14sep pre purchase hero default

Property inspections

A house is the single largest purchase many of us will ever make. Paying for a building inspection before you buy might put your mind at ease. However, the poor quality of some property reports in our investigation floored us.

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One Wellington family thought they were doing the right thing when they paid $570 for a pre-purchase inspection report. But nearly $9000 of repair bills later, they’ve learned the hard way.

In the family’s first year in the $772,000 property, they discovered a number of defects – a leak in the roof as well as a rotten beam and weatherboards. The report had assured them the house’s roof was “in very good order” with the inspector noting no concerns about the roof space.

Total Home Inspection Services (THIS) initially offered a refund and to fix the beam and weatherboards. However, further issues with the report – including failing to identify the deck was asbestos – then came to light.

“We paid good money for a professional to inspect the house and give the correct advice. As a result, we paid too much for the property,” said the family, who asked for anonymity.

In the end, the family filed a claim for costs with the Disputes Tribunal, which ordered THIS to pay the $8770 for repairs and roof maintenance.

Our investigation

We put the property inspection industry to the test, selecting five companies to assess an Auckland home and five more to assess a Wellington property. An expert evaluated all 10 reports.

Eight reports said they were carried out to the Residential Property Inspection Standard (NZS4306), a higher proportion than when we last investigated property inspections in 2006. This voluntary standard has an extensive checklist covering the interior, exterior, subfloor space and roof space, though doesn’t prescribe how each component of the house is to be inspected.

The standard also requires inspectors to have a relevant technical qualification and professional-indemnity insurance, which gives clients added protection.

The two inspectors who didn’t use the standard (Castlebridge Surveys and Wellington Property Services) were registered building surveyors and held professional qualifications and indemnity insurance (see “Competency signposts”).

Our mystery shop houses

Auckland

Our four-bedroom, 200m2 Auckland home was built in 2000 and features monolithic cladding. The cladding, as well as several complex architectural features such as an enclosed upstairs balcony, signal it’s a potential “leaky home”.

We commissioned two sellers’ reports and three buyers’ reports on the property.

Wellington

Built in 1905, our four-bedroom 140m2 weatherboard Wellington home had undergone several alterations, including the addition of a kitchen and laundry, re-piling and development of a basement area.

We commissioned one sellers’ report and four buyers’ reports on the home.

Results

We asked an independent expert – a building surveyor and weathertight homes assessor – to visit both homes and compile a list of major and minor issues for each property.

While inspections should focus on the serious defects, we think a list of minor issues – from remedying an improperly ducted extractor fan to replacing shower seals – is a bonus, particularly in a buyers’ report. This gives the client a complete to-do list.

All 10 reports were anonymised and graded by our expert.

Download a PDF of our full results for our Auckland (1.29 MB) and Wellington (1.42 MB) properties.

We didn’t see a relationship between price and quality. At $632.50, What’s Up House Inspections’ report was the cheapest and received the highest average grade of the Auckland services. We found no notable difference in the quality of the buyers’ and sellers’ reports either.

We think consumers want their property report to:

  • identify all defects

  • clearly explain the defects in layperson’s terms

  • outline the estimated costs to fix the defects

  • set out at least the first step to remedy the issue.

Some reports failed this first task. Our expert thought three of the five Wellington firms did a poor job of identifying all the major defects.

THIS only noted high moisture readings in the bay window, but didn’t list any concerns with the property’s piles or structural beam. Our expert thought both were concerning and should be flagged with a potential homebuyer.

The Home Check report caught the issues with the bay window roof tiles, but similarly missed flaws with the piles.

On top of identifying problems, the reports were also graded on the clarity and helpfulness of any explanations. We found even the highest-rated reports had at least one confusing statement – though the companies disputed this and some challenged our expert’s findings and recommendations.

Our expert thought three of the five Wellington firms did a poor job of identifying all the major defects.

We were disappointed at how often reports briefly noted a problem and, without explaining the significance of the issue, recommended the client consult – and possibly pay – another “qualified person”.

Homebuyers frequently commission a pre-purchase report during the short period after they make a conditional offer, and rely on their property inspector to provide clear information about the building’s defects and the repairs needed.

Some firms offer repair estimates for a premium. But when we asked our inspectors if property reports should outline the recommended repairs and costs to fix defects, some companies told us this was beyond their area of expertise or breached industry body guidelines. Inspectors were also concerned they could be sued if they gave cost estimates that turned out to be wildly incorrect.

Industry regulation

If the industry is unable to meet clients’ needs, then it needs to step up. Consumers shouldn’t have to accept a report that’s unfit for purpose.

In the UK, homebuyers can get a costed list of repairs in what’s known as a building survey. The British property inspection industry is self-regulated, with two main professional bodies.

Homebuyers typically enlist a chartered building surveyor accredited by one of these groups, which require tertiary training. This expertise means costs are higher – ranging from £400 (NZ$755) for a basic check to £1500 ($2835) for a full report – but we think it results in a more useful and dependable service.

The majority of US states and two Canadian provinces require property inspectors to hold a licence.

We’ve long been concerned the property inspection industry here is unregulated and have called for licensing of inspectors. We think inspectors should be required to hold a recognised qualification before they qualify for a licence.

The Real Estate Authority, an independent government agency overseeing the real estate industry, also advocates the regulation of pre-purchase inspectors.

