TEN Steps to Begin Inspecting Commercial Real Estate

by Dale Duffy, Founder of NACBI

10 Steps to begin inspecting commercial real estate

1. Commercial Website: If you are currently inspecting residential property but want to inspect commercial property as well, here is a list of important aspects of the business. The first thing you need to do is separate yourself from both of the professions by making a separate website for just commercial inspections. People looking for a commercial inspector usually Google the words, "Commercial Inspector, your City," to find an inspector. If you don't show up on the first page you will probably be overlooked, I have found most people don't venture past the first page of most search engines, I'm sure you understand this importance.

It is very easy to have a commercial inspection website on the first page of all the search engines there are not many companies who offer just commercial inspections. Even though you may inspect any type of building, not having a commercial inspection site is like not even offering the service. Most serious buyers-investors are interested in a company that specializes in commercial real estate, not a company who says they also inspect commercial property on their home inspection site. After I made a simple commercial inspection website my business doubled.

Start by advertising you inspect small buildings if you're intimidated with commercial inspections I consider any building less than 10K, sf. small. They only take about a half a day at the property with one helper and another five-eight hours to write the report if the building is a simple office or retail type building. If you have two phones this is a much better way to differentiate yourself when answering the phone, you know who is calling for what purpose. If you have a company name which can be associated with commercial or residential inspection, the need for two different phones is not necessary. I simply answer the phone "Inspect Arizona Companies, how can I help you?" This works well but I have to be ready to answer and ask the proper questions when calls arrive, it is crucial to be ready for any type of call using one phone.

2. Learning to inspect commercial property. If you never inspected a commercial property it is basically the same as inspecting a residential property, but there are many different systems and components and other requirements for fire and ADA compliance and you’re dealing with very intelligent individuals who don't have any emotional attachment to the property as buyers. You must understand how commercial buildings are constructed and the difference in building code requirements. This information is readily available on the Internet. Code books are available to familiarize yourself with the difference between commercial and residential construction techniques. I suggest purchasing the IBC International Building Code book or IBC E-Codes. All fifty states now recognize the IBC adopted codes. I am not familiar with the building codes-standards in Canada, but I am certain they are available online or in book format.

You should also realize there are other companies who are specialists in ADA and Fire Code compliance, it is much easier to hire one of these companies to inspect these two specialty items rather than even thinking about inspecting these systems and components yourself. Most states if not all have licensing requirements for fire suppression inspection contractors. I always tell the buyer(s) to call the same company who is doing the fire monitoring and yearly inspections now. They have the most knowledge of the building already and charge much less than another company that would not know anything about the building.

You can learn everything there is to know about ADA Compliance on the Internet, personally I have another company do the ADA portion of the inspection if needed, this makes the inspection that much easier.  The company I hire usually charges about $300.00-$1,000.00 depending on the occupancy and square footage of the building and property. But MOST buyer(s) just want inspections of the major systems and components of the building. Rarely have I been asked for an ADA compliance inspection, it may seem odd, but this is my experience.

3. Licensed Contractors: The team approach. Search your area for licensed contractors who would be willing to go with you on an inspection. Since the economy is so poor it is not difficult to find these contractors, most will work for very affordable rates. For instance, I have a commercial electrician who will inspect all the electrical equipment for the building with just the hope the new buyer(s) hire his company for future work involving tenant improvements all new building owners need. I'm not paying a dime for a commercial electrician to look over the entire electrical system, it is free. He gives me a written report of deficiencies he may find, but seldom are there many. You will find in most commercial buildings the one system that is usually in good condition is the main electrical equipment. Basically all that is necessary is to describe the electrical system. Buyers want to know the amperage-voltage available so they can determine if this will fit the needs of their company-business or whether upgrades are necessary. Also describe the amperage-voltage of the various sub-panels, but nothing more is required regarding the main electrical equipment.

Other electrical items such as lighting, timers, backup generators, transformers, etc., can be inspected by your electrician or yourself and documented in the report as functional, needing repair, or should be upgraded. I generally inspect these items myself. Many times there are significant concerns in older buildings with regard to the lighting, receptacles and ground fault protection. Above drop panel ceilings are often times a nightmare in older buildings, you'll find improper splices, some connections you wonder how the building could possibly not have caught fire by now. When you come across findings like this it is simple to write the report, you recommend the entire building be inspected by a Licensed Electrician so they have a cost for immediate repairs necessary before their due diligence period ends.

The same with the roof, any licensed roofing contractor would be more than happy to review a roof with hopes of being able to make the repairs if needed, seldom do I find any building that doesn't need roof repairs. If you don't know a good reputable roofing contractor, ask others for information so you have a trustworthy roofing contractor who does great work at affordable prices. Again, I don't pay a dime for a licensed roofing contractor to review the roof and give me a repair estimate.  I have never found a roof which didn't need some type of repairs made.

