This action comes as a direct result of ASHI's government relations contacts with leading Members of Congress and its efforts to improve public policy regarding home inspection. Specifically, ASHI is championing an initiative to rewrite key government communications to homebuyers to improve their understanding and appreciation of professional, independent home inspections.
Chairman Bob Ney (R-OH) introduced HR1295, the Responsible Lending Act, a comprehensive piece of legislation that attacks many current housing issues. Among those issues is that it calls for an update of the Mortgage Information
Booklet mandated under RESPA.
The purpose of the booklet is to help consumers applying for federally related mortgage loans to understand the nature and costs of real estate settlement services. HUD is required to distribute to all lenders that make federally related mortgage loans, and to homeownership counselors certified under section 106(e) of the Housing and Urban Development Act of 1968. It is one of the most widely disseminated housing documents available and reflects HUD's recommendations on home buying.
HR1295 includes a specific provision requiring the new Mortgage Information Booklet to include "An explanation of the nature and purpose of real estate appraisals, including the difference between an appraisal and a home inspection."
Confusion between appraisals and home inspections is one of the major reasons why homebuyers avoid obtaining bona fide home inspections. In the HUD documents and public affairs announcement have actually contributed to this confusion. ASHI's lobbying efforts are
designed to reverse this situation and persuade HUD and Congress to act as positive forces advocating voluntary home inspections.
ASHI applauds Chairman Ney for his action on HR1295. ASHI endorses HR1295 and urges its members to support the legislation, with the home inspection language included, in their communications with their elected representatives in the House.
Voluntary Home Inspections on Front Burner
Randy Pence, ASHI's lobbyist, continues to keep ASHI alerted to opportunities to shape opinions in the federal government. In April, he drafted the following letter for ASHI President Donald Norman to send to the 435 members of the U.S. House of Representatives. The letter, which was reviewed and approved by ASHI's Rapid Response Team, supports the findings of the GAO Study on Mandatory Home Inspections for expanded use of voluntary, rather than mandatory, inspections.
Letter from ASHI President Don Norman to U.S. House of Representatives
ATTENTION: HOUSING ISSUES STAFF
U.S. House of Representatives
Washington, D.C. 20515
It is a major goal of every Congress and every Administration to increase homeownership in America. Homeownership is an undisputed cornerstone of the American dream.
On behalf of the American Society of Home Inspectors (ASHI), our 6,000 members and 80 chapters nationwide, I am writing to alert you of the fact that you can adopt a no-cost policy stance to assist your constituents as they seek homeownership.
This policy does not require government mandates or new bureaucracy. It can be achieved with virtually no cost to the taxpayers and no new appropriations. No new budget authority is needed. And it is an attractive, common sense addition to your consumer protection portfolio.
The policy is encouraging the use of voluntary home
inspections during the home buying process. Federal action has a strong role to play in this regard. I offer specific proposals later in this letter.
A home is the most expensive purchase that most people make. Unfortunately it is beyond the capability of most buyers to know the true condition of their prospective purchases by simply looking at them by themselves. A home is a very complex building, with integrated systems, devices and materials that require the trained eye of a professional home inspector to evaluate. The condition of major components should be a factor in any purchase. There is great financial risk in buying a home without knowing its structural and mechanical condition.
There is an affordable solution. Homebuyers have the option to engage a professional home inspector to perform a unique, focused, extensive inspection of the home and its key elements.
The home inspector is an unbiased professional with the tools, training and experience to fully inspect the condition of the home. The Home Inspector reports back to the homebuyer and only the homebuyer. Many people do not realize that in most home sale transactions the Home Inspector is the only professional involved whose sole allegiance is to the homebuyer.
A recent GAO report, the first of its kind examining home inspection, finds that among FHA homebuyers who obtained home inspections to buy their homes, home inspections are tremendously useful to them as they buy their homes.
