14sep pre purchase hero default

Pre-purchase building inspections

For many people a house is the single largest purchase they’ll make. But because most consumers know little about building they risk making a major mistake. Purchasing a building inspection before buying can help, though be careful who you call. The quality of inspections is highly variable and relying on a misleading inspection could see you out of pocket for tens, and even hundreds, of thousands of dollars.

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Building inspections which fail to pick up serious problems can be catastrophic for home buyers. In 2013 the Wellington High Court awarded damages of more than $200,000 to homeowners who unknowingly bought a leaky home based on a poor-quality inspection report. The judge ruled the inspector had failed to exercise reasonable care and skill and had breached the Fair Trading Act by providing a misleading report.

A similar case is making its way through the Auckland High Court. The buyers of a leaky home in St Heliers are suing the sellers of the property and the building inspector who provided a report on behalf of the sellers.

It seems the same house or property can receive quite different assessments from private building inspectors. After Wellington was rocked by a sizeable earthquake in August 2013, Julie Watson (not her real name) decided to have her house assessed for earthquake resilience. The inspection identified some urgent fixes – water cylinders had to be strapped to the framing and floor joists had to be fixed more securely to the house piles. However, there was nothing to suggest expensive repairs were needed.

Less than a year later Julie’s house was randomly selected for a research project that was investigating the condition of Wellington houses. A private building inspector – but a different one this time – was sent to Julie’s house. Again the cylinders were picked up. But Julie was told half the piles needed replacing. The likely cost of repairs was tens of thousands of dollars. One house, two very different assessments – Julie is left wondering which inspection she should rely on.

Key risks

Roger Levie, CEO of the not-for-profit Home Owners and Buyers Association of New Zealand (HOBANZ), believes the variable quality of pre-purchase building inspections is a huge problem. He told us he’s often hearing horror stories about buyers relying on reports that were later found to have missed major property defects.

Roger’s organisation was originally set up to support homeowners who found themselves with leaky and defective properties. A PricewaterhouseCoopers study from 2009 estimated that between 22,000 and 89,000 dwellings could be leaky homes and less than 10 percent had been repaired. In Roger’s opinion, many of those who have set up shop as building inspectors simply don’t know what to look for when these unrepaired homes are offered for sale. According to Roger, it’s not unusual to see from the photos in these reports glaring defects that have been missed by the inspector.

It’s not just the risk of buying an unidentified leaky home that buyers need protection from. Many home owners fail to adequately maintain their houses, which can mean unexpected and expensive repairs for an unsuspecting buyer.

In 2010 the Building Research Association of New Zealand (BRANZ) found that only 42 percent of owner-occupied homes had few defects and therefore were in “good or excellent condition”. The majority – 58 percent – had significant defects. BRANZ estimated that the average value of the repairs and maintenance required for these houses was $12,000.

BRANZ found that where maintenance had been done, it tended to be interior maintenance and cosmetic with “…less visible things considered to be of lower importance”. These are the type of superficial improvements that can dazzle an unaware buyer. The results for rental properties were even worse, with only 22 percent in good or excellent condition.

A key job of the building inspector is to identify areas where maintenance or work has been inadequate.For example, BRANZ found that 32 percent of owner-occupied homes had gaps in their ceiling insulation and in 25 percent of homes the insulation had been poorly installed. BRANZ attributed this to DIY – installing ceiling batts is something owners often do themselves.

Consumer protection

You can protect yourself against buying an inadequate or misleading building inspection.

You should only agree to buy inspections that comply with a “Residential Property Inspection Standard”. This was issued by Standards New Zealand in 2005 (it’s known as NZS4306). Inspectors don’t have to carry out an inspection to NZS4306 but you should insist on it.

NZS4306 requires a visual inspection only – it has no invasive tests. It’s basically an extensive checklist covering the interior, exterior, subfloor space and roof space. However, it doesn’t prescribe how a component of the house is to be inspected. Inspectors are also required to have a relevant “technical qualification” but what this means in practice is not defined. HOBANZ is dissatisfied with the standard and is working to develop an alternative approach.

While it could be better, NZS4306 does have the benefit that inspectors are required to have professional-indemnity insurance. This gives you added protection. There’s a risk inspectors will claim their reports comply with NZS4306 when they don’t. You should ask for proof that the inspector has professional- indemnity insurance. And check, too, what is and isn’t covered by the policy.

Trap for young players

When arranging an inspection, make sure the inspection report is addressed to everyone who is relying on it to make a property purchase. This includes family trusts. In August the High Court ruled that an inspector wasn't liable for a misleading inspection report because the property was purchased by the client’s company, not the client herself. This problem would have been avoided had the inspection report been addressed to both the client and her company.

Competency signposts

There is no licensing regime for inspectors – anyone can offer the service. So there’s no guarantee they’ll be good at their job even if they do carry out an inspection that covers all the areas mentioned in NZS4306. But three professional organisations are attempting, through their processes for registering and accrediting members, to help consumers find good-quality inspectors.

