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Reporting Conditions, Deficiencies, and Upgrades

Blog Issue #: 

10

Too Long; Didn't Read

Conditions describe something that was observed. If the observation identifies a problem, the type of condition is called a deficiency. Sometimes deficiencies are called upgrades because they do not qualify as part of purchase and sale negotiations. Suggested improvements are also called upgrades because what was observed wasn't a problem, but there is an alternative to consider. Sometimes an upgrade really is a deficiency because there is a reasonable public expectation.

Inspections Serve Many Purposes

Home inspection reports include a great deal of information intended to serve many purposes. The most obvious of which is to identify malfunctioning, deteriorated, or hazardous systems and components, which may require remedy as part of a purchase and sale agreement. This may benefit buyers as well as vendors: anticipating items that may be raised during negotiation is a smart strategy. This is just the beginning.

Reports are also intended to identify where regular maintenance and repair is required to maintain a property in good condition, and help avoid costly repairs by resolving problems before they get expensive. Home inspections are a thorough and professional examination of a property and will uncover defects that are not readily apparent to the casual observer. These findings are provided with explanations and recommendations that make a home inspection a long term tool to assist with prioritizing and addressing these tasks.

Reports contain technical language, descriptions, equipment identifications, and photographs that are useful to trades. Inspection reports are frequently distributed to general contractors and sub-trades to help them prepare accurate quotations and better define the scope of work. It is often the case that contractors will increase their margins to cover uncertainty in projects. Inspection reports, therefore, occasionally give the insight necessary for more competitive costing which ultimately benefits the property owner supported by a reliable document.

Insurance companies may ask for specific information about a property. We cover this topic in detail in our Insurability and Inspections series, but as a brief review, these questions include the type and capacity of electrical systems, type of supply and drainage pipes, presence of oil tanks, type of heating systems, type of fuel burning equipment, condition of the roof, presence of sump pumps, and many others.

Inspections may also identify areas were improvements are desirable or recommended. This may mean adding better safety features or increasing the thermal performance of the building envelope. Your home inspector should be well educated and experienced in building codes, sciences, and systems, to answer these types of questions as they arise.

Looking back at the many purposes a home inspection serves, it becomes clear that information contained within falls under many categories. For simplicity, we tend to identify them as conditions, deficiencies, and upgrades.

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Three Tires Analogy

A condition is a non-deficient observation. Using the car tire analogy, the reported condition would be a standard sized and property inflated tire. A deficiency is a variation of a condition where something requires repair or replacement. Referring back to the car tire, this could be a flat tire, for example. An upgrade may apply to both forms of conditions and would be classified as such depending on other factors (discussed below). In the simplest terms, it is an improvement to either a condition or a deficiency, and, using the tire analogy, may be something like an oversized high traction race tire.

So far:

  • Condition: A standard sized and property inflated tire was observed.
  • Deficiency: A standard sized but flat tire was observed, the flat tire cannot be driven on, and the tire must be repaired or replaced.
  • Upgrade: An oversized high traction race tire is recommended to replace an existing tire—which may be either inflated or flat—to provide a desirable and beneficial feature. It may not be applicable in all cases.
    • Note: Some deficiencies are colloquially referred to as upgrades, not because they are an improvement per se, but because another legal agreement between a buyer and vendor limits what deficiencies may be included in an negotiation.

The race tire raises an interesting point: not all upgrades are necessarily suitable or required. Would a race tire function well in winter? ...does it have a long life suitable for a cross-country tour? Perhaps not. This is why upgrades need to be carefully considered with respect to the intended usage of the property, risks, benefits, budgets, and personal preference. In this The Home Remedy Blog, these three related terms will be explained, including why good inspection reports include all three forms, as well as why the best home inspection reports serve many uses before, during negotiations, and after the closing of properties (skip back to the beginning of this article).

Reporting on Conditions

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Conditions are observations made at the time of the inspection, describing what was found in terms of materials, building systems, and type/age of equipment. Conditions generally will not explain the significance of the observations because they are ordinary or mundane in nature. There will be no recommended action to be taken because there is no deficiency to correct.

The purpose of including conditions in a home inspection report is to describe important aspects of the property. This information may be used to evaluate the property, obtain insurance, or for general knowledge as a property owner. Conditions generally identify the material, component, or system, as well as some facts such as the age of equipment. Here are some actual examples from RJ Miller Building Professionals home inspection reports:

  • Foundation: "Monolithic concrete foundation" or "concrete masonry unit foundation."
  • Roof Structure: "Manufactured wood truss" or "lumber rafters."
  • Roof Membrane: "Asphalt shingles (low slope: 2:12 <= 4:12)" or "modified bitumen rolls."
  • Wiring Methods: "Open wiring (knob and tube)" or "non-metallic sheathed cable."
  • Water Supply: '1/2 - 1" rigid copper pipe' or '1/2 - 3/4" PEX (crosslinked polyethylene).'
  • Waste Piping: '3-4" cast iron (hub / bell-and-spigot)' or '3-4" ABS (acrylonitrile butadiene styrene).'
  • Hot Water Tank: "2016 make model and serial number."
  • Primary Heating: "Electric baseboard radiation with wall mounted digital programmable thermostats."

Reporting on Deficiencies

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Deficiencies are a sub-type of standard conditions, but identify malfunctioning, deteriorated, unfit-for-purpose, or hazardous observations made at the time of the inspection. In addition to describing what was found in terms of materials, building systems, and type/age of equipment (similar to conditions above), deficiencies will explain the significance of the deficient component, and recommend an action to correct the deficiency. In inspection terminology: this is considered to be the (1) describe, (2) explain, and (3) recommend reporting format. Occasionally, as an exception to the rule, the explanation and recommendation is skipped in the most plainly obvious deficiencies such as an actively leaking hot water tank.

