When to Get Other, Specialized Inspections

Your general inspection and pest inspection may be enough. But, as Texas inspector Paul MacLean notes, "Your general inspector is like a family physician, who gives you the big picture-but may need to refer you to a heart specialist or brain surgeon for potentially serious conditions or complications." Consider hiring more inspectors if: * your inspector recommends them, such as for electrical or plumbing issues; structural engineering issues like a damaged foundation; a house on a steep hillside; unusual construction types like a house built on a pier; a defect in a retaining wall; drainage or soil problems; and toxic substances like asbestos, lead, or radon* you know you're allergic or sensitive to, or are worried about, particular toxic substances such as mold* you notice a potential problem in an area your inspector's report doesn't cover, such as unpleasant aromas around the septic tank* the property has special features such as a swimming pool, septic tank, or boathouse, or* the seller's disclosure report revealed potential problems, such as lead or asbestos, that your general inspector didn't test for.

TIP.

"What's the 800-pound gorilla in your area?" According to adviser Paul A. Rude, every geographic area has some potential natural disaster. How your home stands up to this gorilla's pounding should be among your first priorities in a home inspection. On the West Coast, it's earthquakes, floods, or mudslides; in the southeastern United States, it's hurricanes; in the northern states, it's extreme cold weather and snow. According to adviser Paul A. Rude, every geographic area has some potential natural disaster. How your home stands up to this gorilla's pounding should be among your first priorities in a home inspection. On the West Coast, it's earthquakes, floods, or mudslides; in the southeastern United States, it's hurricanes; in the northern states, it's extreme cold weather and snow.

Trouble in Paradise: Inspecting Newly Built Homes

If you're buying a house that hasn't yet been built, you have every right to expect something in mint condition-like a shiny new raincoat. But if you're like many homebuyers, you may soon discover missing buttons and leaking seams. It's been called an epidemic of bad workmanship: In a 2005 sample, SmartMoney SmartMoney magazine found that one in ten new houses had problems the owners were sufficiently mad about to contact their state licensing board. (See "Heartbreak Houses" in magazine found that one in ten new houses had problems the owners were sufficiently mad about to contact their state licensing board. (See "Heartbreak Houses" in SmartMoney, SmartMoney, September 2006.) September 2006.) It's not hard to understand the source of the problem: Developers respond to buyer demand, and everyone wants their house built today today, or at least tomorrow. Buyers also want hard-to-build luxury features like vaulted ceilings and giant windows. Meanwhile, experienced contractors or subcontractors are in short supply. So, some developers cut corners; hire unqualified, inexperienced workers; or just plain make mistakes.

Worse still, once developers finish a project, they usually move on-and try to avoid phone calls. Some even set up shell corporations and intentionally go bankrupt. And some states' laws (lobbied for by developers' associations) allow the developer a chance to fix the property before you sue, without necessarily specifying a timeline. That gives the developer every incentive to delay fix-ups.

The upshot is that you need to monitor the process well before the house is built. Get not only a general inspection of the completed house, but interim inspections during its construction. Yes, this will cost hundreds more than an average general inspection, but it's worth it-the average newly built U.S. home needs over $5,000 in repairs. And don't count on a city inspector or the developer's so-called "third-party" inspector to do the job-they're not necessarily on your side. Plus, the city inspector is looking only for code compliance and won't comment on many other issues.

Problems With Newly Built Homes Here are some all-too-common defects:* improper weather detailing improper weather detailing around windows, doors, chimneys, and decks, and improperly installed siding (causing leaks) around windows, doors, chimneys, and decks, and improperly installed siding (causing leaks)* poorly graded land or faulty sewer and water main connections poorly graded land or faulty sewer and water main connections (causing flooding, sewer and drain backups) (causing flooding, sewer and drain backups)* roof problems, roof problems, such as improperly installed shingles and poor design such as improperly installed shingles and poor design* ventilation problems, ventilation problems, most often in the attic, roof, kitchen, and bathrooms, such as blocked or improperly installed vents (leading to mold and moisture problems) most often in the attic, roof, kitchen, and bathrooms, such as blocked or improperly installed vents (leading to mold and moisture problems)* building code violations, building code violations, such as improper rail heights on stairs, ungrounded electrical outlets, loose wiring, flues too close to wood, and pipes that don't extend to the drain. such as improper rail heights on stairs, ungrounded electrical outlets, loose wiring, flues too close to wood, and pipes that don't extend to the drain.

