Property condition assessments for Michigan self-directed IRA real estate

When a self-directed IRA moves toward a Michigan building, the custodian and, in many cases, the non-recourse lender ask for one document before the others. It is not the title, not the survey, not the individual inspections. It is a property condition assessment, or PCA, a single report that describes the condition of the building and its major systems as of the day it is written, measured against a written scope and a published standard.

The word assessment does a lot of quiet work in that title. A PCA is not an appraisal, which asks what a property is worth. It is not a home inspection, which a buyer orders for their own protection and which has no fixed national scope. It is a condition document, written to a standard, meant to be handed to the account and to the lender so they both know what the building is on the day money moves. For a retirement account that cannot take the property home and walk the halls, that document is often the difference between a closing the custodian will fund and one that stalls.

What a property condition assessment actually is

The two documents that define the practice are ASTM E2018, Standard Guide for Property Condition Assessments, General, and ASHRAE 212, which covers the assessment of mechanical and electrical systems. Between them they set what a PCA is, who commissions it, what it looks at, and what it is not allowed to say. A competent PCA follows a written scope of work and reports findings against that scope, not against a buyer's mood or a lender's hope.

That separation matters. An appraisal tells the account what a property might be worth. A PCA tells the account what the property actually is. One is a number with a confidence interval, the other is a physical description with dates. A buyer can get an appraisal that runs high and a PCA that finds the roof, the boiler, and the electrical service all past their useful life, and the two documents will not reconcile. The PCA is the one the custodian and the lender rely on for the decision to close, so it is the one that should be read carefully before the account commits.

The two standards that run a PCA

ASTM E2018 is the general guide. It lays out the role of the property condition assessor, the scope of work, the limits of the examination, and the structure of the report. It is explicit that a PCA is not a building inspection for code compliance, not a structural engineering report, and not an appraisal, and it draws the line around what the assessor is and is not being asked to determine. ASHRAE 212 supplies the discipline for the mechanical, electrical, and plumbing systems, where the building's age and maintenance history show up most clearly.

The split between the two documents exists because the building and its systems age on different clocks and need different expertise. The envelope, the structure, and the site can be sound while the HVAC is at the end of its run, and a single generalist who looks at the roof and glances at a thermostat will not catch that. The general assessment and the systems assessment are separate disciplines, which is why the scope of work names the specific disciplines and the specific buildings involved rather than leaving it to whoever is available.

The three levels of scope

A PCA is graded by how far it reaches, and the level is set in the scope of work before the assessor starts. Level 1 is the baseline: an evaluation of the property's condition based on readily observable evidence, no destructive testing, and a defined set of systems. Level 2 adds nondestructive testing and a closer look at accessible components. Level 3 goes further still, authorizing destructive or limited-invasive testing where the risk and the cost justify it. The level is not a judgment about the building. It is a judgment about how much the account is willing to pay to know, and which questions the custodian and the lender actually need answered.

• Name the specific buildings, acres, and address the scope covers, so the report cannot quietly shrink to what is convenient
• State the level, 1, 2, or 3, and what each level authorizes and does not authorize
• List the systems in scope, roof, structure, HVAC, electrical, plumbing, and the site as they apply
• Set the inspection date window and how findings will be reported and dated
• Confirm who commissions the assessment, usually the account through the custodian, and who is intended to rely on it

Where the assessment fits the IRA transaction

In an ordinary cash purchase, the buyer orders an inspection and the seller can simply refuse to read it. In an IRA purchase with a non-recourse loan, the assessment often becomes a condition of the account and of the financing. The custodian wants to know the property can be operated without the owner leaning on it, and the lender wants a documented baseline before it lends. That is why the PCA is usually ordered by the account, through the custodian, and dated close to closing rather than months before. A report that is eighteen months old describes a different building than the one the account is buying.

The timing is the practical point. The custodian's document and funding timeline drives when the assessment must be in hand, and a non-recourse lender's review can add its own review window on top of that. The buyer should confirm both clocks before the offer is written and build the contingency period long enough to commission, complete, and read the assessment. It is much cleaner to set that deadline up front than to ask the custodian and the lender to hold while a Level 2 assessment is scheduled across the holiday season.