However, there’s been no progress to date. The Ministry of Business, Innovation and Employment said it “has not undertaken any work in recent years on regulation of the pre-purchase house inspection industry and doesn’t have any plans to do so”.

Competency signposts

Though anyone can call themselves a property inspector in New Zealand, three professional organisations are attempting to help consumers find a good-quality report.

One body is the New Zealand Institute of Building Surveyors (NZIBS). To be registered, an inspector must have a relevant building qualification (for example, from the architecture, construction or engineering disciplines), have passed the NZIBS registration exam, be currently providing inspections and have received extra NZIBS training in weathertightness (if they report on that).

Each year, they must complete additional learning prescribed by NZIBS and have professional-indemnity insurance. However, only a few members offer residential property inspections. Our mystery shop found just one operating in Auckland and one in the capital.

A New Zealand Institute of Building Surveyors-registered property inspector must hold a relevant building qualification and professional-indemnity insurance.
A New Zealand Institute of Building Surveyors-registered property inspector must hold a relevant building qualification and professional-indemnity insurance.

The Building Officials Institute of New Zealand (BOINZ) offers an accreditation scheme for building inspectors, who must undergo training, assessment, peer review and ongoing professional development to qualify. However, you’ll want to make sure your inspector is an accredited member (AMBOINZ). Non-accredited members aren’t required to pass the same bar and the organisation doesn’t allow them to perform property inspections.

Registered members of the New Zealand Institute of Building Inspectors (NZIBI) must have appropriate training and at least five years’ experience. New members are peer reviewed before they join and must complete additional learning. All three associations have websites where consumers can find members in their area.

So how did these organisations fare in our mystery shop? The two reports from NZIBS members (Castlebridge Surveys and Wellington Property Services) received high scores, particularly for identifying and explaining serious issues.

Castlebridge Surveys’ terms and conditions, presented before the inspection, stated the focus was “identifying significant apparent defects” rather than “all past, present, or potential future defects”. The other reports included a similar clause.

The two AMBOINZ reports, from House Inspections Ltd and RealSure, also scored well – but so did the one from What’s Up’s unaffiliated inspector.

The sole report in our mystery shop from an NZIBI inspector, NZ House Surveys, failed to catch or explain key issues such as the pile at the edge of a bank (a collapse risk).

We say

Our results – and the number of recent court cases where building inspections were found to be misleading – show our system needs a fix.

We’d like to see a licensing scheme. We’ll be putting our findings to the government and asking for action.

We also think the industry bodies have a role to play in ensuring services provided by their members are up to scratch. Unannounced spot inspections would be one way to do this.

In the meantime, here’s our advice:

  • Don’t rely on a report provided to you by anyone else (particularly the vendor). According to a Nielsen survey, a third of buyers who see a certified building inspector’s report before they buy rely on the one supplied by the real estate agent.

  • Ask inspectors about their professional qualifications and whether they’re registered with NZIBS, accredited to BOINZ or a member of NZIBI and follow the NZS4306 standard. It’s a good idea to see proof of their professional-indemnity insurance and ask about any notable exclusions – particularly if they relate to weathertightness.

  • Ensure every relevant name is on the written report. Whether an individual or trust, if they want legal rights if things go pear-shaped, they must be named.

  • Make note of when the inspector gives you the terms and conditions. If the company is going to impose significant limits, they must let you know prior to the inspection.

  • Read all terms and conditions carefully.

  • Don’t forget to check council records, including the Land Information Memorandum (LIM) report and note any mention of flooding. If you’re unable to, many pre-purchase companies will do this for you at an additional cost.

  • Check out our downloadable house inspection checklist (112 KB).

Problem area: sellers’ reports

Property inspectors also encourage would-be vendors to enlist their services before they put their house on the market.

One company says a pre-sales report “can be a valuable tool in the sales process. It not only allows you to repair any major defects prior to going to market, you can also share your report with potential buyers to give them the confidence to submit realistic offers.”

However, two of the three sellers’ reports we commissioned had a clause limiting liability to the vendor alone. NZIBS said professional-indemnity insurers did not offer third-party cover for reports, even if the inspector wanted it.

This means if the buyer relies on the findings of the sellers’ report, and later finds these were misleading, they may be left high and dry.

Some reports failed to identify all defects, like
Some reports failed to identify all defects, like

In one case involving a buyers’ report, the High Court upheld inspectors’ rights to use these clauses. That’s why we encourage buyers to pay for their own pre-purchase inspection.

However, we think sellers’ reports are a different kettle of fish. It’s common practice for these to be used in the marketing of a property. The report is likely to be distributed to buyers, who will consider this info when deciding to make an offer.

Neville Scott, NZIBI chief executive, said property inspectors needed to be upfront with sellers’ reports. “The clause – that they are for the client only – will only hold true if the inspector states clearly (and ideally in writing) when being contracted that the vendor is not to pass this report on to a third party without written permission.”

BOINZ chief executive Nick Hill said both the property inspector and the vendor could face legal jeopardy by providing a poor-quality report to a buyer. The organisation is concerned some real estate agents are recommending inspectors known to provide “soft reports that are effectively not fit for purpose”.

If you’re selling, be wary of any advice to commission or share these reports – instead, give buyers time to do their homework.