There are a number of reasons for conducting a residential inspection, including those ordered by prospective homeowners prior to purchasing a property, those ordered by mortgage companies considering lending money for a home purchase and inspections ordered by insurance companies considering issuing a homeowner’s insurance policy. While similar in many ways, each residential inspection has specific purposes.
Residential Inspection for Real Estate Purposes
A residential inspection for real estate purposes can be ordered by either the prospective buyer or the seller. The seller may want to invest in a property inspection in order to aid in the sale of the property. Having a written report showing that the property and its systems are in good shape can add to the seller’s position and also relieve the buyer of one more chore associated with buying a house. For the prospective buyer, a residential inspection can:
- Reveal important information about a property, including what costs for repairs and maintenance may be needed both immediately and over time. If the buyer is unhappy with the results of the residential inspection, this may provide a last chance to back out of the deal.
- Provide information related to the safety of a home like the existence of harmful conditions such as mold, radon, asbestos or carbon monoxide.
- Uncover the existence of any illegal home additions that were either not properly permitted or not completed in accordance with code. Houses containing illegal room additions can affect taxes, insurance, usability and overall value of a property.
- Act as a negotiating tool when asking that certain repairs be made before the sale is completed or to request a price reduction from the seller.
- Be a good forecaster of the age and condition of various home systems such as plumbing, roofing and HVAC. Water heaters and other important components within the home have a specific life expectancy and having this information can help the buyer budget for future repairs or replacements and decide what warranties and home insurance should be considered.
- Help the buyer learn how to protect what may be the biggest investment in his or her life by following specific maintenance tips offered by the inspector.
Residential Inspection for Insurance Underwriting Purposes
Similar in many ways to the above mentioned real estate residential inspection, an insurance residential inspection includes many of the same inspection activities but for a different purpose. For you, as an insurance company underwriter, you require the information provided from a residential inspection in order to complete your underwriting duties properly.
An insurance residential inspection has two major purposes:
- To uncover any risks or potential threats that could mean future claims on the policy you’ll be issuing
- To determine an accurate dollar amount for the value of the property and personal possessions. This can be used to ensure that the type and amount of homeowner’s insurance being issued is correct for coverage against a total, catastrophic loss such as a house fire that burns the property to the ground.
Differences in Inspections
When a home buyer chooses to have a home inspection it’s for his or her own peace of mind. They want to ensure that there’s no major structural damage, like cracks or leaks in the foundation and no major wiring issues.
Residential inspections aren’t always required by a mortgage provider. The least they’ll require is an appraisal to establish the market value of a property. Mortgage companies also don’t typically require an insurance inspection. You, as the insurance underwriter, will most likely require an insurance inspection either before a policy is issued or within the first 30-60 days after issuing coverage. There are a variety of different types of insurance inspections available that you, as the underwriter, can order.
Residential Insurance Inspections
Depending on the property being considered for insurance coverage, your underwriting protocols may require any of several types of inspection, including:
- A simple and basic exterior photo inspection report including images from every side of the residence, the roof and all exterior structures. This is basically to verify the property’s location and address and should include any obvious negative exterior conditions. This basic inspection is quick, easy and inexpensive. It may be called for when writing insurance for a brand new home that has recently passed all code and building inspection requirements.
- The exterior photo observation report includes the above described exterior photo inspection report plus other data points for the verification of occupancy, construction type and materials, roof type and materials, location, nearness to bodies of water, general home condition and a listing of any negative conditions found.
- The high value interior inspection includes interior and exterior photographs, a detailed listing of any interior and exterior hazards found, a full condition report and a detailed home replacement cost estimate. A four-point inspection of the roof, HVAC, plumbing and electrical system is also part of the high value inspection.
Conditions That May Require Specialized Inspections
There are certain conditions that exist that may be cause for a specialized residential inspection. Homes found in the Gulf Coast area may require a wind mitigation inspection since this geographical area is subject to hurricanes.
A wind mitigation inspection looks specifically at what has been put in place to mitigate wind damage to homes in areas susceptible to high winds such as those associated with tornadoes and hurricanes. Some property insurance companies may provide discounts to homeowners who have undergone this type of inspection and can show evidence that efforts have been taken to mitigate the risk of wind damage.
If the home being considered for a homeowner’s insurance policy is in a flood zone or an earthquake zone, you may want specialized inspections to determine what efforts have been made to mitigate the effects of these two potentially catastrophic threats. This is also true of homes in areas where forest fires are prevalent. Certain things can be done to somewhat mitigate the risk of this threat and, if evidenced, may earn some policy premium reductions compared to those homes in the same area where mitigation efforts are not apparent.
A Complete Residential Inspection
A complete residential inspection includes a long list of things to check and, when finished, should give you, the insurance underwriter, a clear idea of existing risks and approximate replacement cost if the home is damaged. A complete inspection will typically include:
- A roof inspection, noting the age and condition
- Check for exterior hazards such as overhanging tree branches
- Check both exterior and interior drainage systems
- Check basement and foundation, looking for cracks or other signs of weakness
- Plumbing system
- Electrical system
- HVAC system
- Home appliances
- Inspect condition of floors, walls doors and windows
- Check attic and crawl spaces
- Note anti-theft measures such as deadbolts and security system
- Check smoke and CO2 detectors
- Inspect fireplaces, wood stoves and chimneys, if present
Residential Inspection Benefits
Home inspections benefit both insurers and their insured. Insurance underwriters are provided with the data necessary for underwriting policies accurately and homeowners receive information they want about their home’s condition, value and need for future maintenance requirements. Insurance Risk Services has been providing quality inspection services for decades and offers a full array of different inspections and field ser4vices. Contact us for information and scheduling.