If you’re a real estate agent about to start selling rental property and fortunate enough to enter an escrow either as the listing or selling broker, it might help you to know what physical inspections of the rental property are typically required during escrow plus some possible outcomes and things you must do to address them.
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 ability to make the purchase and have an accepted signed-around offer.
In this case, the buyer will either approve the inspection, choose to renegotiate their offer, or simply walk away altogether. Just be sure that as the selling real estate agent to include a clause something like “subject to a walk-thru and buyer satisfaction of all interior units” in your buyer’s offer to purchase because it’s not granted by default.
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.
As before, the buyer will either approve the inspections, try to renegotiate their offer, or terminate the offer. As the selling real estate agent always include a clause something like “subject to the buyer’s approval of pest and dry rot, roof, and (other inspections the buyer requests)” in your buyer’s offer to purchase.
3) Inspection of the Repairs
In this case, when repairs are required then documentation from the contractor(s) who made the repairs stating they were made and all problems corrected satisfactorily must be obtained for 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. Just be sure to include all of this as a contingency of sale in the buyer’s offer to purchase.
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 units (if not all units).
As the selling agent, be sure to make your buyer’s offer to purchase contingent on the buyer’s approval of the appraisal.
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).