When Money Matters

As home inspectors, we are in business because we love what we do – but we also need to make a living. We should not only just “get by” as home inspectors, but we should thrive. We have a lifetime of knowledge and information that is sorely lacking in modern society, and very much needed – especially to those buying or selling a home.

Our profession can’t be shipped to another country, and people (for the most part) won’t buy a home without us. But with our profession being so needed, pricing our services is still one of the hardest things for a home inspector to do. Especially if we are new to the industry, sometimes we feel that we need to compete on price to start – and stay – in business. So how can we properly price our services? In this article we are going to discuss four topics:

 

  1. The cost of doing business
  2. The pitfalls of charging too little
  3. How to determine your inspection fee
  4.  How to charge more and MAKE more
Average Home Inspection Fee

The Cost of Doing Business

I was young when I started my first home inspection company. Before marriage, before kids, and starting fresh. I had grown up surveying and contracting with my family, so home inspections fit right in. I remember doing one of my first inspections and the agent telling me I was “cheap”. I recoiled at this. I had done my research, saw what my competitors were charging, and based it on that. But in the end, she was right – I was too cheap.

The cost of doing business, as I learned, creeps up in ways that, especially to new inspectors, may not be expected. As we grew, took on other inspectors, and branched out, the expenses grew even more. What are some of those expenses? Some are obvious: gas, truck, inspection software, etc. Some inspectors may say “what else do you need?”.

You can go bare-boned and use a clipboard and a pen to write your reports, only accept checks to avoid credit card fees, and wear unlettered t-shirts, but that won’t help you grow a business. To run a business properly, there is going to be overhead.  and the more you grow, the more your overhead grows as well. So let’s do some quick math. Let’s say you want to make $100,000 gross in your inspection business. Us the chart below to see how many inspections you would need to do.

 

How Many Home Inspections Must an Inspector Perform to Gross $100,000 in Revenue?

Fee

Number of Inspections

$250

400

$275

363

$300

333

$325

307

$350

285

$375

267

$400

250

$425

235

$450

222

$475

210

$500

200

Now let’s take that math even further. Let’s say you are charging about the national average of between $300-$350 per inspection (way too low – on a side note, the national average now is about the same as the national average was over 30 years ago, which means we are making less per inspection now as an industry because of inflation). So you would need to perform about 307 inspections to gross $100,000 dollars. Sounds easy, right? After all, that is only 2 inspections a day, 3 days a week. But it’s not that simple.

For instance, according to a 2017 study by AAA, the average vehicle costs about $9,000 per year to operate (gas, repairs, maintenance, etc). As an inspector, you will beat your vehicle up quite a bit, so let’s increase that number to $10,000 per year.

Then you have inspection software. Let’s say $50 per month (depending on if you have a subscription software, or buy one outright but average the cost out over 2 years). Then you will have a website, hosting, email service, scheduling software, and other office items (again, you can do paper, clipboard, and a calendar hanging on your wall – but that is no way to run a business). Let’s say that is all on the very cheap end of $200 per month.

Then you have marketing costs. If you do two real estate office visits where you bring food each month, that is $50. Need cards, logo shirt, promotional items, trade show display items, etc? Then that is even more. On a low-end budget, let’s say your advertising cost is $500 per month.

Then there is home inspection insurance (E&O and GL insurance), legal fees if something comes up, association dues, and a million other things. There will be expenses that you don’t even expect that come up. All-in-all, you will likely spend about $25,000 to stay in business. So you really only net $75,000 – and the government takes about $15,000 of that. So you hauled butt all year to make $60,000 if you were pinching every business penny possible.

We did a cost calculation of what it costs for us to get out of bed in the morning and inspect if averaged out to every inspection, and we took into account every last little expense. It turned out to be about $125 per inspection. If we charged $325 per inspection, we would only make $200 per inspection. So the cost of doing business is important to understand. Many home inspection companies don’t last more than their first year because many only realize this later on. Even then, if you don’t start putting bigger money into your business, you will always limp along and never grow. Now that we better understand the cost of doing business, that brings us to our next point – why charging too little hurts you and your company.

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The Pitfalls of Charging Too Little

I was on the phone with a home inspector who charges WAY too little for his services. Here were his reasons why:

  1. He was worried about not getting enough work (i.e. cheaper prices meant more volume)
  2. He was worried no one would hire him if his prices were too high
  3. He had startup costs and bills to pay and just needed to get working
  4. He was not confident in his abilities

Have those thoughts ever crossed your mind? Well, they were at the top of his. A lot of inspectors think they need to start off cheap to get things going. Some just do it to undercut their competition and try to “take their market share”.  But here are the problems with each of those points:

1: Worried about not getting enough work: This is working off of the assumption that everyone cares about price first. That is simply not true. Yes, there are price shoppers (and we will talk about how to deal with price shoppers), but they aren’t everyone. Cheap prices attract price shoppers – higher prices attract people who don’t care as much about price, but worry more about getting a great inspection. Have a lot of price shoppers calling you? It may be time to raise your prices then.

2: Worried no one will hire us if our prices are too high (because price shoppers call us): To be honest, some people won’t hire you if your prices are too LOW either. For example, I recently I saw a Groupon for half off Lasik surgery… Umm, not really something I want to get done cheaply – I will gladly pay full price for something that important. That company will lose clients like me for being too cheap. A friend of mine had kittens he wanted to give away for free and put them on Craig’s List – no one called for a week. He then went back in and charged $5 per kitten – they all went in just a few days. The point is that a cheap price or the word “free” can devalue your service, and make your service look less appealing. In fact, you may get more calls from price shoppers if your prices are too low because that is the clientele a cheap price will attract.

