Can't get in the house because seller says it will disturb tenants?

Question

How do you handle it when a prospective property is for sale, and the seller tells you that the tenants inside can’t be disturbed for you to do your walk-through? The seller says he does not want the tenants to know the building is for sale. Sounds like total bull to me, but what does a newbie know? How do you perform due diligence in this case?

I would say “next!”

Account Closed · Answer

When I bought my 16 unit the owner told the tenants I was a representative from the insurance company doing an inspection so they wouldn't know it was selling. I can certainly understand the owner not wanting to bother the tenants every time some tire kicker comes along, but there is no chance I would be willing to purchase without doing  through inspection. The owner has to understand it is very difficult to even make an offer without seeing the condition.

Marcia Maynard · Answer

We were buying an 8-plex. We had a signed contract. The seller let us see the inside of 7 of the 8 units. About the unit we couldn't see, the seller claimed the tenant had health problems and it would not be possible for us to see in inside of their unit for that reason. We were not very experienced. The seller was very experienced and also not open and honest in their dealings. We didn't know this and were too trusting. The purchase was from family "friends". We didn't even do a pre-sale inspection! We overpaid for the property too and no realtor or attorney was involved to provide us with counsel. This became a learning experience for us, that we will not repeat!

After the sale closed, we introduced ourselves to all of the tenants. The tenant in the unit we couldn't see welcomed us to come in. The real problem was the tenant had three cats and the unit was a piss barn and the woodwork was scratched to high heaven. The tenant was friendly and although his wife did have some health issues, they were not the sort to prevent a showing. We had been duped by the seller. If we had known, we would have asked for concessions or walked from the deal. There was much deferred maintenance as well.

The good news is that the tenant is still with us after 9 years of us owning the property. One of the cats died, so only two remaining. Cats are older now, don't scratch and piss in the unit anymore. We changed out all the carpets to a wood-look-alike vinyl sheet flooring which is easier to clean. We do regular inspections. We enlist the aid of the daughters to help their elderly parents out with keeping the property clutter free and clean. Not a tidy tenant, but one of the most friendly and loyal tenants we have!

Bill Jacobsen · Answer

Sometimes you can't see inside without an accepted offer.  You either comply or go on to the next one.

Good Luck.

Bill

Jon Holdman · Answer

Its not too unusual to say no showings without a signed contract.  So you would write a contract contingent on inspecting the property.

If the seller is saying you can't inspect the property even with a contract, then watch out.  Something's up.

Joel Owens · Answer

It's the chicken and the egg problem.

We get this in commercial as well with the estoppels and SNDA's.

The seller doesn't want to get these signed by the tenants until we are way along in the process and the chances of closing are very high. The problem is the estoppels and SNDA's have to be received, reviewed, and approved by the lender before final loan committee approves the loan and sets up mortgage docs to close.

The lender usually wants their own forms used. Sometimes the tenants if national will make changes or have their own forms they send back.

So three issues are 1. time to get back (tenants are in breach of lease if they do not get back in  a reasonable time usually etc.) 2. The form doesn't change but they filled out the form wrong, left a page blank, or the form rent doesn't match up with the start date and specified rent . 3. They send back and want to use their own form which then involves lenders legal counsel to go back and forth with the provisions of the sellers attorney or the tenants attorney before lenders legal approves.

Usually language is used for the P & S that the estoppels and SNDA's will have to be approved by the purchaser. Additional language says that from when all estoppels and SNDA's and received, reviewed, and approved by purchaser then the loan is to close 10 business days thereafter.

If it's a condition with say apartments where they will not let you see all of them and there is a few that you can't see then do a "hold back" provision from sellers proceeds in escrow for after closing. So after close if the unit is trashed and damages and lost rent are occurred within a specified time frame then that money is released to the buyers post-closing ( you estimate maximum rent lost, eviction costs, and possible damage to the units as the hold back figure) . If not the amount reverts backs to the seller and is released after a certain period of time.

The estoppel at least needs to be signed before closing. There are all kinds of solutions. If the seller is cold to all of them then they are scamming and do not even get started with them. Some sellers use those excuses hoping you will not check further or that by the time you will want to check you will have so much money and time in fixing to close that you will just go with it.

No legal advice.

Paul Ewing · Answer

My guess is there are some hoarders or really nasty tenants in there they don't want you to know about till too late.

Joe Villeneuve · Answer

I have a deal like that right now.  I got an extension on my accepted offer due to "mitigating circumstances", then while I "debated" with the seller about this, I also got the purchase price dropped 10%.  If you can't get in, then every buyer before you can't get in (and after).  I bet the listing history will reflect a number of price drops (an maybe pendings that got relisted).  What I'm really saying is this can work in your favor.

Once get the better deal, as Account Closed said, have the seller tell the tenant you are a rep from <fill in the blank here...like insurance company> so the tenant doesn't know the property is for sale.  This also gives the tenant a reason to "open the door".

If all of this is not agreed to, then the seller is probably hiding something, and........on to the next deal.  This one probably won't go away, so keep an eye on it.  You can always go back...especially if you drop your offer with the caveat you are still interested.

Joe VilleneuveREcapSystem

A2REIC

Joe Villeneuve · Answer

That wasn't what I was driving at...butthatcould also be true.  What I meant is this.  If you can't get in, others are having that same problem. This probably means the seller is either not getting offers, or getting offers and having them dropped because the REI that got the accepted offer can't inspect the property within the "inspection period" agreed to.  This could work to your advantage.  This could, as it did with us, get the seller to drop their AP.

Joe V

Brittany Moreland · Answer

I personally would never purchase or advise any of the investors I work with to purchase a property they can't see the inside of unless it was a site unseen auction property for incredibly cheap and it being completely distressed was assumed.  I have 11 properties on the market right now that the seller will only allow showings with an accepted offer or proof of funds and another 9 properties where the seller didn't want the tenants knowing he was selling so wanted to say it was an insurance rep.  While I advised the second seller to be honest with tenants since a new investor isn't going to want to kick out the paying tenants both of those scenarios are perfectly understandable, not allowing a buyer to see the inside at all however raises huge red flags.  If I was in your position I would move on to the next house unless the property is dirt cheap and it's safe to assume the worst.

Roy N. · Answer

@Paul W.:

Just put a property inspection contingency in your offer.

We always tell vendors that not being able to see any of the property before submitting an offer, means we are going to assume the worst when deriving our numbers.

Can't get in the house because seller says it will disturb tenants?

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