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



New Construction Inspections Offer Opportunity & Challenge

JENNIFER G. PROKOPY

ASHI members weigh in on the pros and cons of tackling the market

For inspectors looking to increase and diversify their business, new construction inspections offer opportunities to do so, opening up a new customer base and the possibility of earning higher fees. But there are a number of factors to consider before you jump into the new construction market. Compared to inspections of existing homes, new construction inspections require a more thorough grasp of local codes, increased flexibility in scheduling, a more fluid approach to documentation and reporting, and the willingness to build and maintain strong bonds with referral sources and the building community.

More and more inspectors are broadening their business to include new construction, and successful inspectors say the payoff is worth the effort. The ASHI Reporter spoke with members across the country to offer a closer look at the pros and cons of entering the new construction inspection market.

Three choices

The members we spoke with perform new construction inspections in three major categories: phase inspections, end-of-construction inspections, and warranty inspections. Each category offers opportunities for new business; some inspectors choose to focus on one type, while others perform all three.

Phase inspections
Conducted during the construction process, phase inspections are often contracted with the builder, and sometimes with the homebuyer. According to New Construction Inspection: A Guide for In-Progress Inspections (written by ASHI Past President Michael Casey and published by Inspection Training Associates, of which he is vice president), phase inspections are typically grouped into four or five stages: underground and foundation prior to concrete pour; rough framing, electrical, plumbing and HVAC; insulation (optional); building wrap prior to siding installation; and a final inspection including the roof.

End-of-construction inspections
Also called move-in inspections, these are a one-time inspection of a home when it is delivered to the homebuyer, and is typically contracted with the homebuyer. The inspection will cover all the home’s major systems—from roof to foundation —including HVAC, interior plumbing, electrical systems, attic and insulation, walls, ceilings, floors, windows, doors, foundation, basement, and all components of the visual structure.

Warranty inspections
Home inspections performed one year after delivery are almost always contracted with the homebuyer, and will examine many of the same things that an end-of-construction inspection addresses. At a warranty inspection, most inspectors look not only at the quality of materials and installation, but at performance issues, examining how each component is functioning according to code and manufacturer specifications.

Relationships: builder or buyer?

For many inspectors, the decision to pursue one type of inspection over another is tied closely to the client-inspector relationship.

Chris Prickett, owner of Landmark Home Inspection, LLC, in Anthem, Ariz., focuses much of his efforts on warranty inspections, which are close to 60 percent of his business. It’s much easier to market to homeowners instead of real estate agents and brokers, he says. When performing phase inspections, he also chooses to work for the homebuyers, involving them from the start: “When I deal with the buyers and have them schedule with the builder, they are involved, which works toward having a better house built. They’re more aware of the process.”

Other inspectors prefer to work with builders. Peter Drenan, president of Building Inspections, Inc., in Charlottesville, Va., says, “My favorite form of work is as a consultant to the builder.” By working as an advisor, Drenan creates lasting relationships that give him a continuous stream of business. “I’ve got relationships with several relatively large builders who trust what I have to say,” Drenan explains.
“They’re confident that I’m working for their best interest.”

The inspections he performs reduce customer callbacks and strengthen the builder’s reputation, which is a good thing for Drenan, too. “What I care about is helping the community get better homes,” says Drenan. “The way I effect that best is by modifying how builders build. If I can work for the builders, then I can make one change and have it effected 50 times over the course of the year, and that builder may never make that mistake again.”

Benefits

There are dozens of reasons inspectors embrace the new construction market. Topping the list of pros is the sheer magnitude of opportunity: in mid-November, the U.S. Department of Commerce reported that housing starts for the month of October 2003 reached their highest pace ever, in what National Association of Home Builders President Kent Conine called “a remarkable year.” With most other segments of the economy still in the doldrums, who wouldn’t want a piece of the new construction pie?

Diversification
The opportunity to diversify is attractive in our unpredictable economy, says Casey. By adding new construction inspection to your repertoire, “you don’t have to depend upon a certain aspect of the real estate market, which has ups and downs. And it’s always nice to have more work than you need, to pick and choose what you want to do.”

Diversification of referral sources also can be a boon to business. Jamison Brown, president of Amerispec Home Inspection Services in Poquoson, Va., says performing inspections for homebuyers means, “you’re in front of people who are buying new houses. They know other people who are buying new houses. It opens up a whole new arena and broadens your business base so it’s not just from the real estate world, and keeps you busy when the resale market is slow.”