I inspect the roof myself as well so I have the information to place in the report, the importance of having a contractor there is for the repair estimate. In the Phoenix area we don't have some of the older type roof systems like I have heard about from my friends here at NACBI. I have never seen a Tar and Gravel roof surface here. Roof coverings on older buildings are usually covered with SPF by the time the building is being sold. SPF, Modified Bitumen, and EPDM, are the usual roof coverings we find. Once you have a good understanding of the various roof systems your job becomes much easier. Like everything else, it takes actual on the job training to become an expert in any given system or component. Having the contractor(s) with you saves a lot of time.  Furthermore, you may learn something new which is an additional asset for when you are starting out.

Air Conditioning Contractors will work for low fees here in the Phoenix area with hopes of gaining the work or service contract with the future buyer(s), or charge me a per unit price to inspect each individual conditioner. I have never paid more than $2000.00 for an air conditioning contractor to inspect all the HVAC equipment at a large property.  Like any good business individual in a specialty field, they want the future service work!  Now if there are hundreds of split systems or package type units on the roof the highest price I ever received for a contractor to inspect each unit was $50.00 each.  Researching and finding out how many units are at the property at your walkthrough before even providing a quote to inspect the property. Google Earth now provides great views of buildings, I can usually count how many conditioning units are on the roof, but it makes a huge difference if their package or split systems. Split systems are usually a nightmare, most of the time nothing is labeled and the contractor has to figure out which thermostat operates which conditioning unit. This requires one of my helpers to be inside the building turning on one thermostat at a time with walkie-talkies, then label each unit for reference in the report. You can have the HVAC man bring another helper with him naturally, but this leads to much higher costs for their service and it gets confusing if you don't have one of your helpers there documenting the information as it becomes available. Chillers, Cooling Towers, Boilers, I have a different HVAC company who specializes in this equipment inspect these systems which can be quite complicated. You will only find these systems in large buildings.

It is very important to have a few companies in each trade available you can rely on to be at an inspection with you if needed, but after several years I always call the same companies because they already know the procedure at the inspection. After you find specialty contractors in each trade invite them to lunch one at a time different days so you can discuss what your expectations are when their at an inspection, most contractors have never been at a building inspection, but are more than willing to learn how the inspection process works and what exactly you want from them. For any specialty contractor, make sure they understand exactly what is necessary to document in the PCA. It takes a few inspections so

4. Calls for Inspections. When you receive a call from someone who wants a quote to inspect a property, the first thing to ask is the size and age of the building with the address. It is crucial to ask many questions about the property during the initial call. You need to understand what the buyer’s intended use of the building will be and what the building is being utilized for now. You also need to ask what the buyers expectations are for the assessment. What exactly is to be inspected, just the major systems and components or everything from doors not latching to missing receptacle covers. Most buyers just want the major systems and components inspected, but I have had buyers willing to pay for a very technically exhaustive assessment.

You may need-want to drive to the property so you have an understanding of the condition. Many times if the building is 10K sf or less I don't drive by it, but I do need to know what the building is being utilized for now, and what the buyer intends to use the building for. Whether the building is vacant or occupied makes a huge difference in the inspection price. If you are not contending with an occupied building the inspection process goes twice as fast. If the building is over 10-15K sf I usually drive to the property, walk around the outside looking at the basic condition. The outside condition will give you a lot of information about the interior condition. If the exterior is in poor condition, expect the interior to be the same. Any building over 15K sf I ask if I can do a walkthrough of the interior before providing a proposal, you will find out not many current owners will allow this, but it is worth asking. You need to be prepared for all situations.  Seldom do I get the chance to look at the interiors before providing a proposal for small buildings.

If you keep your prices between $.10 to $.30 cents per foot, you won't lose money, but everything depends on the age and condition so you can realistically guess how long the inspection will take. I try to make $1,500.00 per day, so I base the time at the property and how many days it will take to complete the PCA on a spreadsheet so I have the numbers to equate before writing the proposal. You also need to consider the other inspectors who will be with you at the inspection.  Their time has to be considered in the final figure for the proposal. I usually figure $500.00-$800.00 per day based on the experience of my helpers. Then you need to figure how long it will take to write the report, most buildings less than 50K sf take me one long day to write the report, or 10-12 hours.

5. Finding help, inspecting properties. Finding good experienced inspectors to help at the inspection is a must. This is probably the hardest aspect of being in the commercial inspection business. If you know other commercial building inspectors or home inspectors who are good at what they do, this takes a huge burden off your back. I have three other inspectors I can rely on within a couple days, notice.  They have been helping me for years.  When we all arrive at a property they just want to know what portion of the building I want them to inspect and off they go. I usually have one man inspect all the basic interiors, break-rooms-restrooms, another person to inspect above drop panel ceilings looking for electrical issues, missing insulation, ducts separating, leaks below the roof, etc.

