The National Association of REALTORS®, backed by HUD and the Mortgage Bankers Association, has introduced a so-called "Home Buyer Protection Plan" that urges FHA borrowers to get home inspections, but again falls short of calling on HUD to make the inspections mandatory.

According to the NAR, the plan "will serve as an educational tool to raise consumer awareness about the numerous benefits of obtaining a home inspection before a purchase is made."

Before signing a sales contract, home buyers will receive from a real estate professional a revised FHA disclosure form including details about the importance of a home inspection. Following a review of the information, buyers will be required to indicate on the form as to whether they intend to request an inspection.

For years most real estate brokers recommended that consumers order home inspections as part of their due diligence before making the purchase. Since December 1997, FHA buyers have been required to sign a disclosure form whether they had an inspection done or not.

NAR says the new plan places special emphasis on thorough knowledge of home inspections by strengthening the disclosure statement and making it more prominent in the transaction.

Despite their urging, warning and recommending, however, neither NAR, HUD nor the MBA have ever called for home inspections to be mandatory, even though in most cases the homes being considered tend to be less expensive and often in disrepair.

"We feel that when an appraisal is done correctly, the appraiser should catch any serious structural problems," says HUD spokesman Victor Lambert. "The appraiser should be able to find roof problems and foundation problems. We are insisting that appraisers take more than a cursory look. We want a more thorough inspection.

"And if the appraiser believes there is a problem, he is required to suggest that the purchaser get a home inspection."

Lambert said HUD has stopped short of requiring the inspection, however, because of the cost.

"You have to remember who our clientele is," he said. "We are working with low and moderate income people. Home inspections cost $250, $500, even $1,000. That's a lot of money when you are talking about people who have to work pretty hard to scratch together a couple of thousand dollars for a down payment. That additional money (for an inspection) would just make it that much harder."

Critics frequently complain that one of the major problems of moving low-income people into homes is that the homes they can afford tend to be of lowest quality and in highest need of repair. Unless those repairs -- and their potential costs -- are estimated up front, however, the buyer may not be getting a true picture of what the house will cost to live in.

Critics worry that after the purchase, the marginal home buyer, already strapped for cash, may not be able to afford to keep up the home -- resulting in its potential foreclosure or abandonment.

NAR President Sharon Millett said under the new program, "Realtors and lenders will play an integral role in helping FHA buyers understand the importance of a home inspection and the difference between an appraisal and an inspection. Home buyers will gain a better understanding of the appraisal and home inspection processes and be able to protect themselves from buying properties in need of expensive repairs."

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Published: June 14, 1999

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