Developing a National Standard Home Condition Rating System: NHCRS
There is a standard system that is nationally accepted for appraising the value of a home.
There is also a standard credit rating score system accepted nationally for rating the ability of the purchaser to handle the debt incurred when purchasing a home.
There is no national standardized method of evaluating the condition of a home.
In 2002-2004, the U.S. Government Accountability Office (GAO) conducted a study for the FHA to determine if the inspection of a home to determine its condition should be a requirement for FHA-backed mortgages GAO-04-462).
The FHA already requires an appraisal that is more detailed than a standard appraisal. This appraisal takes into consideration defects that could have adverse effects on the health and safety of the occupant and the integrity of the property.
The results of an additional evaluation of the condition of the property or a rating system to determine the condition could have an effect on the ability of the owner to pay the debt if defects would have to be repaired or components replaced.
For the GAO study, thousands of borrowers were interviewed within one year of purchasing a home. The borrowers were asked if a complete home inspection was important in their decision to purchase and their ability to pay for the home. They were also asked other questions such as: Was the price of the inspection worth the results obtained?
The majority responded favorably to having a complete inspection to determine the condition of the property prior to purchase.
Nevertheless, the GAO concluded that since there was no national standard for inspecting the condition of a home, a complete home inspection is suggested, but would not be a requirement, for the FHA-backed mortgage. When homeowners were asked about problems experienced in the home after one year of occupancy, the number one issue was the operating condition of appliances. Most, if not all, national home inspection association standards of practice do not even require the inspector to inspect the appliances.
Based on the need for a standard, I have developed a National Home Condition Rating Score (NHCRS).
The home condition rating score would be a simple way to determine the overall condition of a home, with a scoring system similar to the credit score rating. The addition of a home condition rating tool would help the purchasers, lenders, real estate professionals and insurers make a more informed decision. Some of the problems in the current housing market may have been avoided if more information about the condition of a home was required and available.
The method developed for standardization produces a final score for the condition of a home rated at 1-1,000 points. The final point value also includes a list of defects that could have an effect on the health and safety of the occupant and the integrity of the structure. This could comply with FHA standards.
The program requires the user to evaluate the condition of some 58 components common to all homes. The individual components have been assigned a point value. The rating of each as unsatisfactory, deficient, functional and satisfactory will produce a cumulative final score rating number. There are detailed explanations as to the individual ratings such that a professional, after completing an on-site inspection, can complete the program in less than 30 minutes.
This rating score could be an additional tool or service the home inspector could provide to a purchaser or a real estate professional prior to listing a home.
Ideally, the rating score would become a requirement or preference for purchasers and lenders to have as an additional, easy-to-understand tool for making a final decision.
The development of the components and ratings has been a long process, taking into consideration the standards of practice for national home inspection associations. The value-to-point ratio was determined by evaluating several national replacement-cost publications including, but not limited to, the following:
- Means-cost estimating systems,
- Craftsman Books cost estimating systems,
- National Home Builders
- Association studies, and
- insurance replacement costs estimates.
Input from professionals for each component was also used in the development of the program.
The component replacement cost values, along with other considerations, are interpolated into a point value for each component. The components are individually rated.
The result is a one-page score rating sheet that provides a home rating score, the explanation of the rating score and a list of deficiencies.
The program will be available at the Web site www.itshomeinspections.com.
For more detailed information regarding the rating score program, contact Joseph Cmar at 845-225-7455 or joecmar@comcast.net.
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