I always inspect the exterior, windows, roof, and basic plumbing systems, main water valve, back-flow equipment, water heaters. If the building doesn't have more than 20 conditioners I usually don't call my HVAC man, I just determine their functional, age, etc., with my helpers. Furthermore, if the building is less than 15-20K sf I don't have an electrician there either, I inspect the system myself, but my electrician likes to be at any inspection with hopes of receiving tenant improvements.  Therefore, I email him the addresses as I receive the inspections, nine times out of ten he is there.

6. What most buyers want. I have found through the years most investors or companies buying another building for their existing business or buying a building to lease just want the major systems and components inspected, seldom do any want to pay for an ADA inspection. Since the building has already received a certificate of occupancy I have never found any significant deficiencies regarding any ADA compliance. The fire suppression systems are inspected by licensed contractors in Arizona.  I don't know what the laws are in other states or provinces, but I imagine the laws are about the same.

The major systems are basically the same as a home inspection, except fire rated wall systems, clean rooms, etc. An inspector needs to understand the difference in construction techniques and how they all function together, engineered steel truss systems, steel wall framing, the numerous types of roof systems, the various exterior wall systems, etc. This takes time to learn, but within a year if you are inspecting even one building per week or a couple per month you eventually see just about every type of construction system known to man, some just being much larger than others. You will continually learn as you inspect, it is the same as home inspections, your inspecting buildings with different systems and components. If you don't understand a particular system or component all the information is readily accessible on the Internet. Our message board is for asking these questions.  We are all here to help one another.

7. Proposal. A good proposal is VERY important. You must have a professional looking template to use for all proposals. Your proposal reflects your professionalism. Through the years I have actually had clients tell me they decided to hire my company even if the cost was more just because they thought if the report looks as good as the proposal they would receive a better inspection report. I have tried several methods of submitting proposals, but the proposal template which I receive the most signed, is the same one I have been using for the many years.  This is a proposal template Gerry Beaumont and I made. It is a simple word document with my logo at the top with all the items listed which will be inspected in a bullet type format. Anything not in the proposal does not get inspected. Buyers do not want to read a proposal loaded with disclaimers and lawyer type verbiage, if you write a proposal like this you will lessen your chance to get the job significantly. I have tried the lawyer type verbiage, it doesn't work. If you want to be performing inspections continually use the keep it simple method, it works! Use just enough terms of agreement so you are covering all bases.

Remember you’re not inspecting a home, it is the complete opposite, rather than inspecting a property to any state law or nationally recognized home inspection association accepted standard of practice the proposal is written according to ASTM 2018E-08, which defines the inspection as to what you and the buyer agree upon before the inspection. It is very important everyone has a clear understanding of the limitations of the property condition assessment. One thing I can say is I have never had a single client ever ask why we didn't inspect this item or that item, it has never occurred. Everything which will be inspected is listed in the proposal, you don't need to write what is not being inspected, I never have, but you certainly could if you felt necessary.

8. Walk-through prior to the writing the proposal. You need to ask the Realtor handling the real estate transaction for your client(s) if you can walk the building interior prior to writing the proposal. This is very important for large properties, actually a MUST for large industrial or manufacturing properties. You will find this option may not be available at all properties, like large office buildings. Some buildings being sold the occupants do not know anything about the sale, the transaction is a hush-hush deal and the current owner will not allow it. When I ask to walk the building I tell the Realtor if anyone asks me what I'm doing there I will say I'm just looking the building over for the current owner for a possible future maintenance inspection. The Realtor(s) and Buyer(s) understand this is the normal reply to say if asked.

I would say fifty percent of the time I cannot gain access to the interior prior to writing a proposal. You really have to guess the condition of the interiors at many properties by looking at the exterior. I have never been denied access to the exteriors. Many times I don't even need to look at the interiors, the sales package or listing information (prospectus) the Listing Realtor made for the property is all the information I need to write a proposal. The importance is how much office space there is verses manufacturing or warehouse space. Many properties are available to walk through because their open to the public anyway, you just walk around like your there for a reason, not saying anything to anyone, nor asking anyone questions, just get a general idea of the condition like you would if you went to any building regardless of whether it is for sale or not for sale.

Large industrial or manufacturing buildings have Plant Manager(s) or Facility Manager(s).  You schedule a walk-through so you have all the information available to write a proposal.

