Investors often buy properties in “as-is” condition. While there is certainly nothing wrong with that practice, less experienced investors often forget that “as-is” is not the same as “sight-unseen.” I buy property as-is on a regular basis, but I certainly do due diligence. I make sure I know what I am getting myself into and what issues need to be addressed before I spend the money.

So how can you get those walls to tell their secrets?

A few of the more popular methods are:
• Home inspection
• Insurance report
• Seller’s disclosure

Home Inspection
Home inspections are one of the most popular and thorough ways to examine a property. There are several people who may inspect a home:
• Professional home inspectors
• Contractors
• You, the prospective buyer

Professional Home Inspectors
In the residential real estate industry, professional home inspectors are most commonly used for property inspection. Many companies provide this service, from small, mom-and-pop operations to national franchises. These companies show up at your potential purchase prior to closing, bringing with them ladders, flashlights, electrical testing equipment, and many other tools and resources to help them evaluate the property. They take a look at everything, from the basement and foundation to the roofing material.

A typical home inspection should take anywhere from three hours to a full day, and should cost anywhere from $300 to $750, depending on the size of the house and scope of the inspection. At the conclusion of the process, the inspector will produce a rather large binder containing information about your prospective purchase and listing any issues or potential issues with the property.

As with the hiring of any contractor, you should do your due diligence. The following are just a few things to consider when hiring a home inspector:
• The inspector’s credentials and experience
• The inspector’s licenses
• Their references
• Their membership and status with the Better Business Bureau

When choosing a home inspector, I recommend that you find your own. If you work with a realtor who likes a particular inspector, and you are comfortable with that, then okay, but sometimes the seller’s realtor or the sellers themselves will recommend a home inspector. I consider it bad practice to take the recommendations of the seller, simply due to the conflict of interest. The sellers and their agent may have the best intentions in the world, but it is up to you to look out for your own best interests.

Contractors
If you have been an investor or rental property owner for a while, you have probably developed relationships with contractors who are very good at what they do and who are a wealth of information. These people can be a great resource when you need an inspection conducted.
You will likely be able to establish a better working relationship with a contractor than with a professional home inspector. This means that the contractor will probably have your interest at heart a little more than the professional home inspector would. While both the professional home inspector and the contractor are likely to do a thorough job, a relationship with a professional home inspector is more likely to be one that is maintained at arm’s length.

A contractor may or may not be less expensive than a professional home inspector, and will probably not give you the results of his inspection in a way that is quite as organized or aesthetically pleasing as the binder you might receive from a professional home inspector, but remember, it’s not how slick and glossy the format of the report is, but the quality and accuracy of the information in the report that it is important.

You, the Buyer
If you are a well-seasoned investor, rehabber, or contractor, then you are probably more than capable of doing your own home inspections. I know several investors who do them—successfully—every time. So consider doing your own inspections, but only if you are an experienced investor.

As you become more and more successful, there may be a point at which you wonder whether or not you really want to continue doing your own inspections. Is it not a better use of your time to be out putting deals together and have someone else do the inspection? Until then, however, you may very well be able to save yourself that inspection cost.

Insurance Reports
When we buy cars, one of the first things most of us ask for is a CARFAX® report. We want to know if there have been any significant repairs or damage done to the vehicle. As long as an insurance claim was filed, the information will show up on the CARFAX® report. However, if there wasn’t a claim filed, it probably won’t show up on the report.

In the real estate business, there are several services offered to buyers that are comparable to the service offered to automobile buyers by CARFAX®. Two of these are Property Fax (www.uspropertyfax.com) and First American C.L.U.E.® Report (www.fanhd.com). They provide information concerning any insurance claims filed on the home in the past, whether the claims were paid or not. As with the CARFAX® report, though, if no claim was filed, nothing will show up on the report. These sites are not free, but the cost is minimal when compared to the money the information could potentially save you.

While these reports are helpful, but I don’t feel they are nearly thorough enough to be solely relied upon to make a decision to close or not. I see this information being utilized in conjunction with the physical inspection performed by the professional home inspector, contractor, or the buyer. I have found my insurance broker to be helpful in this area as well. Before you close, you should have or will need to have a home-owner or landlord policy in place. If numerous claims have been filed on the property in the past, regardless of the person who filed them, you may not be able to get coverage for the property. Check with your agent about this.

Seller’s Disclosure Report (SDR)
The seller’s disclosure report (SDR) is last on my list of methods of discerning the secrets of a property. In my opinion, they are not often very informative for a number of reasons. Many sellers simply don’t know the answers to many of the questions and, as a result, the report is full of “UNK” (unknown) or “D/K” (don’t know). In the rare instances in which the seller does produce a complete SDR, the investor must verify everything. Essentially, one can use the SDR to confirm information gathered from the physical inspection, but that is largely where its usefulness stops. In fact, as a buyer, I no longer even ask the seller for an SDR report.

Once you have obtained all information possible about the condition of the property you are considering purchasing, you will be in a better position to make an informed decision. You will know whether the property is worth the asking price, and, if not, you will be knowledgeable enough to renegotiate a more reasonable purchase price.

So remember, through the home inspection, the insurance report, and occasionally, the seller’s disclosure, those walls can talk, and the secrets they tell you will make you a more informed buyer.