If I think back on homes that I have inspected in Bellingham and Whatcom County, a runner-up for the most misrepresented detail is the wiring.
Potential clients will call telling me they are buying an older house. I explain that my fee will be higher due to the probability of old cast iron or galvanized plumbing pipes and knob and tube wiring. More often than not, they will tell me that the owner said the knob and tube wiring had all been replaced so I need not factor that in. Yeah, right!
I will go so far as to state that, at least, 85% of the time the seller at an old house is wrong or misrepresenting facts. Here is the scenario that I normally see: I look inside the electric panel and, sure enough, the wires are newer sheathed cable sometimes with a ground wire and sometimes not.
That does not; however, mean that those sheathed cables are continuous and were run everywhere. Clues that indicate the system was not really updated include either old two-slot receptacles or three-slot receptacles that are not wired with the equipment ground.
When such clues become apparent, an inspector should seriously look for knob and tube circuits that are still energized. They will often be located in the attic, the crawl space or the basement or all such areas. The photo below is not only knob and tube wiring, but illustrates one of the commonly seen problems with it -- someone has been hacking into old wires and adding circuits.
Usually, I do not think the seller is intentionally lying. The seller was told when he or she bought the house that wiring was updated and never questioned the statement. Or the seller hired an electrician to upgrade the wiring and, in fact, the extent of that upgrade involved removing an old fuse box and leaving the rest of the knob and tube system intact. Often, there will be some new wiring, with equipment grounds, at sinks or the bathrooms.
Since many insurance companies are unwilling to underwrite homes with knob and tube wiring, and those that will provide coverage charge hefty fees, it is always to the benefit of a buyer to find out about this problem prior to closing. In many cases, the old wiring can be a negotiating point that will lead to price reductions that will be helpful to the buyer.
This typical problem is another reason to hire a competent home inspector prior to a real estate purchase. A short video, produced by King of the House Inc., on the history and implications of knob and tube wiring may be accessed at this link: http://youtu.be/Gn0NjKKAcVc