TIP.

"I inspect a couple of new homes every week, and I always find problems," says Texas inspector Paul MacLean. "The worst was in a two-story house, where the master bedroom upstairs had a whirlpool. I filled up the tub and turned on the jets. Next thing I know, a subcontractor who happens to be downstairs is yelling, 'Hey, do you know you've got water coming through the ceiling?' The plumber hadn't hooked things up correctly." says Texas inspector Paul MacLean. "The worst was in a two-story house, where the master bedroom upstairs had a whirlpool. I filled up the tub and turned on the jets. Next thing I know, a subcontractor who happens to be downstairs is yelling, 'Hey, do you know you've got water coming through the ceiling?' The plumber hadn't hooked things up correctly."

Hopefully, your purchase contract included the right to make all these inspections. Now you just need to follow through and schedule them. Remember, no one has lived in this house before, and you don't want to be the first to find out that the chimney top was cemented over, the drains flow under the house without connection to further piping, or the hot water or power turns off without warning (all real stories).

Unfortunately, even if your purchase contract allows inspections-and even if state law backs up your right to an independent inspection-you may encounter extreme resistance from your developer. When demand for their properties is high, developers have been known to refuse outright, figuring someone will be in line behind you, ready to buy with no inspection. In a slow market, however, you have more leverage. Do what you can to claim your rights.

CHECK IT OUT.

Still not convinced of the need for new home inspections? Find out about real complaints or class-action lawsuits against specific builders, at: Find out about real complaints or class-action lawsuits against specific builders, at:* www.hadd.com, by Homeowners Against Deficient Dwellings, and* www.hobb.org, by HomeOwners for Better Building.

What's Next?

Completing the inspection, and negotiating over repairs and removing the inspection contingency, is a major step toward buying your first house. Now take steps to protect its future physical condition by learning how to select the best homeowners' insurance policy.

CHAPTER 13.

Who's Got Your Back? Homeowners' Insurance and Home Warranties

Meet Your Adviser Mary I. Husk, Director of Faculty Development for The National Alliance for Insurance Education & Research in Austin, Texas (www.scic.com). The mission of The National Alliance is to provide insurance and risk management professionals of every experience level with integrated, practical continuing education, timely research, and designation opportunities-advancing the profession through education. This organization offers over 2,500 insurance and risk management programs and courses a year in all 50 states, Puerto Rico, and Mexico. Marys professional designations include being a Certified Insurance Counselor (CIC), a Certified Risk Manager (CRM), and a Chartered Property Casualty Underwriter (CPCU).

What she doesIn addition to developing course curricula for The National Alliance, Mary teaches courses to insurance agents, agency representatives, and insurance company personnel. In addition, she manages the CRM Mexico Program. Mary also writes articles for magazines and trade journals on personal insurance coverage, trends, and issues. When she's not helping people understand insurance requirements, Mary enjoys ice skating, tennis, coaching a Miracle League baseball team, and growing African violets for show.

First house"It's the house my family and I still live in, 23 years later! At the time, it was in the outskirts of Austin, Texas, but the city has grown to where it's now the area many homebuyers look at first, because of its convenience to schools, downtown, and more. The house was brand-new when we bought it, a two-story place with high ceilings and a very open design. One of its best features turned out to be the large game room. We bought a pool table, which made our house a favorite gathering spot for my son and his friends. We could get to know who he was spending time with, and always had a house full of kids."

