Real estate agents and brokers who have been around awhile understand the skill, time, effort and measure of luck it takes to beat out the competition and get awarded a signed property listing agreement.
They also understand the marketing process; those things that must be accomplished in order to present the property to the real estate community, and then subsequently how to properly handle offers to purchase.
Okay, but on the other hand, real estate agents who have never listed and sold rental income property might not know the full scope of physical inspections that must be coordinated once the rental property is sold and enters escrow.
So for those of you who are just starting to service commercial real estate let me give you an idea of what you should expect to address in the way of property inspections. Of course we’re assuming that these inspections are requested by the buyer in the sale agreement as “subject to the buyer’s approval” and accepted by the seller.
1. The Walk-thru Inspection
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 over-all 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.
2. The Infrastructure Inspection
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. Obviously these inspections will be a cost to the buyer so they shouldn’t be ordered until the walk-thru inspection is approved.
3. Inspection of the Repairs
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.
4. The Appraiser’s Inspection
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 over-all condition can be submitted to the lender. The appraiser will conduct his own inspection of the exterior and interior of the property and might want entry into some (if not all) the units.
5. Re-inspection of the Units
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 ust 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.
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