Protect Your Investment
With a Good Inspection

When Andi and Paul Plotsky were moving to Atlanta from San Diego several years ago, they fell in love with a 14-year-old dwelling dressed up as a charming country farmhouse.

The house was sheltered in two acres of woodlands in suburban Atlanta, land the couple could never have afforded in San Diego. The house was also massive -- 3,400 square feet with four bedrooms -- plenty of room for their two children and the regular stream of guests they host in connection with Mr. Plotsky's research as a neurophysiologist.

The home seemed a perfect blend of the old and the new, the San Diego past and the Atlanta future. "We were so wrapped up in wanting this house," Ms. Plotsky says. And they took the precaution many people do; they asked their realtor for a referral to a home inspector. The Plotskys were particularly impressed by the extensive report one inspector had delivered on property purchased by a friend, "a beautiful fancy notebook," Ms. Plotsky says.

Their inspection report turned out to be a checklist with everything marked satisfactory, although it mentioned "rust" in several items. Satisfied, they bought the house and proceeded, as planned, to spend $80,000 to move walls and make cosmetic improvements. Then, one by one, the "satisfactory" items began to collapse.

The water heater and air conditioning failed almost immediately. Within the first year, the Plotskys had to replace two furnaces at a total cost of $3,000. And worst of all, the treetop backyard deck, supported on poles, cost $10,000 to replace. In each of these cases, the home inspector had noted rust. He had suggested that the furnaces be serviced, but there was no hint of severe problems or structural hazards. "He said that this [rust] was common," Ms. Plotsky recalls.

The lesson? "If I do this again, I will go through the inspection book with a fine-tooth comb and question anything that is written or marked," Ms. Plotsky says. Had the defects been revealed up front, the couple might have chosen to build a new house rather than fix up the old one, she declares.

Conflicts and Limitations

The Plotskys' experience illustrates the potential conflicts in play in a real-estate transaction, as well as the limitations of the home-inspection process. After all, the real-estate agent represents the seller, not the buyer, and the agent doesn't collect a fee unless the deal is successfully closed. So realtors, whose fees can be trimmed or lost entirely if a sale bogs down over potential defects, have an incentive not to recommend the most aggressive home inspector.

A study of recent home buyers by the National Association of Realtors (NAR) and the American Society of Home Inspectors (ASHI) in 2001 found that 77% obtained a home inspection prior to the purchase, most (81%) making the purchase contingent on the inspection. The majority (69%) used a realtor's recommendations to choose an inspector.

Home inspectors aren't engineers. They conduct a visual examination of the major elements that contribute to the safety, integrity and habitability of the property. Their work has nothing to do with building codes or laws and shouldn't be construed as a "clean bill of health." The inspector should report observable defects in the heating, air conditioning, water lines, roof, decks and basement.

Thus, it's particularly important to find an inspector focused on the buyer's interests. "In a real-estate deal, the home inspector is the only independent working for the buyer of the house," says Rob Paterkiewicz, executive director of the ASHI, a professional organization based in Des Plaines, Ill.

"My consumer is the [home] buyer, not the realtor," says Tom Corbett, president of inspection firm Tomacor Inc., Chicago. "Home inspectors find reasons why people don't like houses -- it's our professional duty. The real-estate agents find reasons why people like houses." While he says ASHI inspectors are "well-educated and knowledgeable in finding home problems," too many inspectors "call the problems they find 'common' and downplay their significance, based upon the pressure they get from the real-estate community. After all, these agents can put these home inspectors out of business in six months."

Dale Mattison, associate broker with the Washington, D.C., firm Long and Foster, and a member of the executive committee for the NAR disagrees: "That's old fashioned thinking, back from the days when home inspectors started being used with some frequency. Home inspectors and realtors are in a related industry, and related industries have to work together."

The NAR wants to offer "one-stop shopping." "The homebuyer walks into our office not knowing what steps to take or whom to call. People are looking for guidance," he says

Many home inspectors, like Steve Preins, president of Glen Ellyn, Ill.-based Morningside Inspections and chairman of the inspectors' association public relations committee, declares "home inspectors who are referred by realtors aren't necessarily a bad thing. But we like to see realtors refer at least three home inspectors."

