Moses Kagan on Real Estate

Termite inspections are a racket

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There, I said it.

Almost every real estate transaction in Souther California involves a termite inspection and repair. Here’s what happens: The buyer’s agent includes a request for a termite inspection and repair in the purchase agreement. The seller agrees because he doesn’t know he can push back. The listing agent chooses a termite company he’s worked with before to carry out the inspection.

The termite company inspects and produces a report which is shared with both buyer and seller. The report invariably says there’s termite activity and repairs and possibly fumigation are needed. Everyone is so anxious to do the deal that the seller just authorizes the company to do the recommended work and pays for it out of the purchase consideration coming from the buyer through escrow.

What’s so bad about this? Well, the quote is almost always ridiculously high. The companies charge thousands of dollars for work that a handyman could do for a few hundred. Why does this happen? Because the person arranging for the termite inspection (the listing agent) has no stake in the outcome (the price paid for the work) because the seller is paying out of his pocket.

In the end, the buyer gets spooked by the report. The buyer’s agent has to talk the buyer down from the ledge. The seller gets soaked for a big unnecessary expenditure. And both agents’ asses are covered by the report. The repairs benefit no one. And the termite company makes a big fat profit.

(Can you tell I’m about to run across town for a termite inspection?)


Written by mjkagan

05/24/2012 at 11:00 am

Posted in Brokerage, Buying

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