Commercial Property Inspections:
by William J. Warren
President, National Inspection Services
In recent years, the flagging economy has forced many who earn their living through real estate to seek out any building-related work they can get—even if they are not qualified. Nowhere is this more apparent than the current, troublesome practice of residential home inspectors vying for commercial property inspection work.
Our staff has seen numerous examples of commercial property inspection reports as completed by residential inspectors. Every single one was deficient to the point of being not only of no value, but a liability for sellers, buyers and brokers involved in the transaction. While many of these residential inspectors are in fact competent, hardworking individuals, they simply do not have the training and expertise to complete a skilled and thorough commercial inspection.
First, commercial property inspections are completed through a standardized process with which residential inspectors are not familiar. We have included a rundown of the ASTM-designated commercial Property Condition Assessment (PCA) process below for your reference. Too often we have also seen supposed commercial inspections forced into the residential inspector’s standard inspection forms and process, to disastrous results.
Second, commercial properties are comprised of vastly different structural components and systems than residential homes. Foundations, mechanical equipment and roofing are just a few of the elements that differ greatly. A qualified home inspector may be very knowledgeable about home heating and cooling systems yet completely unaware of commercial HVAC equipment, to say nothing of common specialty appointments such as elevators, sprinklers, security elements etc. How can an inspector judge, let alone gauge the financial asset or liability of, a commercial chiller, for example, if he has never even seen one?
And third, skilled commercial property inspectors know when to call for additional specialized inspections. A buyer’s due diligence requires knowledge of possible environmental liabilities of a property, for example. A true commercial inspector can typically ascertain when an environmental inspection is advisable, often saving the buyer from devastating consequences down the road.
Sometimes we hear the argument that “simple” commercial properties, such as small medical office buildings or freestanding restaurants—typically less than 10,000 square feet—can safely be inspected by a knowledgeable residential inspector. Yet the construction and functionality of a commercial property, regardless of its size, is fundamentally different than the construction and functionality of a home. Materials are different. Codes are different. Uses are different. Public versus private access is a consideration. And the consequences of an excellent inspection are different. For a commercial property, the costs associated with possible unnoted repairs, deferred maintenance, code violations and environmental hazards can be ruinous.
Commercial real estate must be inspected by an inspector with significant and credible commercial inspection experience. Before retaining an inspector, check credentials. Consider education, training and experience. How many commercial inspections has this inspector completed? It is also recommended that your commercial inspector possess a professional designation in architecture or engineering or appropriate experience and/or certifications in the construction fields. Check for appropriate insurance. Ask to see a sample report. Review the inspector’s website and written materials. Keep in mind that the inspector’s report is only as good as the walk-through, and the walk-through is only as good as the individual performing it.
Commercial Property Condition Assessments
The formal Property Condition Assessment, or PCA, process is defined in ASTM standard E 2018-01—a 24-page standards guide that we helped author as an ASTM E-50 committee member in 2007. It consists of the following steps:
- Documentation review and interviews
- Walk-through survey
- Estimates of probable costs to correct deficiencies
- Property condition report
First, the field observer conducts a review of a property’s readily available documents, including government documents such as the certificate of occupancy, outstanding and recorded material building code violations and recorded material fire code violations. Owner-provided documentation such as appraisals, safety inspection records, warranty information on building systems, repair costs records and others are also reviewed.
Next, the field observer conducts a walk-through survey of the property. Typically, he examines and documents site conditions (such as storm water drainage and landscaping), utilities, structural frame and building envelope, roofing, plumbing, heating, air conditioning and ventilation, electrical systems, elevators, fire protection systems and interior finish items. Field measurements are taken to corroborate documented measurements. ADA compliance is also generally noted, as are Federal Fair Housing Act requirements. Additional assessments are completed during the walk-through if the property is a multifamily property, a commercial office building or a retail building. In addition to written notes, the field observer also takes representative photographs of the building’s exterior, roofing, structural systems, plumbing, etc. to augment documentation.
Based on the documentation review and walk-through, the PCA consultant then estimates any significant costs that will be incurred to correct physical deficiencies found on-site. The repair estimates may be based on commercially available cost information, vendor estimates or historical property costs for the property. While the PCA’s cost estimates are just that—estimates—and will likely vary from actual vendor bids at the time of the repair, they should help owners and buyers plan accordingly for projected repair costs.
Finally, a Property Condition Report, or PCR, is prepared. This document may be written by the field observer or by a second consultant. The PCR should include an executive summary, a general description of the property, a statement of general physical condition, an explanation of deferred maintenance, repair costs estimates and a discussion of any items of particular note or concern. Property photos are included in the report, as are copies of all documents used in the documentation review.