In response to my students in the home inspector course I'm instructing near Baltimore, the following response is posted...
NOTE: these figures and estimates are based on the Anne Arundel market.
The daily avg overhead rate (256 work days) = $70/work day.
The hourly rate for professional field inspector within this area = $40/hr.
The average number of inspections done = 50/yr.
Travel costs are $0.56/mile & avg. distance to site is 10 miles from office
The assumptions also include the following:
1. The inspector has at least two years of experience, is licensed, etc.
The Break Even Point (BEP) Math
2. Inspection equipment is mid-range/modest: it doesn't include FLIR, etc.
3. Inspector uses software generated/checklist based reports.
4. Inspector's firm pays applicable taxes, fees, insurance premiums, etc.
5. The firm engages in a modest level of advertising <$2,100/yr.
6. The firm has financial commitment for admin, bookkeeping, etc.
A typical, full-scope home inspection will take about 4 hours to complete. The report takes an additional hour and results in a total labor cost of $200.
Daily fixed and variable overhead costs are calculated at $70 per day. Note: if there are two inspections that day, this cost is halved. However, most days have just one scheduled.
Travel costs for inspection 10 miles from the office is $11.20.
Delivery costs associated with the client's report and required filing/retention averages $8.
$200 labor + $70 ovhd + $11.20 travel + $8 report admin = The gross BEP price of a typical inspection =$289.20
The "Cha Ching!" Math
The "standard" profit w/in the construction trades is 10-15 percent of total gross invoice. Assuming the low end of this scale, the profit from an BEP priced inspection would be $28.92.
$289.20 Gross invoice + $28.92 profit margin @ 10% = $318.12
Of note: the profit margin would have to be below 4% to bring the cost of a legitimate home inspection under $300!
Given all of the liability risks and pitfalls, would you take on a job like this for less than 4 percent profit? Yet, there are numerous inspectors--some unlicensed--who take inspections from Thumbtack, Craigslist, and agent referrals for less than $200. Of course, we hear and frequently get to see first hand the aftermath of these "bargain inspections" as part of our day job as home improvement contractors.
So, far from complaining about incompetent, super cheap home inspections, I wish these erstwhile competitors all the best. In fact, I hope that even more homebuyers seek out the cheapest inspection they can find--get on Thumbtack, et al and get that the bidding down as low as it will go! It's good for our business, for it's much more profitable for us to come and fix that house with the undisclosed and undiscoved defects as a licensed home improvement contractor AFTER it has been purchased!
Still, most home inspectors are not also home improvement contractors, so, since their livelihood is at stake, what can they do to become price competitive with budget priced "Chuck in a truck?"
What an inspector could do to bring their basic inspection price down below $300
1. Drop optional insurance coverages that protect their clients, such as Errors and Omissions (E&O) policies or INACHI's home buyback guarantee program. Low-priced competitors typically don't carry these policies because they are not required to maintain home inspector licensure in Maryland. The only insurance required by the state is general liability coverage for a minimum of $150K. Note that this policy will do absolutely nothing to pay for any errors or oversight on the part of your home inspector. If the inspector you hire doesn't have additional coverage, your only recourse is lengthy, potentially costly litigation. Of course, you can still complain and here's a convenient link for the form to do so MD DLLR's Link to Home Inspector Complaint Form
2. Stop attending more than the minimum professional development training required to maintain licensure. Most low-priced competitors seek out the cheapest, shortest, & easiest training available for the small number of courses that are required by the state's Department of Labor, Licensing and Regulation (DLLR).
Continuing Professional Competency Training Requirements for MHIL
3. Drop memberships to professional inspection associations and disengage from home inspection groups and blogs. Most associations, such as the International Association of Certified Home Inspectors (INACHI), require continuous education and dues to remain a member in good standing. Low-priced competitors don't have time to spend on networking with colleagues, additional education and testing, or keeping up with developments in new building technologies or inspection issues.
4. Stop upgrading inspection equipment and software. Most low-priced competitors are still using the same basic tools and references they initially trained with.
5. Find shortcuts and other ways to reduce the amount of time spent on an inspection. Most low-priced competitors will spend less than two hours from start to finish--about half the time needed to perform a complete evaluation of the home's systems.
6. Insist on delivering a generic, preformatted report on-site. Most low-priced competitors are extremely reliant on checklist-based reporting software to cover their lack of experience. Many of these programs can be quickly sped through to produce a report that can be printed off/e-mailed before the inspector leaves. Unfortunately, a fast and cheap report is rarely any good, and once they have delivered the report they are done!
7. When it comes to describing your experience and competency, exaggerate, exaggerate, exaggerate! Then, solicit temporary workers who can operate under cover of your license and pay them at the general labor rate. Some low-priced competitors simply "fake it until they can make it" and charismatically convince their clients to stay focused on the "deal" they're getting on the price of their inspection (or the home they're going to buy). Referrals were given to you for a reason! If you didn't specifically go out of your way to ask for it, and the person you got the referral from isn't your friend or family member, what likely motivated that individual to provide this "assistance?" Is their motivation in your best interest???
MD Home Inspector Ethics and Standards of Practice links
8. Change your name or move elsewhere. When their slipshod service and general incompetence finally begins to catch up to them, many low-priced competitors seek out new markets under a new pseudonym. Beware the recently established company with the unbelievably low prices!
9. Toss the moral compass: disclaim and disavow! Insist on putting as little as possible in writing. Take only a few germane pictures and point out only the most obvious of defects. Many low priced competitors even have "hold harmless" clauses buried in the fine print of their inspection agreements. Ask to see previous reports and read all agreements carefully!