Home Inspections: Many Buyers Benefit from Inspections, but Mandating Their Use Is Questionable

In the 1990s, the Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) dealt with a series of instances where buyers had not been notified of serious problems revealed by their appraisals. This led to several reforms, some of which allegedly may have caused some buyers to forgo home inspections, confusing that service with appraisals. Advocates of mandating home inspections claim that FHA will benefit from fewer foreclosures, and buyers will benefit by avoiding homes with costly problems. GAO was asked to assess (1) how many recent FHA homebuyers got home inspections and what were the perceived benefits, (2) whether homebuyers understand the differences between appraisals and home inspections, (3) whether inspections are associated with loan performance, and (4) the implications of mandating home inspections.