Fantasy house"Just a one-story place, somewhere near the beach, where it's calm and peaceful. It doesn't matter what style. I'd choose practical furnishings, nothing fancy. The idea would be to find a place that's easy to maintain, so I could spend my time walking on the beach and relaxing."

Likes best about her work"All the people I get to work with, not only within the office but around the United States and other countries. Recently I've been traveling to Mexico on work-related projects, where I can practice using the Spanish I spoke with my parents and grandparents growing up."

Top tip for first-time homebuyers"Do your research-check the location, and make sure the style of the house is something you'll be comfortable with over the long term. We didn't expect to be in our house for this long, but it worked out that way, and mostly for the best. Realize also that your needs may change over the years. For example, the open design of our house was great when my son was a baby and I needed to hear what he was up to, but not so great when he became a teenager and wanted privacy!"

Once you own a home, you'll want to guard against all kinds of bad stuff, be it fires or thieves or lawsuits. While you can't prevent everything, you can protect yourself by buying insurance to cover potential losses. In this chapter, we'll explain: * hazard insurance, or the portion of your homeowners' insurance covering physical damage or loss involving your property and possessions (required by lenders)* liability insurance, or the portion of your homeowners' insurance covering injuries to people on your property or caused by members of your household (including pets), and* home warranties, or service contracts for your house's appliances and systems.

CD-ROM.

For further help on insurance terminology: See the "Homeowners' Insurance Terminology" list in the Homebuyer's Toolkit on the CD-ROM. See the "Homeowners' Insurance Terminology" list in the Homebuyer's Toolkit on the CD-ROM.

Damage Protection: Hazard Insurance

Hazard insurance compensates both you and your lender for physical damage to your property and its contents caused by fire and smoke, wind, hail, lightning, explosions, volcanoes, riots and vandalism, theft, water damage, and similar events. For example, it will cover roof repairs after a tree falls during a windstorm, replacing your stereo after a break-in, and fixing ceiling damage from your leaking tub.

Personal property that you've temporarily taken outside your home may also be covered under the standard policy-for example, items stolen from your car or even your child's dorm room.

Beyond the House: Property That's Separately Itemized

The core of your homeowners' insurance covers hazards to your house and everything attached to it. That's not enough! The insurance company will tell you exactly how much more you'll need to pay for coverage of: * Structures on your property other than your house, such as a garage, shed, pool, or cottage, as well as fixtures attached to the land such as fences, driveways, sidewalks, and retaining walls. * Structures on your property other than your house, such as a garage, shed, pool, or cottage, as well as fixtures attached to the land such as fences, driveways, sidewalks, and retaining walls.* Personal items such as jewelry, clothing, artwork, and computers, up to a certain dollar limit.* Property and inventory used for a home business.* Loss of use. Your daily necessities such as motels or rent and meals, minus the amount you'd normally spend on necessities each day, while your house is undergoing major repairs after a loss.* Your trees, plants, shrubs, and landscaping.

You can decline coverage of a few of the above items, but in most cases you'll need to include them in the package of what you pay to insure.

Damage Your Hazard Insurance Won't Cover

Between the hail storms and volcanoes, you'd think every type of physical damage to your house and property would be covered-but it isn't. Take a close look at the mostly boilerplate section of the draft policies called "exclusions." Flooding, earthquakes, mudslides, police activity, power outages, sewer backups, dry rot, vermin, war, nuclear perils, losses if your house is vacant for 60 days or more, or losses caused by your own poor maintenance or your failure to preserve or protect the property after it's been damaged are all likely excluded.

Insurance companies usually don't want to sell you coverage for these high-risk, high-expense types of damage at any price. But there are exceptions, where you can buy extra coverage from the insurance company or another source (like flood and earthquake insurance, which we'll talk about shortly).

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The key is to buy added coverage for hazards that can cause huge damage (like sewer backups) or are big risks in the area where you live-like earthquakes in parts of California, hurricanes along the Gulf Coast and Eastern Seaboard, or local concerns such as sinkholes in parts of Florida.

