California Termite Inspection: Sections 1-3

Your buyer's termite report just came back with Section 1 items in the kitchen and a list of Section 2 notes. Before anyone panics, you need to know what those labels mean, because one of them can hold up the loan and the other one can't.

This guide explains how a California termite inspection works, what each section of the report means, who pays for what, what lenders require, and what it costs.

Quick answers

What is a termite inspection in real estate?

A termite inspection is an examination of a home by a licensed structural pest control inspector who looks for termites, dry rot, fungus, and other wood-destroying organisms. A wood-destroying organism, or WDO, is any pest or fungus that eats or breaks down the wood structure of a building.

The inspector checks the interior, exterior, attic, and crawl space, then files a written report that sorts every finding into one of three sections. In California, those reports are filed with the Structural Pest Control Board, and anyone can look up a property's inspection history on the board's website.

The inspection usually happens early in escrow, alongside the buyer's home inspection. In a wood-and-stucco state like California, skipping it is a gamble no agent should let a client take.

What does Section 1 mean on a termite report?

Section 1 means the inspector found an active infestation or existing damage, like live termites, dry rot, or fungus that's already in the wood. This is the part of the report that can affect the loan.

A clear Section 1 report is called a termite clearance, the document showing the property is free of active infestation and untreated damage. In California, a clearance letter is treated as current for 90 days. If escrow runs past that window, the lender will usually order a quick re-inspection.

What does Section 2 mean on a termite report?

Section 2 means the inspector found conditions that could lead to infestation or damage if nobody fixes them. Nothing is actively wrong yet. These are the hotspots.

Picture wood siding that a sprinkler head soaks every morning. The wood still has its structural integrity, but left alone, that moisture invites dry rot. The inspector flags it as Section 2. If it's ignored long enough, it graduates to Section 1.

Section 2 items rarely block a deal, but your buyer should know about every one of them. Each item is a future repair bill with a date nobody knows yet.

What does Section 3 mean on a termite report?

Section 3 flags areas the inspector couldn't fully examine, like a crawl space blocked by stored boxes, an attic buried under insulation, or heavy vegetation against a rear wall. No problem has been confirmed there, but no problem has been ruled out either.

The usual fix is access. The seller clears the obstruction, the pest company returns, and the finding moves to wherever it belongs: a new infestation becomes Section 1, and a conducive condition becomes Section 2. Clearing Section 3 items early keeps the deal on schedule, because lenders want their Section 1 clearance after the hidden areas are checked, not before.

Who pays for the termite inspection, buyer or seller?

Who pays for a termite inspection is negotiable and gets decided in the purchase agreement, not by California law. There's no statute that assigns the bill.

That said, custom carries weight. In much of California, sellers customarily pay for Section 1 repairs because the lender requires that work for the buyer's loan to fund. Section 2 items are wide open to negotiation, and buyers often accept them as-is or ask for credits. The inspection fee itself runs either way depending on county custom and how the offer was written.

One loan-type exception worth knowing: on VA loans, the VA's Circular 26-22-11 (June 2022) allows the veteran buyer to pay the pest inspection fee, which used to be prohibited.

Whatever the split, write it into the contract. Sellers should also remember their disclosure obligations: a known infestation is a material fact whether or not a new report exists.

Do lenders require a termite inspection?

Lenders require a termite inspection only when the loan program or the appraisal calls for one, and the rules differ by loan type:

• Conventional loans: a Section 1 clearance is requested only when the appraiser or the purchase contract flags pest issues.
• FHA loans: HUD Handbook 4000.1 requires a termite/WDO report only when the appraiser notes evidence of infestation or damage.
• VA loans in California: a full WDO inspection and Section 1 clearance are always required, because California is a high termite-risk zone.

The pattern: Section 1 is the lender's concern. No lender holds up funding over a Section 2 sprinkler note.

How much does a termite inspection cost in California?

A real estate termite inspection in California typically costs $100 to $200, with the official clearance letter for escrow adding roughly $75 to $100 on top. Size, location, and competition drive the spread.

Metro pricing trends lower in Los Angeles and Orange County thanks to heavy competition, while coastal and rural Northern California counties often start closer to $150.

The takeaway

Section 1 is now, Section 2 is later, and Section 3 is unknown. If you can explain those three words to a nervous buyer in one sentence each, you'll keep deals calm that other agents let spiral.

Termite sections, clearances, and contingencies all show up in exam questions and in week one of real practice. Get the US Realty Training exam prep package for unlimited practice exams that drill exactly this kind of material.