A commercial inspection is typically an integral part of the process of buying a commercial building and might be ordered if you’re an insurance underwriter, an investor, a portfolio lender, or a commercial mortgage-backed security lender. These commercial inspections may be referred to as facility condition assessments.
The purchase of a building can represent a huge investment and a thorough, reliable commercial inspection can provide the important information about a building needed to make an informed decision regarding the purchase. It should uncover the true condition of the target property and what costs would be required to bring the building up to the standards you require.
Cost-Free Loss Prevention Inspection
While it’s natural to feel a certain level of anxiety when your business is getting a commercial inspection, the process can be as helpful to those responsible for the property as for those initiating the inspection. As an insurance underwriter or property investor, you want the inspection to tell you the overall condition of the property, including the life expectancy and current status of the building’s five major systems, to include:
- The roof
- The electrical system
- The plumbing system
- The heating, ventilation, and cooling (HVAC) system
- The building’s structural integrity
For the building owner or manager, a report of existing hazards and potential risks uncovered during an inspection can be used to improve the integrity of the property. This free information can be used to make the building safer when problems found are properly mitigated.
Varied Purposes of the Inspection
If you’re a property investor or an insurance underwriter, you likely have slightly different reasons for having a property inspected. As a commercial real estate investor, one of your major priorities when buying a property is ROI, or return on investment. You’ll also want to know the approximate residual value of the property you’re considering. In other words, you want to know how much the investment will cost and how much you’ll make on the deal.
Knowing the current status and potential life expectancy of the property’s five major systems can give you a clearer idea of whether the selling price of a particular property is in line with its current condition and what type of further investment will be required to bring the building in line with what you require.
A thorough inspection and inspection report can help answer these questions. Perhaps the roof or the HVAC system will need to be replaced in the near future, or the electrical system needs to be upgraded to handle the new electrical needs planned for the building. You’re depending on your commercial building inspector to advise you in all of these areas. The ultimate goal is to learn whether or not buying a particular property is a good investment.
The Purpose of an Insurance Inspection
If you’re an insurance underwriter, your purpose for ordering a commercial inspection for a property may be similar to that of an investor but with slightly different objectives. As the insurance underwriter, you want to ensure that the replacement value for the property is accurately estimated and that it is neither over nor under-insured. You want the inspector to uncover any existing or potential risks that may be the cause of future claims against the policy your company will be writing.
In addition to evaluating the basic insurability of a business, you’ll also want your commercial inspector to provide you with a complete and accurate description of the property to augment what was given on the policy application. You’ll also want to be made aware of any ongoing safety and maintenance programs and of the need to initiate further safety or maintenance efforts.
An accurate insurance inspection should give you the answer to two questions:
- Is the property that’s being inspected one for which your company should offer insurance?
- How much premium should be charged for the amount of insurance the client is seeking?
Commercial Versus Residential Inspections
While some may think that commercial and residential inspections are basically the same, the truth is that each is unique and requires a specially trained inspector to properly do the job. While each property a residential inspector looks at may be individualistic in many regards, the overall process of inspecting one home will follow a similar path to that of inspecting another. This isn’t so with commercial inspections, which may vary greatly from one to the next. A commercial inspection can involve anything situated on a piece of commercial property, including:
- Manufacturing facilities and factories
- Convenience stores, grocery stores, shopping malls, and strip malls
- Medical offices, dentist offices, and hospitals
- Restaurants, bars, and cafes
- Condominiums, multi-family housing, for-profit residential units, hotels, and motels
- Sports and storage facilities
- Office buildings
- Warehouses
- Auto dealerships and repair garages
- Mixed-use buildings and more
Many commercial property inspectors start off as residential property inspectors, which requires a less extensive skill set. When hiring a commercial inspector, you want to make sure the individual you’re hiring specializes in commercial inspections. You don’t want to hire a company specializing in only residential inspections to conduct your commercial inspections. You may, however, have access to companies that specialize in both types of inspections.
You may also find that a commercial inspector will utilize other professionals to help during the inspection process. There are so many different types of commercial inspections, no one could expect any single inspector to be an expert in every type of occupancy.
Typically, a commercial building inspector will provide a general inspection in accordance with the many codes adopted by the jurisdiction in which the property being inspected lies. These will include:
- The current adopted building code, including plumbing, electrical, fire, mechanical, and energy conversion
- The National Electric Code
- National Fire Protection Association (NFPA) Life Safety Code
- Americans with Disabilities Act (ADA) Standards for Accessible Design
Due to the large number of codes and code requirements affecting many commercial buildings, a commercial building inspector is required to have extensive knowledge of these various codes and may occasionally require the assistance of a third-party inspector with specialized knowledge to assist with an inspection. Chief among these may be a specialized fire safety inspector, responsible for things such as the fire alarm and fire sprinkler systems, hazardous materials handling and storage, paths of egress, egress lighting, fire detection equipment, fire extinguisher type/placement, and more.
Other specialized commercial inspectors often used include those dealing with public works such as utilities, streets, and storm sewers. Sometimes specialized inspectors will also need to be called in for inspecting hurricane or seismic resistant structures.
Choose Your Inspector Wisely
With the vast liabilities facing many businesses today, it’s important to use a commercial property inspection team capable of uncovering any potential risks or liabilities and passing this knowledge on to those who need to know. Be sure to select an inspection team well-versed in the many aspects of commercial property inspections, with the knowledge and resources that’s allowed them to excel in their field. Insurance Risk Services (IRS), with a near 40-year track record of providing excellent property inspection services, can deliver what you need. Contact them today.
