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Doing Due Diligence Before Buying

With interest rates at historic lows, my husband and I are in the market for a new apartment. So far we’ve seen a few places on the Upper East Side, and while we’ve haven’t found exactly what we’re looking for yet, all of the properties seemed to be of good quality to our untrained eyes. However, we’ve been reading news stories about several recently built luxury high-rise buildings in the City that have been plagued with a multitude of problems, including leaks, mold, poor heating and ventilation, and just plain shoddy construction. These accounts have us worried that we might miss some serious defect in a property that could rear its ugly head after we’ve moved in. We’re wondering if we should hire someone to inspect the apartments we’re interested in before purchasing one. What things does an inspector look for, and how do we know which deficiencies are reasons not to buy? Is there less cause for concern with a newer building than an older one that has seen its share of wear and tear?

Purchasing a home is the single biggest investment most people will make in their lives. Given the amount of money they will spend, it’s not just prudent but absolutely essential that buyers know what they are getting. Needless to say, the condition of a building has a marked effect on the value of the property and the quality of life for its residents. Hiring someone to conduct a due diligence “pre-purchase” survey before buying will head off a lot of headaches, not to mention the surprise of being hit with a share of higher maintenance and repair costs later on.

The role of a home inspector, however, is not to advise prospective buyers whether they should purchase a particular property or if the property is worth the asking price. Rather, an inspector’s job is to perform a thorough visual evaluation of the apartment, the building, and the various systems and components so prospective buyers understand the property’s condition and can make an informed decision on their own

Examining Top to Bottom
It’s natural for prospective buyers to focus more on the apartment itself than the building as a whole. They tend to take note of such things as room layout, ceiling height, lighting, the view, carpeting, paint color, wallpaper design, fixtures, moldings, etc. While these are important considerations from a standpoint of comfort and aesthetics, they tell you little about the health of the building.

The majority of building problems originate outside individual apartments, mostly from the roof level, the exterior walls, and the mechanical systems typically originating in the basement. With that in mind, a pre-purchase survey of any property should thoroughly cover the following main building systems and components, from top to bottom:

• Roof and roof level structures, including roof surface, parapet walls and copings, mechanical and stair bulkheads, flashing, counterflashing, and chimneys. Ponding on the roof is a serious warning sign of potential water infiltration.

• Facades and exterior walls: Open or eroded mortar joints and displaced, spalled, or cracked bricks could indicate structural and waterproofing problems. Other facade problems can originate at windowsills, window and door lintels, cornices, ledges, and decorative stone elements. Such defects may also be in violation of New York City Local Laws 10/80 and 11/98, which mandate facade inspections and maintenance on buildings taller than six stories.

• Terraces, balconies, decks, and patios can be a significant source of water penetration into the building if not properly maintained. Heavy planters or furniture on a terrace can damage the terrace deck or roof surface.

• Heating and ventilation systems: A properly maintained boiler or furnace is a must. Boiler rooms should be properly ventilated to increase the lifespan of boilers, furnaces, and heaters. The age of the mechanical equipment is also key. Hot water heaters, for example, can last from 10 to 15 years, but they can start leaking suddenly. Rooftop vent stacks and chimneys need to be checked to make sure they’re not covered or clogged.

• Plumbing and drainage: Lead pipes in older buildings are a potential health hazard, and galvanized pipes can rust and restrict water flow. Tile floors in shower stalls can be a problem because of the poor condition of underlying old lead pans.

• Main electrical service: There must be adequate electrical capacity coming in to the apartment, and each apartment should have its own main disconnect for electric fire safety. Circuit breakers are preferable to fuses. Ground Fault Circuit Interrupters (GFCI) prevent shocks in bathrooms and kitchens.

• Walls, floors, and ceiling and floor joists that have shifted, cracked, or settled may be a warning sign. Significant cracks or shifting in the basement or lower floor walls could mean the building has been structurally weakened.

• Windows: For energy efficiency, windows should be double-paned, thermally insulated units and open, close, and lock properly without requiring extra force.

• Elevators and compactors: Elevator cabs should stop evenly with the floors, and doors should open and close fully and smoothly. The equipment in the elevator motor rooms and in compactors should be checked for age and wear.

• Site exterior: Sidewalks, curbs, entrances, driveways, rear and side yards, fences, gates, railings, steps, and banisters are integral to the property’s safety and appearance.

• Fire escapes that are loose or rusted or have missing steps or rails are a safety hazard and could violate the fire code. Particular attention should be paid to the fire escape anchors into the building, where metal rust can displace masonry.

• Air conditioners: Window-mounted units should be properly secured by brackets. The sleeves of through-wall units, if not tightly sealed, will allow water to penetrate.

• Common areas, such as lobbies, stairwells, and laundry rooms must have adequate lighting, clear access, and be free of debris and tripping hazards.