Who Should Buy Flood Insurance

Standard homeowners' policies don't cover damage from flooding, though your lender will require you to get it if you're in a designated flood zone. But more than half the people whose homes were damaged by Hurricanes Katrina and Rita weren't in a flood zone and had no flood insurance. Unfortunately, flooding is the United States' most common natural disaster, affecting people who live nowhere near water. Melting snow, overflowing creeks or ponds, a weak levee, or water running down a steep hill can all cause flooding. The good news is, flood insurance is cheaper if you're not in a flood zone.

Flood insurance is available from the National Flood Insurance Program (www.floodsmart.gov), but many consider the coverage limits too low-currently a maximum of $250,000 for a one-to-four-family structure, and $100,000 for personal property. You can buy additional coverage, called "excess" flood insurance, from specialized companies (some available through your insurer).

CHECK IT OUT.

Could your house be flooded? After checking the seller's disclosures, get more information from After checking the seller's disclosures, get more information from www.floodsmart.gov (click "Your Flood Risk"). Also check with your local flood control board or city building department. (click "Your Flood Risk"). Also check with your local flood control board or city building department.

Who Should Buy Earthquake Insurance

Standard policies also don't cover earthquake damage-and you don't have to live in San Francisco to experience one. The U.S. Geological Survey estimates that earthquakes pose a hazard to 75 million Americans in 39 states. The top five earthquake-prone states include Alaska, California, Hawaii, Nevada, and Washington. And scientists think the Midwest may be overdue for some major quaking, in Arkansas, Illinois, Kentucky, Missouri, and Tennessee.

To cover earthquake damage, either add an endorsement to your homeowners' coverage or buy a separate policy. Expect high costs-but given the level of potential damage, it's worth it.

CHECK IT OUT.

Is your house in earthquake territory? After checking any disclosures from your seller, go to the U.S. Geological Survey website at After checking any disclosures from your seller, go to the U.S. Geological Survey website at http://earthquake.usgs. gov (Click "Regional Information").

How Much You'll Receive Most insurance doesn't give you a blank check but sets a dollar maximum on your coverage. And the limit isn't your only concern: How your house or property is valued before you reach the limit can be just as important. For example, a $100,000 personal property limit might sound okay-but you'll never reach it if the policy treats all your old property as nearly worthless. Keep reading to pick up crucial tips for making sure you get enough back.

Is Your Hazard Coverage Enough to Rebuild Your House With?

Let's take the most unlikely (but scary) scenario: A fire or other hazard decimates your house. You might then expect your insurance company to pay for it to be rebuilt, just as it was. But that's not usually how it works.

The Norm: Replacement Cost Coverage

The amount you receive to rebuild under a standard policy will be a set dollar figure-calculated in advance. It's called "replacement cost" coverage, but it's only indirectly connected to your actual rebuilding costs. Replacement cost coverage literally means the insurance company's representative will, when you're arranging to buy the policy, ask you about the house's size, location, number and type of rooms, building materials, amenities, and more. Then the rep will estimate your house's replacement value, often using industry software called a "costimator." You'll either be covered for the exact "costimated" amount or, if you buy extended replacement cost coverage, 125% of that amount.

Many homeowners just accept the replacement cost figure without question. But it can be off the mark, particularly if building costs go up, a widespread natural disaster increases demand for contractors, or your house has historical features that will be hard to recreate. Ask a local contractor or builder's association how much a house of a similar size, with similar features, would cost to build. If the insurance will be low, either talk up your house's value (for example, making sure the rep factors in any special features) or buy an "inflation guard," which raises the stated value of your house by a set percentage annually.

TIP.

Buying a house built more than 20 years ago? Consider adding an endorsement called "ordinance or law-increased amount of coverage." This covers your extra repairs to meet modern building codes. Consider adding an endorsement called "ordinance or law-increased amount of coverage." This covers your extra repairs to meet modern building codes.

The Ideal: Guaranteed Replacement Coverage