Typical Rental Property Inspections After Your Offer is Accepted

jim kobzeff


Nov 1, 2016

Following the seller's acceptance of a real estate investor's offer to purchase, there are several subsequent inspections that will typically take place before the offer is finalized and the rental property changes hands.

In this article we will consider seven of them, although it should be understood that these represent only what typically might be expected. That is to say, the number and types of inspections requested are driven by the deal made between buyer and seller and these are only suggestions based upon my own experience.

The inspections are separated under the two categories: fiscal and physical. In other words, examination of the books and records conducted at a desk somewhere, and inspections that require actual boots on the property's grounds.

Fiscal

1. Rent Roll

The buyer would certainly want to confirm the current tenacy of the property. How many units are actually rented? How much are the tenants paying each month? How long have the tenants occupied the unit? When was the last rent increase? And so on.

2. Owner's Schedule E

Examining the seller's Schedule E tax form allows the buyer to confirm the income and expenses the owner has been actually reporting to the IRS. Try to obtain the past (say) three years.

Physical

3. Walk-thru

A "walk-thru" inspection is where the buyer gets to physically enter and examine all the units in the rental property with an eye on the overall condition and quality of the carpets, appliances, fixtures, and tenants. This inspection regularly takes place during escrow because sellers are reluctant to disturb or alert tenants about a sale until they are satisfied with the buyer's financial ability to make the purchase and have an accepted signed-around purchase agreement.

4. Infrastructure

This is where the buyer typically hires licensed contractors to make inspections for such things as pest and dry rot, plumbing, electrical, roofing, and maybe even mold. These inspections will undoubtedly be a cost to the buyer so they shouldn't be ordered until the walk-thru inspection is approved.

5. Post Repairs (if any)

If the buyer deems that repairs are needed and renegotiates the contract to have the seller pay for them, the buyer should request documentation from the contractor(s) stating that they were made and all problems corrected satisfactorily. This should be to the buyer's approval and then later presented to the lender. In some situations, the buyer might even want to physically inspect and approve the repairs.

6. Bank Appraisal

Upon the buyer's approval and satisfaction of the repairs (not before), the buyer will order (and pay for) a bank appraisal so an estimate of the income property's fair market price and the overall condition can be submitted to the lender. The appraiser will conduct his own inspection of the exterior and the interior of the property and might want entry into some (if not all) the units.

7. Final Re-inspection

This last inspection of the units is not as common as the other inspections, but it's a good idea to include it in your buyer's offer to purchase. One final walk-thru of the units maybe a week before closing just so the buyer can be sure that nothing has dramatically changed since the initial walk-thru inspection (perhaps weeks or months earlier).

Rule of Thumb

The listing broker will almost always attend these inspections, and typically the selling broker will accompany his or her buyer. So count on maybe five trips to the property if you're associated with the deal after escrow is opened.

As the selling broker, bear in mind that these inspections are not provided to the buyer by default. The initial offer to purchase should be made contingent upon their occurance and each outcome "subject to buyer satisfaction". This way the buyer can legally choose to renegotiate their offer or walk away altogether at any point he or she is not satisfied.

Here's to your real estate investing success.

james kobzeff author

James Kobzeff
Jim is a former realtor with over thirty years real estate investment property experience. He is the developer of ProAPOD's real estate investing software solutions.