According to GAO (Report GAO-04-462), of recent FHA homebuyers surveyed:
- 86% reported that they had voluntarily sought home inspections (or they thought they had-more on that point later).
- 94% of buyers who got inspections would do so again on future purchases.
- 85% said inspections were worth as much or more than the buyers paid for them.
- 80% said the inspections increased their confidence in the purchase.
- 74% said the inspections gave buyers peace of mind that homes had no major problems.
- 73% said the experience was either somewhat or very positive.
- 67% of inspections actually identified problems to be addressed.
- 29% of those problems identified were major (would cost more than $500 to fix).
- 30% of the time, buyers were able to renegotiate the contract based on the inspection.
These are high measurements of utility and customer satisfaction. GAO found that the key reason homeowners get home inspections is to ensure that there are no serious problems with the homes. They also provide confidence and peace of mind. Homebuyers broadly believe they benefit from the inspections by identifying problems to be fixed by sellers, by allowing them to renegotiate a more favorable price, and even by learning about home maintenance.
The problem is that a substantial percentage of homebuyers don't assimilate the message to obtain voluntary home inspections. This is due mostly to mistakes, confusion, lack of understanding about home inspections, or awareness that home inspections exist.
Clearly, HUD urges homebuyers to obtain voluntary home inspections, but some respondents think HUD/FHA requires inspections, which is untrue. Home inspections are voluntary and will remain so. But the decision should be an informed ,voluntary one based on clear, complete information given early enough for homebuyers to make good use of it.
A recurring issue is that homebuyers confuse the appraisal with the home inspection, though appraisals and inspections are completely different. GAO found that only 36% of FHA homebuyers clearly understand the distinction between appraisals and home inspections. While GAO equivocates on the level of understanding of the remaining 64%, only 36% do affirmatively understand the difference. Thus, many homebuyers mistakenly believe the appraisal negates the need for a home inspection, a crucial error.
The point in time at which homebuyers see the HUD documents is a latent, more complex problem. We suspect that many homebuyers are indeed receiving HUD's home inspection messages, but this is happening too late in the process to help them make their decisions and to really benefit from a home inspection report. We hope to investigate this further with HUD to see if there are ways to address the timeliness issue.
These are the fundamental problems that Members of Congress can help address. In nearly all cases, the only educational material FHA homebuyers will receive explaining the value of home inspections will come from HUD documents provided during the homebuying process. HUD has made good strides in recent years in improving its home inspection materials. We have enjoyed productive meetings with HUD staff to address this matter, and we applaud HUD's willingness to improve the messages. But there is more to be done.
We hope for more collaborative work with HUD to improve its Valuation Condition (VC) sheet further, both to strengthen the home inspection message, and to alter the confusing look of the Enhanced Appraisal sheet, which looks very much like a home inspection checklist. And we would like to address the timeliness issue.
Of course, other agencies such as the VA and USDA conduct mortgage/housing programs, too, and we hope to emulate our HUD efforts with them as well.
What You Can Do as a Member of Congress
As the 109th Congress proceeds to hearings and legislation on federal housing programs, I recommend that you adopt and implement the following:
Encourage the use of voluntary home inspections (as does HUD), in terms of agency oversight, legislation and in communications with your constituents.
Support further changes to HUD documents to strengthen the voluntary home inspection message and clarify the distinction between appraisals and home inspections.
Support an examination of the timeliness issue, and seek ways to make certain that all homebuyers receive and focus on the HUD home inspection materials early enough to be of full use to all home-buyers in home purchase transactions.
Ensure that other federal agencies that conduct housing/mortgage programs meet or exceed the HUD efforts to encourage voluntary home inspections.
Require that federally-authorized home purchase counseling programs include materials encouraging voluntary home inspections and explaining the distinction between appraisals and inspections.
Thank you for your kind consideration. Please let me know if ASHI can answer any of your questions, or assist in communicating the home isnspection message to your constituents.
2005 ASHI President
American Society of Home Inspectors