Note: Sometimes the absence of new constructions methods and materials, changes in building codes, or improved designs (which are generally considered to be upgrades) are indeed deficiencies. The later section, When Apparent Upgrades Are Actually Deficient, explains where such items are still included as deficiencies.

Conditions (and Deficiencies) as Upgrades

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Excluded Deficiencies as Upgrades

In terms of a home inspection report, a deficiency is a deficiency, however not all deficiencies qualify with respect to the negotiation of the purchase and sale of a property.

Your Agreement of Purchase and Sale (the "Agreement") may include a home inspection report clause, which may take many forms, such as "subject to a successful home inspection report," to a more standardized home inspection report addendum prepared by your local real estate association (In Newfoundland and Labrador, the NLRA uses the Home Inspection Report Addendum). Common terms of these standardized addendums include (1) completion deadlines, (2) requirement to notify, (3) the scope of the inspection, (4) the right to correct any deficiencies, and others. #3 and #4 are particularly important.

If your "home inspection report" terms, forming part of your Agreement, limits the scope of deficiencies that may affect the Agreement (#3), you may still find other deficiencies in the home inspection report. This is because home inspection standards of practice also serve other purposes (see the introduction to this article above) and therefore follow standards such as CSA A770 Home Inspections. In the case of an included deficiency (#3), vendors may have the right to correct such findings or make a price adjustment in lieu of correcting such deficiencies (#4). For simplicity, excluded deficiencies are generally referred to as upgrades, similar to other recommendations made by the inspector, or report writer, to make improvements (see Improvements as Upgrades next).

Speak with your real estate agent and lawyer for further advice on the understanding and identifying what items may be deficiencies versus upgrades.

Improvements as Upgrades

The assessment of deficient conditions should not retroactively apply new constructions methods and materials, changes in building codes, or improved designs, to existing conditions. Therefore, a recommendation to change (i.e. not "correct") a condition is an upgrade, not a deficiency. While assessments are in terms of the component or system performance given its apparent age and intended use, there are circumstances where improvements would be desirable and it is beneficial for the report owner to be informed.

Here are some common examples of where an improvement is recommended, but not considered to be deficient because it represents a new construction, code requirement, or updated design:

  1. Installing GFCI devices to protect interior receptacles, near plumbing fixtures, in properties constructed before the Canadian Electrical Code requirement for such devices was adopted.
  2. Replacing open wiring (also known as "knob and tube") with modern wiring methods such as non-metallic sheathed cable.
  3. Adding fixture shut-off valves for each plumbing fixture (e.g. sinks, wash basins, and lavatories). It often surprises people to learn that these valves are not required by the National Plumbing Code of Canada!
  4. Replacing single pane glazed windows with energy efficient sealed units (i.e. two or more panes).
  5. Re-directing range exhaust hoods to the exterior.

When Apparent Upgrades Are Actually Deficient

Sometimes new a new construction, code requirement, or updated design, is generally understood to be universally adopted by all properties because the improvement is substantially desirable and beneficial. In these circumstances, condition is considered to be a deficiency because their is a reasonable expectation that the component or system is present. We do, for example, expect all houses to have smoke detectors, regardless of the apparent age of construction.

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Relationship Between Conditions, Deficiencies, and Upgrades

Of course, deciding which item is truly deficient, or actually an upgrade, must take many factors into account, and may ultimately be an opinion of the inspector. In the previous section, a GFCI device was recommended as an upgrade for specific interior receptacles. The factors are different (in this inspectors opinion) for exterior receptacles. Therefore, where ever an exterior receptacle is found not to have GFCI protection, regardless of the age of the construction, it is reported as a deficiency. This is due to the increased danger associated with electrical ground faults in outdoor locations: damaged cords, more powerful equipment, physical hazards, increased shock potential, etc. In actuality, it is not the application of a new building code requirement (i.e. an "upgrade"), but reporting on the absence of a necessary life safety feature (i.e. a "deficiency"). Similar examples include installing smoke and carbon monoxide detectors, closures on interior garage man doors, and motion sensors on garage roll-up doors: there are many more.

Here is exactly how we treat interior and exterior GFCI devices:

GFCI Protection Devices for Receptacles
Near Plumbing Fixtures Serving Exterior
Ground Fault Circuit Interrupters provide some protection from shock hazards, but not from all forms of shocks. GFCI devices were recently introduced as a requirement for receptacles near plumbing fixtures. The absence of GFCI devices is reported here, but not considered deficient, except where the age of the property is consistent with the period these requirements were made. They are a recommended upgrade, however it may not be possible to install them for some 20A kitchen wiring configurations without installing new cable from the electrical panel. It is the intent of Canadian Electrical Code rule 26-710 (n) that all receptacles installed outdoors, and within 2.5 m of finished grade, be protected. This includes garages, carports, sheds, and receptacles on posts or fences. The absence of GFCI protection devices on the exterior is considered deficient, regardless of the age of the property, due to the increased hazards associated with operating outdoor power equipment.)

But how are they deficient if home inspections do not retroactively apply new constructions methods and materials, changes in building codes, or improved designs? Fortunately, this answer is simple, and it is most likely covered by your home inspection report conditions: life safety hazards. All properties must be safe.

Thanks for Reading. How Did We Do?

Do you better understand the differences and relationship between home inspection report conditions, deficiencies, and upgrades? Perhaps you know of a circumstance that does not neatly fall into any of these categories, or have some other question. Add your comments and questions below, we would love to answer you.

Thank you!

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