Read the report for the things that matter to the account

A PCA is long, and most of it is cataloging. The parts that change a decision are usually short and direct. The roof and the structure set the ceiling on what the building can do for a long time. The HVAC and electrical service set the ceiling on what it can do at all. The plumbing, the site, and any accessible mechanical rooms fill in the rest. Each of these should have a stated condition, an estimated remaining useful life where the assessor is willing to give one, and a list of deferred items the assessor did not test and cannot promise are sound.

The deferred items are the line to read twice. A PCA will list what it did not open, what it could not access, and what it is not in a position to determine. Those are not failures of the report. They are the report telling the account where its knowledge stops and a specialist's begins. A boiler that the assessor could not open, a basement that was locked, a service that was out of scope, each of those is a decision the account has to make: accept the risk, commission the next level of testing, or price the uncertainty into the deal. The buyer's CPA and attorney should read that list with the account's files, not a general summary.

Keep the assessment inside the account's process

The account owns the property, so the account commissions and pays for the assessment, through the custodian, with no personal name on the engagement and no personal funds on the invoice. The assessor is a third party to the account, not to the individual, and the prohibited-transaction rules that limit how the IRA can use its property are the same rules that keep a personal signature or a personal payment out of the file. IRS Pub 590 notes that an IRA may invest in certain property and points to the prohibited-transaction rules that limit how that property may be used, and those rules are why the PCA belongs to the account and not to the person behind it.

The custodian should confirm how the account names itself as the client on the scope of work, who is authorized to sign, and how the payment leaves the account. No assessment, no custodian approval, and no lender review is IRS approval of the property or the strategy, and none of it removes the personal-use restriction. If the property is a rental, the tenant decisions it will eventually make follow the Fair Housing Act and applicable Michigan and local protections, and HUD states that the Fair Housing Act prohibits housing discrimination because of race, color, national origin, religion, sex, familial status, or disability.

This article is educational, not legal, tax, financial, appraisal, engineering, structural, or investment advice. No property, system, assessment, or strategy is approved or endorsed by the IRS. Have your own self-directed IRA custodian, CPA, Michigan attorney, lender, property condition assessor, and other qualified advisors review the account, the building, the scope of work, the assessment, and any proposed work before taking action.

Put the assessment on the offer calendar

• Confirm the custodian's document and funding timeline and the lender's review window before the offer is written
• Set the PCA level, the systems in scope, and the inspection date window in the scope of work
• Have the account, through the custodian, commission and pay for the assessment under the account's name
• Read the findings, the deferred items, and the stated limits of the examination against the offer price
• Decide, with the CPA and the attorney, which deferred items warrant a Level 2 or Level 3 add-on
• Record how each open item will be funded by the account if the purchase proceeds

Leave closing with one assessment file

Keep the scope of work, the completed assessment, the list of deferred items, the custodian instructions, the lender's response if there is one, and the closing documents together. Note who answered each question, when, and on what record. If the purchase accepts an unresolved system, a locked mechanical room, or a deferred test, write down what is open, who is answering it, and how the account will fund the follow-up. That file is the account's record of what it knew, when it knew it, and what it chose to accept on the day the money moved.

Primary sources for the framework in this review are ASTM E2018, Standard Guide for Property Condition Assessments, General, ASHRAE 212 for mechanical and electrical assessment, the IRS pages on retirement-plan investments and prohibited transactions, and HUD's Fair Housing Act overview. Those sources set the general framework. The answer for one building, one account, and one set of systems comes from the current assessment, the local records, and the buyer's own qualified professionals.

Rennie can help identify West Michigan property and coordinate the inspection access, the assessor, and the offer deadlines that belong in a property-condition-assessment purchase. Assessment conclusions, scope decisions, tax treatment, and retirement-account decisions stay with the buyer's own custodian, CPA, attorney, assessor, and other advisors.