Joe, Thanks for the opportunity to reply.
Two common and preferred guidelines exist for NACBI members in conducting a commercial property condition assessment: ASTM standard guide for property condition assessments, and Standard & Poor’s property condition assessment criteria.
The American Society for Testing and Materials (ASTM) has approved guidelines for conducting a PCA which are largely accepted by most lending institutions, commercial real estate professionals, commercial property inspectors and savvy clients. The ASTM standard guide for property condition assessments - baseline property condition assessment process (E2018 – XX) recognizes that there are numerous levels of physical due diligence which can be performed and details the recommended procedures, methodology, and a scope of work for conducting a “baseline” PCA. I have outlined the different 3 levels further along in this posting.
The primary objectives in the development of these guidelines were to:
· Define good commercial and customary practice for the PCA
· Facilitate consistent content in producing property condition reports
· Develop practical and reasonable recommendations and expectations for site inspections, reviews, and research in conducting a baseline PCA
· Formulate reasonable expectations for property condition reports
· Assist in developing an industry baseline standard of care for appropriate observations and research
· Propose protocols for consultants to communicate observations, opinions, and recommendations in a manner meaningful to the user or client Identify and communicate physical deficiencies to a user or client
The ASTM guide outlines procedures for conducting a walk-through survey, and recommends various systems, components, and equipment that should be observed and reported in the property condition report. The end result is a property condition report which incorporates the information obtained during the inspection, document reviews, and interviews. The consultant (inspector) works together with the client to determine and define the scope of inspection services needed. These guidelines can be exceeded, but they can also be reduced under mutual agreement between client and inspector. ASTM acknowledges that there are varying levels of property condition assessments that are both more and less comprehensive than the ASTM guide which may be appropriate to meet the objectives of the client. Inspectors wishing to provide services in accordance to ASTM E2018-xx guidelines should purchase, read, and understand the ASTM guidelines for conducting a “baseline” commercial property condition assessment/inspection. Fully understanding these widely accepted guidelines will assist to formulate a written scope of work especially when encountering the occasional client who themselves are new to commercial real estate transactions.
The scope and level of effort in a building assessment can vary greatly depending on multiple factors. In order to meet the requirements of the financial industry and client needs, three general levels of due diligence have been commonly accepted for PCA use. These levels progress from a basic review of the property to a full comprehensive study. The studies may include opinions of costs to remedy deficiencies and the development of replacement reserve schedules. Most PCA’s are a non-intrusive visual survey. However, inspectors should make a reasonable attempt at discovery while conducting a PCA.
Level one evaluation:
This is the lowest level of due diligence which includes a walk-through survey of the property and basic information related to the property researched. A level one evaluation is used to form opinions on the likelihood, types, and locations of issues affecting the condition of a property. Common observations range from presence of potentially hazardous materials on site to visible cracks in a structural component. The information gathered during a level one evaluation can be used by clients to make informed decisions regarding acquisition, financing, and property management. This is normally non-intrusive and non-destructive, but may be enhanced by a level two investigation to meet specific needs of the client. These evaluations or combination of level one and two are notably the most common requested.
Level two evaluation:
The next level of due diligence is more comprehensive and demands a higher level of investigation. Systems and components are examined more carefully and more thoroughly. Material defects are identified and opinions of cost to cure are sometimes provided. Level II evaluations may include development of reserve schedule studies. Level II evaluations may also include specialist consultants such as electrical contractors, HVAC technicians, engineers, etc. who will inspect systems and components in more detail and provide cost to cure remedies. Often times an initial evaluation or inspection will bring to light a number of serious defects. An example would be significant structural cracks in a load bearing or exterior wall. This would strongly make the case for the need of a more extensive evaluation by qualified expert. Many PCA’s incorporate some variance or combination of level one and two evaluations defined by scope and client needs.
Level three evaluation:
This is the most comprehensive, detailed, and time intensive evaluation of a property. Systems and components are examined in great detail by specialists trained in specific areas. This level of evaluation often involves testing, sampling, dismantling, and in depth research. Cost to cure estimates as well as reserve schedule studies are provided. This is the least common level of evaluation, and by nature, also the most costly to the client.
Admittedly I have only given the I-NACHI ComSop a cursory review. I believe the i-NACHI ComSop to be beneficial to those who are conducting extremely small or light commercial building inspections, (i.e. Residential properties converted to small offices or business’s). But….and this is a huge but… it fails miserably and shows glaring flaws for the needs in anything other than extremely small or light commercial building inspections.