9. Writing the Property Condition Assessment. There are many software programs available to write professional looking reports.  None are out of the box programs without editing the software to suit your writing technique. It takes a long time to save a report template which can be utilized for any type of building. I have just about every possible type of system or component in a building in each particular section of the report. Personally I type the entire report, I don't use many canned comments which look unprofessional. No buildings on different properties are exactly the same, so it is not possible to save many auto-comments, but you can save a few that will work for any building-property. I try to explain each system and component in layman terms so the report is easy to understand, yet professional. I try to insert as much information as possible into the report when I'm at the property it is very easy to forget exactly what is located where once you leave.

After I receive all the information from my contractors I read the information carefully so there is no confusion when it comes time to insert the information in the report. The air conditioning systems are usually the hardest aspect of the report, especially when there are many conditioning units. It is very important you have all this information documented well while you were at the property, you don't get a second chance to return because you forgot something. This is why I have one of my helpers with the HVAC man so my helper documents the information as well as the HVAC man documenting all the information. My HVAC man and helper always document the equipment in the same format at every property, either from east to west or north to south, depending on how the building is constructed so it is easy to remember what is located where and what type equipment it is.

Hard to believe, most of the time I find the air conditioning equipment is not identified-labeled, other parts of the country could be different, but in the Phoenix area I find about 75% of the equipment is not labeled. This can be hard to inspect or easy to inspect, if nothing is labeled.  We label the equipment so it can be identified in the report.  When the equipment is labeled, the data can be confusing with the label identification not making sense to you since you do not have what the contractor used to identify the equipment.  Generally they used what was in the blueprints as the data on the labels. Not having a set of blueprints this may not make a bit of sense. If this is the case we label everything using our own method of numbers. We use a sharpie-magic marker to write on the equipment making a large number so it stands out in the picture, then take a picture of the data tag, following with any issues like hail damage, condensate line missing or broken, the electrical disconnect falling apart, etc., then go to the next unit doing the same thing in a predetermined north south or east west method we all decided on prior to beginning the inspection.

After all pictures are taken I always download the pictures on my laptop into a new separate file so when I get to the conditioning section of the report (as an example) I don't have any pictures except the ones associated with each particular system or component. There are many ways to document the information for the various items in the report.  This fashion suits me using separate picture files of each system-component. It makes writing the report very easy.

The electrical equipment I find is the second important system to make sure you have all the information necessary to describe in the report. My electrician writes on paper his finding at the inspection then uses Microsoft Word to document his findings when he returns home. He then emails the information to me after the inspection, but again, I have one of my helpers with the electrician to document the equipment with pictures. The panels are usually labeled, if not we use white masking tape and a black sharpie to write a number on the panel, take a close picture of the label, then another picture further away so I have an idea of the location from the background in the photo. Download all the pictures in a separate file so you’re not scrolling through unassociated photos.

I use the same method for each system and component in the building so there is no confusion writing the report. Everyone has their own method of documenting items.  I have found this the easiest.  You may have another method which works well for you, if so by all means use it.

10. Commercial real estate buyers. These people are very intelligent.  They don't have any emotional attachment to the property or building and are very professional in all aspects of business, it is important to mirror these traits when conversing with the buyer(s). I try to become good friends with all buyers-investors after a few conversations, so I have a good understanding of the type of person they are. I try to strike up other conversations asking what type of business(s) they are in, how many years they have been in this business. This type of personalization makes them feel like you are one of their friends, not another vendor simply trying to solicit money from them. This friendship leads to future inspections and referrals, you will be making more money than you never dreamed possible, and enjoy what you're doing working less for more money.  Taking a business relationship to the threshold of friendship takes a committed, educated and well respected commercial inspector.  Respect is the ultimate goal for both parties.

We as an association have some of the most knowledgeable building inspectors in the United States and Canada as members who help in any fashion and are only a phone call away. I have called many members in the past asking questions I didn't know the answers to. Nobody knows everything, which is why we are all here to help one another succeed in this profession. I hope everyone is very successful. Please ask any questions you may have on our forum, this is the purpose of having a forum, to ask every question possible so you can start your business in the proper fashion with all the knowledge available to begin with a business plan for success.

I have only outlined the various aspects of the commercial building profession here to help someone who has never inspected a building in the past but would like to start inspecting commercial property rather than just residential. You will find this business much more rewarding in every aspect of the profession. You will need to understand how to limit your risk in your inspection proposal-agreement, what the legal terms of agreement are, how to write professional proposals, how to find the right team of contractors and other inspectors to help you. Anyone is more than welcome to come with me to an inspection.  Field experience is the best way to obtain the knowledge necessary to become successful. I'm sure any member of our association would be more than happy to also show you how they operate their business, no two are alike, no one is either right or wrong how they conduct their business, each person has to figure out how they feel they should conduct their own business so it suits their business plan and their way of inspecting a building. Just like home inspections, nobody does the exact same thing as another, each is different.