase. The flat was rented ever since they moved to a bigger flat 12 years back. He is quoting a price of Rs10 lakhs for the 650 sqft flat on the online real estate portals. The listing is getting good attention and there are lots of inquiries. Even after many prospects visiting the flat there is no one showing interest. The broker who helped Mr. Shahane sell his properties before told him the interested parties are not sure about the flat due to its age. Mr. Shahane got the repairs done to the plumbing and electrical systems as well as got the flat painted but still no success in attracting a buyer. What can Mr. Shahane do to attract prospects and convince them? How can the broker help him?

Case 4: Mr. Partho Chatterjee is a 27 year old IT professional. he was married last year and has been looking for a ready to move in 2BHK apartment. Recently he saw an advertisement by a local builder for a ready to move in project close to his office. The property is within his budget, his wife likes the layout and the builder is giving a limited period offer that could save Partho enough amount for furnishing the home. But one of his colleagues had bought a property in another project by the same developer and the property had lots of quality issues resulting in additional repair and maintenance costs. The colleague advised Partho against buying the property. Now it's a decision he has to make considering the benefit and perceived risk. What should Partho do that will help him make the right decision?

The above 4 cases are very different from each other but each of them showcases the various challenges faced by the real estate buyers and sellers. Whether you buy a property in a new project or you buy a resale property there are many pitfalls and traps.

From my experience of working in Real Estate Sales, I have seen the constant turmoil in the customer's mind. The decision is never easy. And there is no way for the customer to be certain of the correctness of the decision. At times various things that a buyer is supposed to check, inspect and do are too overwhelming. The buyer has to be no less than a seasoned multitasker to ensure a good real estate buy. Even experienced real estate customers experience the dilemma and have at times made the mistake.

In my humble opinion there are three major factors responsible for a less than satisfactory real estate purchase:

  1. Lack of Knowledge: The buyer doesn't know what are the possible checks and inspections to be made before making a buying decision or taking possession of the property.

  2. Lack of Resource: The buyer may have the knowledge of what to check but doesn't have the resources (tools and tackles) to do it or is not in a position to do it.

  3. Lack of Time and Patience: The buyer does know theoretically what to check and how to check but doesn't have the time or opportunity to do it. In certain cases, the competency also becomes a bottleneck.

Addressing all three factors will ensure the perfect due diligence. Even if one of the three is missing, it will increase the element of risk high enough to leave a doubt in the mind. It gives the other party in the transaction the upper hand. When a housewife buys tomatoes at the weekly market she ensures all three factors (Time, knowledge and resources) are in place then how can it be ignored in a high-value transaction like a real estate purchase?

The key question though is what could have been done in each of the 4 cases mentioned above. Is there a way to change the equation of real estate purchase through reducing the risk element by replacing it with more knowledge and awareness? Is there a common solution to the problems of Mr. Timberwala, Mr. Iyer, Mr. Shahane and Mr. Chatterjee?

Home Inspection could be the answer for the situation in all 4 cases above. So, what is Home Inspection? Wikipedia says:

"A home inspection is a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. Home inspections are usually conducted by a home inspector who has the training and certifications to perform such inspections. The inspector prepares and delivers to the client a written report of findings. The client then uses the knowledge gained to make informed decisions about their pending real estate purchase. The home inspector describes the condition of the home at the time of inspection but does not guarantee future condition, efficiency, or life expectancy of systems or components."

Simply put, Home inspection allows you to get more knowledge about the property being considered for sale, enabling the individual to take an informed and confident decision. It reduces the risk in the transaction. Does that mean Home inspection cannot help an individual who has already invested in a real estate property? It would be foolish to think so. Benefits of a home inspection are not limited to individuals making purchasing decisions. It can help almost everyone involved in a real estate transactions in various ways, depending on the stage of the transaction process.

"Home Inspection gives you the power of making Informed Decisions."

