Residential pre-purchaser reports

Pre-purchase reports are frequently causing disputes. This article looks at what is going wrong and what you can do to avoid a dispute.  Buyers and sellers alike are having difficulty and there are 5 main issues that are causing all the trouble.  

Context

House purchases are a difficult crowd to work with. They may be very stressed and fear making a bad decision with disastrous consequences, or they may be so emotionally invested in a house that their judgement is impaired.  Either way this places high demands upon the report author.  Written communication skills are crucial, and the report must clearly distinguish the most important matters in clear unambiguous language.  In report content “less is more” so that the reader is not distracted by inconsequential matters.

Buyers will sometimes cancel a purchase because they perceive a problem, but meaningful adverse features have not been reported, or they are so emotionally invested that they ignore extremely important issues and buy when they should stop to better understand a problem they are about to own.

Reports should contain a clear and concise summary that is consistent with the main report contents.  Buyers should watch out for positive summaries that don’t seem to match specific findings reported.  The residential market is highly emotive and much of the New Zealand housing stock is poor quality so good quality pre-purchase reporting is important.  

Cost

Residential pre-purchase reports are commonly offered for $400 - $500.  Buyers don’t want to pay much because they may not end up owning the property.  With the inspectors there is a race to the bottom to secure sufficient work.  The more qualified people expect a higher fee reflecting their expertise so there is space at the bottom of the market for cheap low-quality reports.  A useful report for a house should cost at least $1000 if it is to provide a competent and helpful service.

To minimise cost, Franchisers often have apps written so that a report can be prepared on an ipad on site with minimal post site editing required.  However, this often truncates the reporting to the point that the contents are unclear and positively unhelpful.  A component heading will often only have a photo and one sentence that provides insufficient information.  Some apps include a rating system or traffic light for each component but that just oversimplifies the situation causing ambiguity.

Apps will have headings for everything but many house components do not need reporting.  Simply telling the reader about obvious things that anyone can easily see for themselves takes up time and space that could better be used on the substance of things that really matter.

Purchasers are often influenced by the length of a report, but 90 pages filled with inconsequential fluff is substantially less helpful than 10 pages packed with relevant information.

Qualifications

Unfortunately, the expression “Builders Report” still persists. However, the world has moved on and prepurchase inspections demand professional qualifications and specific skills outside the scope of knowledge of most builders.  Building materials technology, material life cycles, understanding of the building code and most importantly tertiary written communication skills are required.

Having skills and experience independently reviewed by a professional body is important. People offering pre-purchase reports should be a member of either the New Zealand Institute of Building Inspectors (NZIBI) or the New Zealand Institute of Building Surveyors (NZIBS), or both.  Those organisations assess capability, offer continuing professional development and set ethical standards.

NZS 4306:2005 Residential Property Inspection

NZS 4306 is a New Zealand Standard that provides recommendations for what should be included in residential property inspection.  However, the standard is now dated and needs the be reviewed.  The standard does not guide the inspector on how to inspect or report on the most critical matters.  80% of the purchase risk lies in 20% of the house, so lower risk items should be reported but would not be catastrophic to a purchaser. Many reports pad out the content by reporting inconsequential fluff that is clear for anyone to see. 

Insurance

Everyone proudly proclaims that they have insurance but that, in itself, is meaningless.  Policies are often limited in scope or may contain weathertightness exclusions. An inspector’s insurance cover may have no meaningful value to a purchaser.  Prepurchase inspectors should always be willing to provide a certificate of insurance from their insurer stating the scope and value of cover. Purchasers should get professional advice if they are in doubt about the adequacy of the policy to respond to a claim.

Recommendations

1.          Purchasers should not hesitate to get expert advice on how to interpret aspects of a report if they are in doubt or too emotionally involved to be objective.

2.          Don’t choose an inspector based on price.  A house is a very large purchase so don’t be too economical when choosing professional advice.

3.          Carefully consider the qualifications of the inspector and whether they are a member of a relevant professional organisation.

4.          NZS 4306 is useful but does not guarantee a report that is clear and substantially helpful to the reader.

5.          Obtain meaningful evidence of the insurance policy offered by the inspector.