The NZ Institute of Building Surveyors (NZIBS) offers a registration process for building inspectors. 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 weather-tightness if they report on that. Each year they must complete additional learning required by NZIBS and have professional-indemnity insurance.

There are currently just over 100 registered members throughout New Zealand. Demand for their services is high (they are often involved in weather-tightness court cases and remedial work). So only a few registered members offer pre-purchase home inspections. We counted 20 in Auckland, 5 in Wellington and 10 in the South Island.

The core area of business for the Building Officials Institute of New Zealand (BOINZ) is supporting, through ongoing training, local-authority employees who work in the area of building consents. However, since 2007 BOINZ has offered an accreditation process for private building inspectors. The key benefit of this is that BOINZ accredited members must comply with NZS4306. Not only must they provide proof of this to get accreditation, but to remain accredited the inspector must submit reports each year for review. Currently there are just 14 accredited members, but BOINZ says the queue of members applying for accreditation is growing. Accreditation is the key to using BOINZ members: it’s accreditation that signals some minimum level of competency, not membership itself. We’ve seen reports where an inspector has highlighted his BOINZ membership, which was enough to reassure the customer. However, BOINZ only recommends using accredited members, which the inspector wasn’t.

The latest arrival is the New Zealand Institute of Building Inspectors (NZIBI). Chief executive Neville Scott says to get NZIBI registration inspectors will need to demonstrate they understand how to undertake an inspection correctly, report their findings in a clear and concise manner, and undergo ongoing professional development. NZIBI currently has 18 members.

What to pay

You can expect registered or accredited inspectors to be at the higher end of the fee scale for building inspections. This is partly because of the cost of professional-indemnity insurance.

Kaizon Ltd has several NZIBS registered inspectors. It told us an inspection of a three-bedroomed weatherboard house in Albany could cost around $890. House buyers can find cheaper options – some as low as $213 for an oral report only. While that’s attractive to buyers who may have to buy reports for several properties,the downside is they’re relying on an inspection which may be wildly inaccurate.

Lifting the bar

More could be done to improve the quality of inspectors. NZIBS, BOINZ and NZIBI could do this voluntarily – by doing unannounced spot inspections on their members as the Royal Institution of Chartered Surveyors does in the UK. Or they could require more demanding professional development from members. Introducing formal licensing of inspectors is another option. But lifting the bar for inspectors would do little to resolve the practical problems facing consumers. It would do nothing to increase the supply of accurate reports. For that to happen something more fundamental is needed (see “What if …”).

We say

  • Ask inspectors about their professional qualifications and whether they are registered with NZIBS, accredited to BOINZ or a member of NZIBI.
  • Ask for an inspection that meets NZS4306 and also ask for a sample report.
  • Ask to see proof the inspector has professional-indemnity insurance and ask whether the policy has any exclusions – check any exclusions closely, particularly if they relate to weather-tightness.
  • Make sure you and any co-purchasers are named as clients on the inspection report.
  • If you feel you have been misled or received an inaccurate inspection report, you can complain to the organisation to which the inspector belongs and take your case to the disputes tribunal.
  • If because of an inadequate inspection report you’ve purchased a home that needs repairs running into hundreds of thousands of dollars, it might be worth pursuing the most expensive option of going to court.
  • Check out our downloadable house inspection checklist (112 KB).

Inspector, surveyor, control official or what?

The labels given to people who produce pre-purchase property inspections can be confusing. We use “inspector” because it bears a close relationship to what the job is – producing building inspections.

The preferred technical term is “building surveyor”. However, building surveyors should not be confused with professionals who are responsible for mapping land and were traditionally called surveyors. They’re now often called “spatial professionals”.

Local authority staff who sign off building work are called “building control officials” – they were formerly known as “building inspectors”.

What if?

Suppose real-estate agents were legally responsible for providing accurate building-condition reports to both buyers and sellers and there was no limit on their liability for failing to do so. Agents would have an incentive to buy high-quality, independent building-inspection reports and to distribute these widely.

Agents would minimise their risk and buyers and sellers would have a report they could rely on, reducing the possibility of dissatisfaction and law suits.

Tentative steps are being taken to make agents more responsible for information about the condition of the houses they sell.

However, more could be done. Under the Real Estate Agents Act 2008 agents must tell potential buyers everything they know about the property. In June 2013 the Real Estate Agents Disciplinary Tribunal ruled that an agent who failed to alert interested buyers to potential weather-tightness problems with a house– even though the seller was unaware of the problems – was guilty of misconduct. The Tribunal said that “the defendant must have suspected from his experience that the property may be a leaky home.”

The comeback on agents for selling houses they haven’t investigated thoroughly is relatively minor. The unsatisfactory conduct in this case occurred before the 2008 Act, so the agent could only be fined the maximum pre-2008 penalty of $750. A more recent case occurred in 2012 and this time the agent was found guilty of unsatisfactory conduct and fined $2000. He did not lose his licence but was made to take additional training. Were these agents legally required to provide reliable reports about the condition of the houses they sold, they could have been liable for the full cost of the unexpected repairs.