August, 2004
Feature
Inspection News and Views from the American Society of Home Inspectors



Feds Publish Report on Home Inspection

RANDALL PENCE

Here’s a report that is sure to warm the hearts of home inspectors: The U.S. Government Accounting Office estimates 86 percent of homebuyers using FHA-insured mortgages in 2002 got home inspections of their own accord, a strong statement indicating consumers demand home inspections even though FHA treats home inspections as voluntary.

Unfortunately, it was accompanied by a slightly chilling finding: The GAO estimates only 36 percent of FHA homebuyers understand the differences between home appraisals and home inspections, a clear sign consumers need to know more about the role home inspectors play in the homebuying process   

Both findings were published in the GAO’s report to Congress, “HOME INSPECTIONS: Many Buyers Benefit From Inspections, but Mandating Their Use Is Questionable.”

As the lead investigative agency for Congress, the GAO conducted the study at the request of federal policymakers, who wanted to know how well the FHA homebuyers who had home inspections understood them, and whether or not homebuyers perceived the inspections as having value. The title of the landmark study sums it up. According to the GAO, home inspections provide valuable benefits to homebuyers and, to a large extent, homebuyers know this. Nevertheless, the agency did not recommend mandatory inspections at this time, concluding, “the resources to enforce an inspection requirement may well outweigh the benefits.”

The results validate ASHI’s stance on the benefits of a home inspection, as well as the Society’s position that HUD, Congress and the home inspection profession, working jointly, can do more to educate and to help homebuyers than could be done with cumbersome federal mandates.

ASHI, many other organizations involved in home sales and recent homebuyers were interviewed for the study. The fact that Congress was interested in this information represents a new level of recognition by federal policymakers of the importance of home inspectors and of ASHI in representing the profession. The study, its findings and analysis will become the basis for future housing legislation on Capitol Hill and future interaction between ASHI and HUD.

By undertaking the first investigation of this kind, the Members of Congress and the GAO have done a service to consumers, to ASHI, and to the profession. The study confirms the benefits of home inspections. It keeps the focus where it belongs:
on FHA’s voluntary-inspection messages, rather than pursuing problematic mandatory inspection concepts. Also, it identifies an overwhelming need for additional consumer education.  

At present, FHA strongly recommends to buyers that they get a home inspection before purchasing a home. FHA requires homebuyers to sign the
document, “For Your Protection: Get A Home Inspection,” which provides some information on the benefits of a home inspection, as well as a brief explanation of the difference between an inspection and an appraisal. ASHI endorses this type of educational approach, and last year provided HUD with recommendations for improving the document.

The Society has been a leader in home inspection consumer education for the past decade, and is continuing its mission buoyed by this recent evidence that it’s on the right track.


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Report Key Findings/GAO Estimates based on 2002 activity

Nearly 1 million people buy homes every year using FHA financing.

  • 86 % of homebuyers using FHA mortgages voluntarily obtained home inspections.
  • 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.
Homebuyers believe they benefited from the inspections by identifying problems to be fixed by sellers, by allowing them to renegotiate a more favorable price, and by learning about home maintenance.

  • 67% of inspections identified problems to be addressed.

  • 29% of those problems were major (>$500 to fix).

  • 30% of the time, buyers were able to renegotiate some part of the contract based on the inspection.
While most buyers characterized their experiences as positive, 16% reported some degree of dissatisfaction, most commonly involving plumbing, appliances, A/C and electrical (GAO characterized this percentage as “a small minority”).

Only 36% of FHA homebuyers clearly understand the distinctions between home inspections and appraisals.  While GAO equivocates on the level of understanding of the remaining 64%, only 36% do affirmatively understand the difference. 

  • GAO believes the best determinant for understanding the difference is discussions with someone, but cannot state this with certainty. 

  • The rate of correct understanding is greater (42%) among buyers who actually got inspections.
GAO does not recommend making home inspections mandatory for FHA loans. GAO postulates that such a policy could have mixed results. A major impediment would be difficulty and effort required to implement a national scheme or regulation and enforcement for home inspection.