Being a home inspector naturally means you can inspect commercial and industrial buildings too because they’re just bigger, right? Well, for some that is a true statement. There’s a structure, a roof, and HVAC, plumbing and electrical systems, so what could be so difficult? If the phone call comes, all I have to do is price it like a home. In many cases, this could not be further from the truth. Beyond the performance of the inspection, pricing the commercial building inspection involves a completely different level of professionalism to address a different group of circumstances.
I have been performing commercial building inspections for over 25 years. I have performed inspections on small strip canter condos, as well as several hundred-thousand square-foot industrial buildings. Each commercial inspection has several things in common. They include my time spent onsite, as well as the production of the report. The effort and scope of the inspection and complexity of the project may be different for each property, but they are still a box.
The nature of a commercial inspection is unlike a residential inspection. A residential inspection involves a high level of passion and personal commitment to the job. Meanwhile, a commercial property is simply a company asset. It is solely a business expense. There is typically very little passion and, as a result, less personal investment or attachment to the process. If you provide a thorough inspection, the likelihood of client dissatisfaction will be less than that for a residential inspection.
Before you can begin to price a commercial building inspection, you should understand your personal speed. This is the speed at which you can migrate through the building or property. Next, you need to determine your personal comfort with the systems included in the inspection. Will you be hiring experts to assist you, or are you going to perform it alone? Lastly, are you insured to tackle this type of project, or do you need to purchase a policy strictly for this inspection?
The interesting thing about a commercial inspection is the scope. You and your client will have the ability to mutually agree to a specific scope or expectation. This is not as generic or rigid as performing a residential inspection. The client might wish to have only the interior inspected or want you to look at the roof and not HVAC.
The sayings “Everyone has a price” and “Time is money” hold very true. Once you have established a baseline or cost for your hourly effort, you can begin to look at pricing a commercial inspection. Many properties are large open spaces. If you were to look at a warehouse and charge by the square foot, it would be enormous based on the effort required. On the other hand, if you were inspecting an office space, your time would be priced closer to that of a residential inspection.
There are several methods to use for pricing a commercial inspection. These include a percentage of the sale price, your hourly rate, the cost per some ratio of square footage, or a flat fee based on the type of building. Other methods might also be available, but we’ll focus on these.
The first pricing method is a percentage of the sale price. This is very common on extremely large projects, which include large office buildings, shopping centers, and manufacturing centers. These often include your need to bring in experts and create an inspection team based upon the entire property and its property. If the property is a 300,000-square-foot shopping center being sold for $17 million, your fee could be 1% or 2%, or $17,000 to $34,000, depending on the systems or scope. You will have to contract with your experts directly and pay them out of your total inspection fee. They would be your subcontractors, and you will be the main contractor and the client’s point of contact.
Next, there is a price or cost per the size of the building. This is considered the cleanest and simplest method. First, you have to establish your cost per square foot. There could be several different subsets within that cost. There could be a cost for office space, a cost for a warehouse, a cost for a manufacturing facility, a cost for an auditorium, or a cost of any other type of structure. An example is the cost for a warehouse that is $0.06 per square foot, and the cost for its office space at $0.10 per square foot. The building is 15,000 square feet, with 3,000 square feet of it as the office space. The fee would be 12,000 x $0.06 (or $720) plus 3,000 x $0.10 (or $300) for a total fee of $1,220. Since the fees and the ratios are created by you, you have the prerogative to choose the cost per foot. Some companies or inspectors may be higher or lower. The method is very market-driven.
To bid jobs using the cost per the size of the building method, use CCPIA’s Commercial Property Inspection Fee Calculator. You can customize a fee schedule and store the values in your account for future calculations to bid jobs more accurately and consistently.
Lastly, there is the flat fee model. This is very common when you have similar projects or a consistent type of projects. This method might also be considered when you have a particular referral source present you with the opportunity to inspector multiple projects over a period of time. The typical example of this is the standard 20-foot-wide strip mall condo. These, like so many buildings, are typical in nature. There is an electrical panel, an HVAC unit, a bathroom, and the interior. The interior could be open or built out into smaller spaces. The ceilings could be open the to the structure, or closed with a T-bar tile system. The exterior, including the roof and fenestration, could be owned and maintained by the building management, so they are not inspected. Many commercial inspectors can make a career out of performing inspections on these buildings. This is why they can be considered at a flat fee or a series of flat fees based on a size strategy. You can categorize them into small, medium and large. If you know what your time is worth, and how much time the inspection is going to take, you can establish your own flat fee. My base fee is $450. I cannot leave my office and provide an inspection for less than that. So, that 1,200-square-foot condo would be $450 for me to inspect.
Once you have established your fee, you need to present it to your client for approval. Unlike the residential inspection, where you typically state your fee and schedule the inspection, the fee and scope for every commercial inspection should be formally proposed and accepted. This proposal process is important because you are not dealing with a home buyer; you are working with a CFO, CEO or COO of a company, and they’re used to seeing proposals. A proposal should thoroughly establish exactly what services, scope and Standards of Practice you are going to use to provide the inspection. It should describe the building or property, and exactly what you are going to do. Are you going to perform the inspection by yourself or bring in other professionals? All of this should be stated very clearly. This proposal is a step completely apart from the Inspection Agreement. The goal of the proposal is to establish your client’s expectations, while the goal of the Inspection Agreement is for protection from liability. Itemizing the origins or methods for establishing your fee is not necessary, but, under certain conditions, it might be beneficial. The International Standards of Practice for Inspection Commercial Properties (or ComSOP) is an excellent standard to use and provides a very good product to my clients.
The challenge of establishing a fee and creating a proposal starts with landing the inspection. There are home inspectors dabbling in the commercial arena who will typically set the price you are competing against. Knowing this is the most important aspect to the process. If you choose to be aggressive and play a larger part in the commercial inspection market, you have to market yourself using compelling reasons for your prospective client to spend the money to work with you.
About the Author
Rob Claus has been a full-time professional home inspector since 1991. He has a Bachelor of Science degree in Industrial Technology, Construction Sequence. Rob has performed over 15,000 residential inspections throughout his career, and over 175 commercial inspection in the past 18 months. He is the General Manager of Franchise Operations for the BrickKicker. He has been the primary trainer since 1995. In addition to providing training for the BrickKicker, Rob has taught for Inspection Training Associates, Kaplan, and the ASHI School. The commercial curriculum is one of his core courses. Rob is an Illinois-Licensed Home Inspector #450.000001. Watch his video Determining the Cost of a Commercial Inspection