The shocking truth about home inspections costing buyers millions

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Tim* bought his house almost sight unseen because he worked in a mine and had trouble attending open homes. He chose the two-storey property partly based on faith in a building and pest inspection report that was found to be dangerously defective.

Upstairs on the toilet late one night, the divorcee heard faint scratching and put his ear to the wall. As he leaned in, the noise grew louder. Lifting a faux wood panel, he saw fibrous timber framework, thinned and littered with termites.

The pest report said there was no termite damage, but independent testing found the home was riddled so badly that the upper floor was condemned.

The negligent pest inspector was insured, but the insurer denied the claim for 20 months until it reached the courthouse steps. Tim’s costs were $110,000. Despite winning a payout, demolishing the house left him $100,000 out of pocket.

His case is one example of systemic problems with the NSW pre-purchase home inspections regime, which is plagued by inadequate reports, real estate agent manipulation and a lack of proper qualifications or standards for inspectors. These shortfalls can lead to buyers being stuck with defective homes that are at worst unlivable.

Mandatory licensing for NSW pre-purchase inspectors was cut along with other “red tape” in 2009, saving the NSW government $22,000 a year in administering the scheme. But when inspectors are found negligent, there is no penalty because there’s no licence to lose, said Josh Brook, a building inspector who also serves as an expert witness in defect claim cases.

“The issue in the industry is not so much the licensing – it’s the near monopoly of real estate agents and online platforms [in selling inspection reports],” Brook said.

Brook said he’s in court, where most cases settle, 15 to 20 times a year but has recently witnessed a 70 per cent increase in legal battles.

For example, an inspector in southern Sydney was found negligent for failing to find termites twice, yet agents continued to use the inspector, he said.

“The problem is the home buyers – we’ve seen countless cases where they don’t have $30,000 or $50,000 to start legal action.”

Bartier Perry partners Sharon Levy and David Creais said no qualifications were required for a person to call themselves a building consultant for pre-purchase inspections.

“It’s not subject to any kind of policing or checks,” they said. “You don’t even have to have professional indemnity insurance, so that leads to obvious problems.

“We’ve got a lot of aggrieved purchasers coming to us ... who had purchased on the assumption that their property was fine after looking at the vendor’s pre-purchase inspection report.

“On the flip side, we’ve heard of inspectors who are being prevented from inspecting properties because the agent is concerned they’re actually going to give a proper or a truthful report, and then potentially the agent loses that sale as a result.”

They’ve seen homes with significant water defects, structural integrity issues and undetected termites.

“It can be absolutely devastating, especially for first home buyers, a young family, moving into what they think is their dream house, finding out in some cases that it’s dangerous, it’s uninhabitable,” Creais said.

Lawyer Nick Pidcock said that when a buyer sues an uninsured inspector over a negligent report, the inspector can “phoenix” their company by placing it into liquidation and rebirthing it under a new name with new directors to avoid paying damages.

The rise in agents commissioning reports directly as a “marketing tool” was confirmed by a dozen inspectors and industry experts who say that fast, cheap and unreliable assessments prepared by unlicensed inspectors miss major defects.

Increasing negligence cases have doubled some indemnity insurance excesses up to $15,000 for inspectors.

Pidcock is working on a case testing the liability of an agent for engaging an inspector who provided a substandard report. However, most disputed cases don’t go to trial because insurers settle or plaintiffs drop the case due to litigation costs.

“There are also concealment cases, where the vendor is aware of the damage and then takes steps to actively conceal it with the intention of deceiving the buyer,” Pidcock says.

David Hall’s inspections include thermal imaging and moisture testing. Some inspectors do visual-only assessments.

David Hall, a past president of the Australian Society of Building Consultants, started doing inspections in 1986 but moved away about 2005 when real estate agents “took control”.

“Most of my pre-purchase building-only reports are $850 or $1200; however, people are paying $450 to $600, and some of them include the pest inspection and are totally generic,” he said.

Online platforms such as Before You Buy (BYB) have distributed more than 680,000 pre-purchase inspections nationally. They list inspectors whose rates start from $420 for a combined building and pest inspection.

Some franchised operators produce reports “rendered worthless” by the sheer number of disclaimers and exclusions, Pidcock said.

BYB chief executive Rhys Rogers said about 200 NSW inspectors are listed on its platform and about 10 have been removed since launching in 2015.

“We only use inspectors that have the relevant insurance cover,” Rogers said. “About 70-80 per cent of inspection reports on the platform are initiated by vendors or real estate agents.”

Buyer’s agent Tiron Manning commissions independent reports for many of his clients because some vendor-initiated reports lack detail, and downplay or miss major defects.

“Real estate agents are using vendor reports as a tool to close deals quicker by encouraging people to go unconditional,” Manning said.

Recently, Manning compared an 11-page vendor report to an 82-page independent report, finding $300,000-$400,000 worth of issues not mentioned in the vendor’s version.

He raised the significant discrepancies between reports with Fair Trading and the former building commissioner, but no action was taken. The issue was not under the building commissioner’s authority and Fair Trading didn’t receive enough complaints to make it a priority, he said.

“Buyer’s agents have to have [indemnity] insurance; surely building inspectors should as well, just to reflect the scale of the advice they are providing.”

Since 2021, the Department of Customer Service said it received 26 complaints relating to pre-purchase inspections.

All of these were either resolved, or consumers were advised to seek legal redress via the NSW Civil and Administrative Tribunal or obtain legal advice, a spokesman said..