Drenan offers another perspective: “Real estate agents have a close affiliation with the builders, so if the builders think of you as the go-to person, they tell their real estate agents that,” he says. “It’s a circuitous referral base—yet another source telling real estate agents that you’re the go-to guy.” No matter whom you consider to be your lead referral sources, broadening your abilities will widen the circle of referrals and increase your chances for success.

Additional revenue
Opportunities to bring in additional revenue are obviously attractive, says Garet Denise, owner of Cornerstone Inspection in Denver. Denise charges more for new home inspections because new homes in his area are typically larger than existing homes.

Mark Cramer, owner of Mark Cramer Inspection Services, Inc., in Indian Rocks Beach, Fla., also charges a higher fee for new construction inspections, based mainly on the fact that they require a broader knowledge of building standards and codes.

The sheer number of visits for new construction inspections also increases opportunities for income. Inspectors can work with a builder or homebuyer to conduct multiple-phase inspections, contract with the buyer to conduct a final end-of-construction inspection, and come back a year later for a warranty inspection. Through a single client, the volume of work not only increases, but also the marketing efforts required to secure that work are sometimes equal to what it takes to secure one resale inspection. The magnified return on investment is hard to ignore.

Minimal competition

Some inspectors find that in their area competition for the new construction market is minimal, which makes carving out a niche easy. For instance, in Drenan’s area, it’s a market “without much competition once you’re in it. I can make it as lucrative as I want to.” Cramer agrees, and says he keeps a full schedule with only minimal marketing efforts.

Challenges

While inspectors approach the new construction market from a variety of perspectives, there is one thing they almost all agree on: conducting new construction inspections requires a greater knowledge of building standards and codes, more formal training, and more experience.

“You really have to have more training and be educated on how to do warranty and construction inspections, because they are very different from standard real estate inspections,” says Prickett. Casey agrees: “There are very few people who could jump right into it” without prior experience. Inspectors entering the marketplace should pace themselves, taking the time to learn what each kind of inspection requires and how they differ from each other.

Formal training
Casey suggests that newcomers get their feet wet by performing a few typical pre-acquisition inspections. The next step is formal training, which is offered by numerous private, post-secondary schools. Brown says many community colleges offer classes on homebuilding, which also can function as primers.

“The biggest challenge is qualifying yourself” to the builder, says Brown. “The average home inspector isn’t qualified to look at new construction if he/she doesn’t have a construction background. When the walls are open, you need to understand how everything ties together.”

Code certification
Many inspectors also pursue code certification. “You have to be code-certified,” says Drenan, to be taken seriously by many builders. Code certification requirements vary regionally and from state to state; for example, in Virginia, Drenan had to take five different training sessions ranging from two to four days each in order to be certified.

Another way to become familiar with codes is to join local and/or national code organizations. As a member of the International Code Council, Brown says he is better equipped to stand up to builders: “When you’ve got credentials like that, the builder opens the door.” Being active in local code organizations and networking with peers are a great ways to stay current on regional adaptations and interpretations.

But ASHI inspectors are not code inspectors, and it’s important to navigate the difference with clients. Prickett makes an effort to be familiar with local codes, but doesn’t quote them left and right: “I tend to point out deficiencies I see that are under the most recent and more stringent code,” he says. “But my stance is, they’re not building to the latest accepted construction standards.” Denise takes a similar approach: “I make it clear to my clients that I’m not there to do a code-compliance inspection, but I still base my opinions on what the code says. A lot of it comes down to common sense,” he explains.

Manufacturers’ specifications
Staying familiar with manufacturers’ specifications also is a challenge for inspectors, but one that pays for itself, says Drenan. “I read lots of technical stuff, manufacturers’ specifications, installation instructions, ingredients,” he says. “By paying attention to the details, you get a deeper look into how the sticks and bricks get put together, and why. You can never know enough.”

Liability
Many inspectors don’t believe new construction inspections are more susceptible to liability issues than resale inspections. “I deal with liability at the contract level the same way I do with a resale inspections,” says Denise. “I’ve never considered it a greater liability than any other inspection.” In most cases, new homes are protected by a one-year warranty.

But Prickett believes it’s still wise for inspectors to remember that, “the more diversified you are, the more you open yourself up to lawsuits.” While the onus is on the builder to construct a house properly, he says, “in this day and age, anybody can sue anybody else for anything.”
And home inspectors who carry errors and omissions insurance should know that most E&O policies do not cover new construction inspections until the house is finished.