Let's look at a few ways home inspections can help various parties involved in buying, selling, brokering or renting real estate properties.

  • Booked under construction and the property is now ready for possession: A Home Inspection before taking possession, called Pre-delivery Inspection, can reveal any hidden issues with the property. The inspection report can be presented to the developer and proper rectification work can be initiated at developers cost. Most obvious issues are noted by the customer during the pre-possession snagging. But the customer is not always aware of all checks to be done. A Home Inspector is trained to check things that are not visible to the naked eyes. His tools help him gather evidence that can support the claims made. The Pre-delivery Inspection is also useful for a ready possession property buyer.

Mr. Timberwala (case 1) could have avoided the costly repair and rework with a pre-delivery inspection. Mr. Chatterjee (Case 4) will also be able to take a decision based on the report after a Pre-delivery Inspection which in this case will be more of a Buyer's Inspection.

  • Buying a resale property: Buying resale property has the maximum risk. As it is difficult to know the right price. Often the price is commanded by the market rate in the area. Quality of the product is rarely a factor in the pricing. Also when one is buying the resale property it is difficult to know if there are any major defects in the property due to aging or wear and tear. The older the property, higher the risk. A Home Inspection, called Buyer's Inspection, can be very valuable in such cases. Once the Home Inspection report is received, based on the finding, one can rethink the purchase decision, renegotiate the deal or prepare for the additional expenses for repair and maintenance.

Iyer Family (Case 2) could have had a more fulfilling and pleasant life in their new home with a buyer's inspection before finalizing the deal.

  • Selling a property: A home inspection, called Seller's Inspection, before putting the property up for sale will help you identify the issues that may affect the price, saleability or attractiveness of the property. Once the issues are identified it's a matter of rectifying them to get a better price and quick closing of the deal. A third party certification increases the trust factor.

Mr. Shahane (case 3) can attract and convince prospects with a Seller's Inspection report that shows the property is in a good condition even though old.

  • Broker: A broker has many properties to sell and many prospects to address to. How does a broker give assurance to the prospect of the quality of the property he is suggesting. A Home Inspection report from a third party is the best tool to convince the prospect about the property. Also if the home inspection report indicates serious issues with the property the broker can approach the owner to get them rectified or in the worst case, the broker can decide not to show the property to the prospects. This way the reliability of the broker increases and leads to better reputation in the market. Any broker would want to be having a reputation of dealing in only good properties.

Mr. Shahane's broker (case 3) can get the homes he is selling inspected and identify the better properties to sell that will benefit his brand image.

In India, we have a tendency which is shared with many other cultures. Commonly known as the Loss Aversion Tendency, can be explained better using an example.

Mr. Chintamani goes for an annual medical checkup and the report indicates no problems with the individual. He feels a sense of having unnecessarily paid for the medical checkup. A sense of Loss. But what if Mr. Chintamani had not got the medical checkup done? He would always have doubt in his mind if something serious ails him even with symptoms like chest pain due to indigestion or tiredness due to stress. On the other hand, he may just go about living happily not knowing even if he had some serious issue unless the symptom became serious or, in worst case, its too late. In this case, the medical checkup becomes a necessity even though on hindsight it may look like a waste of money.What a medical report showing no ailment does for you? It gives you peace of mind and the confidence that there is nothing to worry

It's similar with Home Inspection. Even if a Home Inspection report does not indicate any major issues it sure does give you the confidence to make the decision. Also, it is rare that you do not find anything actionable in the Home Inspection report. Sometimes the action required is urgent and/or has high impact and at other times it is low impact and/or not so urgent. Either way, it sure does give you the power of making informed decisions.

So, to answer the question "whats the need for a Home Inspection?" I would say it depends on the individual, situation, deal, and parties involved. A Home inspection brings more trust into the transaction, gives peace of mind to all involved and above all it reduces the risk. What is your Risk Appetite? Is the risk worth taking?

#Homeinspection #predeliveryinspection

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