What Are Property Inspections?
Most property inspections are conducted to identify hazards on the property or to determine whether the property meets standards established by a government entity or an insurer. An inspection may be performed by an engineer, an insurer, a private inspection company, or a building inspector employed by a state or local government. Some inspections are voluntary, while others are mandated by law.
Types of Inspections
Most inspections of business-owned property fall into one of the categories outlined below.
City and State Inspections
States and municipalities conduct inspections to ensure that buildings meet codes established by state and local governments. Generally, new codes apply only to buildings constructed after the codes become effective. If you own an existing commercial building, new codes won’t apply unless you reconstruct, rehabilitate, or alter your building, or change its occupancy. Many state and municipal building codes require building owners and tenants to obtain a certificate of occupancy (C of O). A certificate of occupancy is a legal document issued by a building official stating that the building is fit for the purpose for which it’s being occupied. The certificate must be posted in a conspicuous location. It gives assurance to building owners, tenants, employees, and others that the building meets the safety requirements of the code stated in the certificate and that it’s legally occupied. A new certificate must be obtained if the occupancy changes (say, from a retail store to a restaurant) or the building is renovated. Some municipalities require owners of residential rental units to obtain a certificate of habitability. This document is similar to a certificate of occupancy. A new certificate may be required periodically, such as every five years, or when tenants change, whichever comes first. Another type of government inspection is one conducted by a municipal fire department to determine whether a commercial building complies with city and state fire codes. Inspectors look for fire hazards, such as blocked exits, missing fire extinguishers, and combustible materials stored in boiler rooms. The inspector typically gives the property owner a specified amount of time to correct any deficiencies, then does a repeat inspection. Property owners who fail to comply with fire codes may be subject to a fine.
Construction Inspections
Newly constructed buildings and buildings undergoing renovation must meet current state or municipal building codes. Typically, the project owner files an application, along with drawings and specifications, with the building department to obtain a permit. Construction begins once the permit is approved.
Insurance Inspections
A primary purpose of an insurance inspection is to verify that the description of the property provided by the policyholder is accurate. Another is to identify hazards on the property that could cause losses unless mitigated by the policyholder. Here are some things an insurance company might look for during an inspection:
Hot spots in an electrical panel that can indicate faulty wiring Damage to roofing materials caused by hail, wind, or wear and tear, which can cause leaks Trip-and-fall hazards in parking lots and walkways Poor housekeeping or other hazards in areas leased to tenants Problems with boilers or other equipment that could lead to breakdowns Deficiencies in fire suppression systems (for example, sprinklers) or life safety equipment (such as emergency lighting)
Environmental Site Assessments
When a business buys commercial or industrial property, there’s a risk the land or buildings could be contaminated with hazardous waste. The buyer can avoid a costly cleanup by obtaining an environmental site assessment (ESA) before purchasing the property. An ESA is conducted by an environmental professional and consists of two phases. Phase I involves a records review, a site inspection, and interviews with owners, occupants, neighbors, and local government officials. If the Phase I inspection indicates that hazardous materials may exist on the property, a Phase II assessment is conducted. During a Phase II inspection, samples of soil, water, and other materials are collected and tested for the presence of hazardous materials. If the tests are positive, the ESA should identify the steps needed for cleanup.
Residential Property Inspections
Suppose you own a real estate investment business that buys and sells homes. What kinds of inspections do you need? Probably the most important is the home inspection, an objective visual examination of the physical structure and systems of a house, from the roof to the foundation. Another important residential property inspection is a pest inspection (also called a termite inspection). Its purpose is to identify the existence of termites, wood-boring insects, rodents, and other animals that have damaged (or could damage) the property. While home and pest inspections address many aspects of residential property, they don’t cover those listed below. Depending on the age and location of the property, the buyer or seller may choose to have one or more of these items separately inspected:
WellSewer or septic systemLead paintChimneyAsbestosRadonMold
In many states, the buyer must obtain a pest inspection when financing a home purchased with a Veterans Administration (VA) loan.