The NAR doesn't have a policy on the number of referrals a realtor should offer, according to Mr. Mattison. "I think any real-estate professional who's working in the field daily is going to have a bevy of service providers that they can refer to -- people who are knowledgeable and, where appropriate, licensed," he says. The NAR's Web site gives homebuyers a fact sheet and information about home inspectors.

A Problem Inspection

When they planned to buy investment property in Bethany Beach, Maine, Matt and Courtney McLaurin made sure to secure three inspector referrals from their real-estate agent. The 1978 modular house they found three blocks from the ocean needed work, and the couple had just enough money to pay for a modest addition.

The inspector they chose was personable and helpful and pronounced the property in "really good shape." But four days after closing, the McLaurins pulled up some carpet in the bedroom and noticed there was water leaking. "It was coming through the wall by the hot-water heater," Ms. McLaurin recalls.

Plumbers found the newly purchased rental property was a leaking patchwork of rusting pipes spliced together by rubber tubing. Repairs totaled $1,800. The realtor referred the McLaurins' complaint to the home inspector, who refunded their $250 fee.

It turned out, however, that the problems weren't a surprise. Other offers for the house had fallen through and, when pressed for details, the realtor revealed that "there had been other inspectors, and the deal didn't go through," Mrs. McLaurin says. They requested a copy of the inspection, but the realtor refused, saying that would be unethical and would "compromise the negotiating power of the seller." The McLaurins have sued the seller to recover some costs but no court date has been set.

Mrs. McLaurin is bitter. "We will not get a realtor when we buy another home," she says. "We will call our own home inspector, our own lawyer, our own appraiser," prepare the necessary papers and have them checked by an attorney.

Buyers need to understand that an inspection is neither an insurance policy nor a warranty. It's a visual inspection, and there may be many structural problems that won't be detected.

What legal recourse does a buyer have when a serious defect isn't reported in an inspection? The seller signs a "seller's disclosure," which shields against minor lawsuits. Some states require inspectors to have insurance. Others don't. ASHI recommends hiring one with it. Mr. Corbett says a qualified professional inspector usually carries errors-and-omissions insurance up to $500,000.

Buyers can request that the fee be refunded. Or they can take their complaint to small-claims court as the McLaurins did.

The Plotskys chose not to sue. "We felt betrayed by the inspection, but we were busy with other things in our lives and didn't follow up," Ms. Plotsky says. "We've never sued anyone and that's just not the first thing we'd think of doing."

What Home Inspectors Should Provide

Disappointing inspections suggest several steps homebuyers should keep in mind, Mr. Preins notes.

First, many inspectors in the ASHI don't simply produce a checklist. "I don't know what's good, great, [or] excellent, so we stay away from ratings," he says. Second, certified home inspectors are expected to recommend that urgent problems be referred to a specialist. "A home inspector shouldn't just say, 'This is broken,' " says Mr. Preins. "He should say, 'We feel the furnace is defective and it needs to be inspected by a certified trades person.' " Nonetheless, he notes, "ASHI does not have an official book." The association standards consist of volumes of items that should be covered and reported in a thorough home inspection.

Most ASHI home inspectors will include a summary of defects at the end of a long report. Everything listed should relate to the safety, integrity or habitability of the home. The home inspector should mention anything that could be an issue within six months to a year. Some inspectors, like Mr. Corbett, will provide detailed information on urgent issues and a close estimate of repair costs, a service highly valued by buyers seeking negotiation points.

Twenty-two states license home inspectors, but their requirements differ widely. Homebuyers should not take "licensed" as a stamp of approval. "Licensing helps eliminate the bottom feeders, those who are really predatory," says James E. Baumhart, president and chief executive officer of the Better Business Bureau -- Chicago Northern Illinois. But inspectors of varying quality and experience can get under the "licensed" umbrella.

-- Ms. Duros is a business writer and consultant in Chicago.

Email your comments to rjeditor@dowjones.com.