Some central system defects do manifest themselves from inside an apartment. Stained or cracked walls, for example, may indicate larger problems with the building’s waterproofing, while discolored water could mean corroded piping. Other conditions, although not critical to the building’s health, can nonetheless be annoyances for new owners and should therefore be pointed out by the inspector.

While the evaluation of design or decorative elements within the apartment is left to the prospective buyer, an inspector should not overlook what may seem as routine or trivial items. He or she should walk into every room and test the floors for creaking, sagging, or loose boards; look in closets, in cupboards, and under sinks; open and close doors, windows, drawers, and cabinets; turn on faucets to check water pressure and color; flush toilets; and turn lights on and off. The intercoms and door buzzer should be operated and door latches should be checked to see if they work correctly. (As a rule, inspectors don’t check refrigerators, dishwashers, washer, dryers, or other appliances, so prospective buyers should make sure they work properly.)

It should be noted that an environmental evaluation is not typically part of a basic due diligence survey. Prospective buyers concerned about asbestos, lead paint, radon, or mold may want to consider hiring an environmental consultant to test for these and other potentially hazardous substances. (Most New York City buildings built before 1960 will contain lead-based paint.) Similarly, although an inspector can usually detect obvious signs of termite damage, a specialist should be called in for more extensive testing.

No Building’s Perfect
Prospective owners should realize that no building or apartment is in perfect condition. While problems in older buildings are usually related to years of slow deterioration and insufficient maintenance, recently built buildings can have their share of troubles, too, as disgruntled shareholders in the high-profile properties you mention in your question will attest to. Pay no mind to brokers who tell you that you don’t need to inspect a property just because it’s new and therefore supposedly “free of flaws.”

Some of the deficiencies occasionally found in newer properties include unfinished roofing membranes; missing flashing or counterflashing; the wrong model of heater, boiler, furnace, or air conditioner installed; water or heating pipes not properly attached or insulated; pipes with brackets left off; outlets and switches reversed or improperly installed; and hot- and cold-water plumbing fixtures reversed or leaking, among others.

Not every deficiency is cause for alarm, of course, or reason to rule out a property from consideration. But knowing as much as possible about a property gives a prospective purchaser critical information for making a decision. If he or she does decide to buy, the inspector’s findings provide a useful list of items that the new owner can address with the broker or owner before the closing.

Choosing an Inspector
Experience is the first consideration when choosing an inspector: The more surveys an inspector has done, the more likely he or she will know what to look for and be able to spot the small defects that often warn of problems later on. Credentials are also important: To be certified by the American Society of Home Inspectors (ASHI), the industry’s recognized authority, inspectors must conduct a certain number of inspections, have their reports reviewed, pass a test, and take continuing education credits.

Another distinction among inspectors is that only licensed professional engineers (P.E.) are allowed by New York State law to evaluate a building’s structural conditions. Moreover, licensed professional engineers experienced in preparing specifications and drawings for building repairs, and who observe on site how the repairs are made, will have a greater familiarity with the different building systems and components they are inspecting.

The thoroughness of the survey and the completeness of the report are crucial criteria for hiring an inspector. Depending on the size of the building, the inspection should take at least two hours, conducted during daylight hours for best visibility. The inspector must have access to all areas of the building, including the roof, fire escapes, basement, common areas, exterior site, and of course, the apartment itself. While not required, it is strongly recommended that prospective buyers accompany the inspector (who should be taking detailed notes) during the survey to see for themselves those items that call for particular attention. Be wary of any inspector who discourages you from tagging along.

The inspector conducting the due diligence survey should provide the prospective buyer with a detailed narrative report of his or her findings. The report should list all the deficiencies identified, itemized by priority; recommendations for replacement and repair; and how much remaining life can be expected from existing systems. Preliminary budgets for repairs and replacements should also be included so prospective buyers have a reasonable estimate of the increase in monthly maintenance costs the Board will pass along if those repairs are made. Finally, photos of the deficiencies found during the survey provide visual evidence of the building’s condition. (If serious defects are found, such as an unsafe boiler, or if the building is in serious violation of building code safety provisions, the inspector should notify the broker or the building’s owner.)

The qualifications of the person conducting the inspection, and the comprehensiveness of the survey and the report will largely determine the cost. Some inspectors will charge as little as several hundred dollars while others, depending on the age and size of the building, may charge up to $2,000 or more.

A good home inspector will conduct a due diligence survey as if he or she were personally considering buying the property. Chances are, an inspector charging on the low end isn’t a licensed professional engineer or ASHI certified and will likely provide only a checklist of items or a note sheet rather than a detailed narrative report with budget projections and photo supplement. Although the higher cost charged by an experienced professional may seem expensive for a few hours work, the information provided could prove invaluable in making a decision on such a crucial, long-term investment.

This column was originally published in the September 2003 issue of Habitat Magazine.

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