February, 2007
Skeptic
Inspection News and Views from the American Society of Home Inspectors



The Home Inspection Business: A White Paper for Change

LORNE STEINER

It is my firm belief that there needs to be a wholesale change in the way the home inspection business is managed if the business is to survive the ups and downs of the real estate market.

The right attitude when starting your business has a lot to do with the outcome and survival of the business. If you start your business based on the assumption that you’re tired of working for someone else, want to be self-employed and answer to no one but yourself and at the same time make a living, it’s most likely you won’t. When you add up all of the headaches of being in business for yourself, including insurance liabilities, taxes, employees, benefits, etc., why would you want to go into business just to make “a living”? It’s incomprehensible to me. You could make a living working for someone else and come home at night and rest peacefully. However, if you decide to go into business for yourself to make “a great living”—being able to afford to send your kids to private school, vacation in Hawaii, save for retirement—chances are you will.

Having the right attitude will allow you to visualize and achieve your goals. Creating a viable business plan will help you determine what to charge based on the true cost of an inspection, which will allow you to stay the course through the long haul of the real estate economic roller coaster. Whenever I speak to a group of inspectors, I ask, “How many of you know exactly what it costs to complete an inspection before making your first dime of profit?” If you were the owner of a car dealership, you would know exactly how much to sell the car for in order to make a profit. If you owned a grocery store, you would know the profit margin behind the price of a bushel of apples. Simply put, to succeed in business you need to know how much your costs are if you want to make a profit. Why should home inspectors be any different? In a group of two hundred inspectors, on average only three or four admit to knowing this.

How can you determine what to charge if you don’t know what your underlying costs are? This is the main reason why over 30 percent of all inspectors nationwide go out of business each year. Many home inspectors I talk to tell me, “I can only charge 10 to 20 percent more than the competition in my area.” What if your competition is wrong? Talk about a sinking ship; are you going to follow your competition into oblivion just because they insist on undercharging? First, you need to get a handle on how much it actually costs to do an inspection. Second, don’t worry about your competition — if they want to undercharge and go out of business, fine. In the long run, this will mean more business for you!

Inspectors who attend my seminars often ask, “If I were to go back to a community college and take one class that will help me in my inspection business, what class would you recommend?” You would think my answer would be a business class, right? Nope. The class you should be taking is “Human Psychology.” You will be using what you learn in this class every day of your inspection career.

This is because the inspection business is primarily a “perceived business.” Your first interaction with the client is most likely either by phone or at the time of inspection. By the time you meet the client at the site, you’ve already been hired. Sometimes the real estate agent negotiates the fee with you, rather than the client who is actually paying you. Good businesspeople know they have to control the dialog and the situation in order to control the fees. Therefore, having the real estate agent control the situation takes you out of the loop with the client. No wonder the average inspection fee is so low.

On average, homeowners buy a house once every five to 20 years. Usually, homeowners have no interaction with a home inspector in the time between purchases. So, how are they supposed to know how much a home inspection should cost? Often their perception of low fees comes from inspectors’ Web sites and brochures or real estate agents. I find that prices listed on inspectors’ Web sites tend to be low and often not current, and their brochures can hang around a real estate office for years advertising out-of-date prices. Ask any real estate agent how much a typical inspection should cost and most will tell you, “in the average range of $200 to $300.” Agents have been saying this to your potential clients for over five years. As a professional, you need to confront the agent and ask, “Have you raised your fees in the last five years?” They will typically say, “No, I get the same five or six percent I got five years ago.” Remind them that five years ago that house sold for $225,000. Today, the same house is selling for $400,000 or more. I think they have given themselves one heck of a raise over the past five years. Why not you?

Let’s put this in perspective. Someone interested in buying a used boat almost always has it inspected first. Boat inspectors are called “Marine Surveyors.” How much do you think a marine surveyor charges for a $250,000 boat—a boat that might be used a dozen times during the year? Would you believe one-half to one percent of the cost of the boat? That’s up to $2,500! Yet this same boat buyer would balk at paying in the range of $450 to 650 to have his million-dollar house inspected.
It’s time for you to stand up and say enough is enough. In the real estate transaction, the home inspector is the kingpin. The result of your work often helps homebuyers avoid the heartbreak of unexpected surprises, and sometimes saves them thousands of dollars when renegotiating the purchase price.

This is why some unscrupulous agents would rather avoid a home inspection altogether, or rather their clients not be presented with a comprehensive report explaining all the details in plain English. At the end of a home inspection, an unscrupulous agent wants to see nothing more than a short “check-list” style report that only skims the surface of the issues. I was looking at one such report just the other day. In the roofing section, the inspector had selected the following item, “Part of the roof should possibly be replaced.” And he put a check in both checkboxes for “Poor” and “Good.” Which part was in good condition and which part needed to be replaced?

This was a lawsuit waiting to happen — and it did. I am not saying all real estate agents feel this way; however, I find that too many do. They want an inspector who will not deflate the reasoning behind why the client fell in love with the house. And they know a qualified professional inspector who tells the complete story will charge accordingly.

Being in business for yourself means that you are a professional at what you do. Therefore you need to act in a professional manner and charge professional fees. Like many other professionals, you are selling a service, backed by a vast amount of knowledge, years of experience and a professional report.

If a client asks you to do an inspection for a few dollars less than the price quoted by the inspector the agent recommended, tell the client that you will do a professional inspection for double the price of the agent’s inspector, explaining you are the best at what you do with years of experience and do not want him or her buying
the residence with incorrect expectations.

Say, “Please visit my Web site to view testimonials from some of our satisfied clients. You can also view a sample inspection report, the same type you can expect to see for your house.”

At this point, the client is probably thinking, “How can the inspection fee between two inspectors be so different?” They might be wondering if the first inspector will tell the whole story. Maybe the less-expensive inspector is investing less time and effort at the inspection or even working with an unscrupulous agent.

Let’s say you walked into a restaurant and you saw Picasso sitting at a table eating his dinner. You walk up to him and you say, “Mr. Picasso, I hope you don’t mind, but could you draw something on this napkin so I can have it for a keepsake?” Picasso takes the napkin from you, scribbles something on the paper, hands it back to you and says, “That will be $10,000.” “But Mr. Picasso, it only took you a few seconds to draw the figure.” “Yes, but it took me 50 years to learn how to do it.”

It’s up to all of you to set your fees to the professional level that you deserve. Being in business for yourself means you have an obligation to do well; to make not just a good living, but a great living; and to not only stay in business during the ups and downs of the business climate, but to thrive.