Do you own or plan to construct a building, such as a warehouse, apartment, or office, to use for your small business? If the answer is yes, be aware that your building may be subject to inspections. There are several types of property inspections, and only some of them may be relevant to your building. This article will describe the ones business owners encounter most often.
- Commercial property may be subject to inspection by insurers, fire departments, municipal building inspectors, and environmental professionals.
- Current building codes generally apply only to buildings under construction and to existing buildings undergoing renovation.
- Many states and municipalities require building owners to display a certificate of occupancy, a legal document stating that the building is fit for the purpose for which it’s being occupied.
- Business owners who invest in residential property should obtain a home inspection and a pest inspection before buying a home.
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.
The types of inspections performed on commercial properties vary from one location to another.
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.
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.
A local building department inspects each phase of a construction project as it’s completed. When the building is finished, the department conducts a final inspection and issues a certificate of occupancy.
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.
A home inspection gives prospective buyers an overview of the home’s condition and existing deficiencies, such as a nonfunctioning furnace or cracks in 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:
- Sewer or septic system
- Lead paint
In many states, the buyer must obtain a pest inspection when financing a home purchased with a Veterans Administration (VA) loan.
Frequently Asked Questions (FAQs)
When should you order a property inspection?
You should order a property inspection before constructing, renovating, buying, or selling property.
How much do home inspections typically cost?
The cost ranges from $200 to over $600, but the average is $330.
What are the advantages of having a property inspected?
An inspection can identify hazards or deficiencies that need to be addressed so your property meets building codes or your insurer’s underwriting standards.