Relationships
It might sound like a cliché, but strong relationships build strong business. Maintaining solid ties with builders can pay off; getting on their bad side can have the opposite effect. That’s a real risk inherent to performing new construction inspections, says Drenan: “It’s a dual-edged sword. You can’t have people thinking highly of your skills without the risk of alienating contractors,” he explains. “There are some builders who, regardless of how well you do your thing, will think you’re a bad person” because you find fault. Taking steps to maintain good relations with builders and clients—including schedule flexibility and respect—will go a long way toward keeping your business thriving.


In the next issue: We take a closer look at special considerations for new construction inspections, including preparation, documentation and reporting, interpretation and amendment documents, typical defects, and the importance of relationships in building a successful business.


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To Market, to Market
Use relationships and creative strategies to build business

No matter what kinds of inspections you perform, marketing can strengthen your business. The good news is that whether you’re a wallflower or a networking whiz, there are marketing strategies that fit your personality and unique business approach. The ASHI Reporter talked with Members currently performing new construction inspections to bring you suggestions for marketing your business.

It’s all about relationships

Most inspectors agree that referrals are the richest source of business development. In research conducted by ASHI in 2002, almost 97 percent of Member and Candidate respondents said referrals were a “very important” promotional method, and 45 percent of respondents said referrals from real estate professionals constituted more than 60 percent of their business. It’s easy to see why so many inspectors focus energy on customer service —their livelihood depends on a positive reputation.

For phase and post-construction inspections, real estate professionals — including real estate agents or brokers, real estate attorneys and mortgage brokers — are a great source for referrals. Peter Drenan, president of Building Inspections, Inc., of Charlottesville, Va., says the key to building a reputation is to start with new construction inspections for homebuyers who are referred through agents or brokers.

“Let them know ahead of time that you do phase inspections, and explain why that…saves money, callbacks and construction time,” says Drenan. “Then, agents have your contact at the ready” when their clients need an inspector.
Drenan also stresses that building good relationships with builders can lead to more work: “Every time you’re out there, you’re potentially turning an adversary into an ally,” he says, and that can evolve into prosperous, long-term relationships.

Networking within the industry can provide another referral source. “I get a lot of referrals from other home inspectors who choose not to do new construction inspection,” says Mike Casey, past president of ASHI and vice president of Inspection Training Associates of Manassas, Va. “I meet them by going to monthly ASHI chapter meetings, staying active in the chapter and networking.”

Tools shape your approach

For those who prefer to work directly with homeowners, marketing directly to them can be rewarding, especially when it comes to warranty inspections. Chris Prickett, owner of Landmark Home Inspection, LLC, is taking advantage of a unique situation for business development: he markets almost exclusively to homeowners in his Anthem, Ariz., development, where more than 10,000 homes are being built.

“The great thing about marketing in a growing community is being involved in the chamber of commerce, Rotary, business clubs, church groups, coaching soccer—you name it,” says Prickett. He contacts 400 to 500 people (through purchased mailing lists) per month with mailings on warranty inspections, which make up about 60 percent of his business. “For all the inspectors who would rather not have to market to realtors, this is a great opportunity.”

Web sites are another popular marketing tool for inspectors. Casey says many of his calls come from the ASHI referral Web site, which links directly to his company’s Web site. Garet Denise, owner of Denver-based Cornerstone Inspection, says, “I don’t think I would have survived in this business without having a Web site.” He launched the site in tandem with his business, submitting it to search engines and designing its content to generate the most traffic. He now generates between 25 to 30 percent of his business online.

Unlimited pricing possibilities
When it comes to developing a pricing strategy, inspectors are all over the map. For phase inspections, some choose to charge a flat fee for each visit; others set up a schedule of visits and charge for half of them upfront, billing the other half upon completion of the last inspection; others charge an hourly rate with a minimum fee. Most agree that pricing for post-construction inspections closely follows that of resale inspections. And when working for a builder, some inspectors will set up a package price to encourage a greater volume of business.

Each day is an opportunity


At the end of the day, the image you present—in your marketing materials, during the bidding process, at inspections, in your reporting—will dictate your success. “Differentiate yourself as a professional among professionals,” says Drenan, and your business will grow. When it comes to your best referral sources, do what it takes to keep the ties strong, says Denise, and take advantage of the fact that “there’s already a high level of trust” in the relationship.

Finally, the importance of well-designed business cards, letterhead and brochures can’t be overstated. In the same way that a clean, well-mannered presentation at inspections can boost your reputation as a professional, high-quality marketing materials will help you stand out in the crowd.

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