Construction Loan Inspections

[Ron D. in NWA]

I have been contacted about doing inspections for construction loan draws. They are supposed to send me some info as to the details but if I understand them correctly there are no value's given, just percent of items completed. Do any of you do these? If no value is given how does this work with USPAP, or does it at all. Is there something I am not seeing that might be a potential for problems? Thanks for any advice from those wiser and more experienced,,,,,,,,,,,,

 

[TJSum]

Plenty of liability involved. Some lenders have draw sheets which makes it easier to complete the assignment per their checklist. Take tons of pictures, and then a few more. If the builder walks and you overstate the completion percentage, have your E&O on speed dial. Hopefully they will have a checklist draw sheet for you and document each answer with a picture.

 

[Mr Rex]

I do them as a Home Inspector, typically not as an Appraiser. Most appraisal E&O insurance frowns on them, you might want to check with your E&O provider. I charge enough to make it worthwhile, DDN wants to pay $35-45. I don't think so.

 

[Ken B]

Best gig I ever had was doing draw inspections; lost the job when a new LO decided he was going to do the inspections instead. Even wanted me to show him how to do them. Since I was a staff appraiser with the same company, I couldn't really tell him to totally stuff it. That was one "favor" that never paid off.

Anyhow...assuming you are not a code inspector, no one should be asking you to perform as one. M&S has a good breakdown of typical cost percentages for each building component. Many lenders also have their own breakdown sheet. You will probably be asked to inspect the property 5-6 times during the construction period. It can be very educational to observe the construction process and techniques. I would not consider draw inspections to be a valuation service.

Do not assume that just because workers are on site at the time of inspection, that they will not walk off as soon as you turn the corner. In other words, do not report anything complete that is not even if if looks like they are "close."

If you get in with a construction loan department that has a significant builder line, it can be a very lucrative job.

As an independant, I charged $75 a pop. Volume jobs got a discount, distant jobs were charged a premium. The best gig in the world is to do an appraisal for the construction loan, do the draw inspections, and do the appraisal for the end loan. Man, those were good times.

 

[Mr Rex]

Kenneth gets it. Just remember that its not complete until its complete. Make sure you have the plans and specs available and don't give full credit for anything not complete and little or none for anything half assed.

 

[Ken B]

One thing I would add is that the lender may be willing to pay out draws on "partially" complete categories. In other words, if a category is "plumbing, HVAC, and electrical rough-ins installed" and only plumbing has been roughed in, you may be asked to provide a percentage complete just for the that item.

You will probably get told something to the effect of "yeah, but the shingles were stacked up". Stacked up and nailed down are two different things. Again, if there is one thing that can come back to bite you, it's saying something is complete when it is not.

 

[Mike Boyd]

Ken and Rex said it all. I have never done inspections where I did not do the original construction loan appraisal. It would be nice if you could get a copy of the appraisal but be sure to get a copy of the plans AND specifications.

I charge $125 per inspection.

 

[Al Sorrentino]

http://liability.com/claim_detail.asp?ClaimID=95

 

[Andy Taylor]

On the last one I did the lender allowed partial credit for materials that were on site, i.e. pavers for the driveway that were there but not installed and built-in appliances that were there but not installed. I could not believe it. Made sure I got their OK in writing before I did it their way.

Be prepared for the pressure by the builder/owner/whoever to OK completion of items partially done. "The crew will be here in first thing in the morning to finish that up." Yeah, right.

 

[Pat Butler]

Come up with a good engagement agreement that allows for some 'slop' in your inspection. You don't want someone coming back and saying that you missed a few 2x4's that weren't in place. After all, if they want you to be perfect then it could be an all day job.

I was doing them for a local bank and found one contractor who was skimming money from one house to his others. He would overstate what was completed at the subject property then use the materials elsewhere. In one instance I found 4 very large steel beams ($15K) that weren't on site, yet he wanted payment for them.

Pay especially close attention to big ticket items that are suppose to be on-site or installed (depending on what you are suppose to be inspecting). Framing lumber cheap- stolen concrete or Viking ranges are not!