3 We have bills and startup costs: We all do, but that does not mean you should go cheap. There is an inspector I helped get started. He charged $250 for a home inspection – I charged more than double what he did. I told him to raise his prices, but he said “I will lose inspections” and I said “Good!”. I did the math for him. If he did 200 inspections at $250 per inspection, then he would only need to do 100 inspections to equal that if he charged $500 per inspection. He would also cut his vehicle, travel, and gas expenses in HALF. So even if he lost half his business (which he didn’t) he would literally make more money and work half as much. Don’t worry about losing inspections, worry about the bottom line. On a side note, he now charges $550 and does about 250 inspections a year (he has time off, more money, and less stress).

1: Not confident: None of us would probably admit we are not confident in ourselves, but if we were totally and completely confident in our abilities, wouldn’t we charge more? There is an inspector I know who charges some of the highest fees I have ever seen. When asked why he charges so much he says “I’m worth it”. He is a very busy inspector. People sense his confidence on the phone, on his inspections, and everywhere else. The point is -know that your knowledge of a home and how it works is becoming rarer in the world, and a more valuable and desired skill every day. Be confident, and people will be more inclined to pay your higher fees.

On a side note, if you are the “cheap inspector” right out of the gate, you tend to get known for that – and not in a good way. There is a “cheap inspector” that I know who became known for his ridiculously cheap inspections. After his first year, he realized he couldn’t make a living on those prices. The problem was that his entire agent and client base now expected that, so he was stuck. Don’t get stuck, start off on the right foot by charging the right price. So how much should you charge? Let’s talk about that.

How to Determine Your Inspection Fee

My wife was staring at me funny. I had taken time off of work and even turned down clients – why? I was sitting at the table calling and emailing inspectors. But this work was very important because it would make me more money and help me properly price my services in the long run.

I was doing a market survey. I would call and email every home inspector I knew of and could find in my service area, give them the same size inspection with the same exact add-on services and get their prices. I learned so much from it that I did it almost every year after that. Some inspectors put their prices on their website, some I knew really well and they told me, and some I would just message and call. I would take the average of all the inspection fees and use that as a starting point for setting my prices.

You don’t have to go that far in though, but it does help. You can also use the InterNACHI Fee Calculator. You can also just use the posted prices on inspector websites, join a local chapter of inspectors and ask around, and even some agents are happy to share that info to an extent. However you do it, every market is going to be different, but don’t choose the low-end price. My motto has always been to take the average number and tack some money onto it. 

How to Charge More – and Make More

If you are just starting out, or you have been inspecting for many years, there are things we can do to raise our prices, keep or grow our bottom line, and have our business in order. Here are some things we have done to raise our prices over the years:

1: Do it slowly. If you charge $199 for an inspection now, then you don’t have to jump right up to $500 per inspection. You can do it slowly. We found that if we raised our prices $25-$50 every 6 months, most people never even notice.

2: Time it properly. If it is mid-January and the housing market is crazy slow, then that’s not really the time to raise your prices. Our busiest times were always April/May and October – so that is when we would raise our prices. When you raise your prices when you are busier, then no one really complains when they stay that way in the slow season.

3: Don’t apologize or make a big deal about it. Don’t feel bad because you raise your prices. Don’t tell a client the fee and fear they will be unhappy with it. Say it confidently and make them feel great about hiring you for that fee. Also, don’t announce it or send out an apology email to agents that refer you – that just draws attention to it.

4: Add value. Add more value to your inspections to show you are worth it. Every time we added value, we raised our prices. When we started using infrared we raised our prices. When we got a series of new certifications we raised our prices. Provide more than just a “standard inspection” and people will pay you above-standard fees.

5: Add services. Make every inspection count. You already have your overhead for being there, so add additional service to your arsenal. Offer sewer scopes, radon testing, pest inspections, pool inspections, and anything else that may be valuable to your client. When we added septic inspections to our services, we ended up getting a lot of people that wanted us because they could bundle everything together. We loved it because we were already on site, we gave them an awesome inspection, and they were thrilled – and we were too. Adding services helps the bottom line, and increases overall inspection volume. As a side note, always give your client the best services. Don’t give anything sub-par just to add a service on. Make sure you always have proper training and equipment.

5: Be the best. Easier said than done, right? But it pays to work hard to be the most knowledgeable and capable inspector in town. You will have a fan club of clients who love you because you take care of them. You will attract the right kind of agents to refer you – and agents who want you because you really take care of your clients. Always work hard to be the best in your market.

6: Don’t go overboard. Don’t start throwing out big prices just because you want to charge more. That is why I encourage inspectors to find out what others are charging and only go over the average a bit. After that, slow and incremental increases are usually best.

The Bottom Line

The lead inspector for one of my inspection companies was worried about raising our prices because he thought we would lose work. We raised them anyway, and work actually increased. Why is that? Because people saw more value in our service. We were also in a different range of clients. The clients we were marketing to cared less about price in that range, and cared more about who we are, what we do, and getting a good inspection. We received fewer price shoppers and got busier every time we raised our prices.

The scourge of the home inspection business is low prices. But people would not be able to properly buy homes without us, we have years of experience, training, and knowledge that the average consumer truly needs, and we can’t be outsourced or replaced – so why wouldn’t we charge more? One of the reasons for this – price shoppers. So let’s see how we can deal with price shoppers in our next blog.

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