Sometimes, you’ll see a question in the BiggerPockets forums about whether it’s worth doing inspections when you get a property under contract. The answers are invariably yes for new investors, and usually for seasoned investors too—the reason being that you need to know what you are getting into.

There is a second equally important reason, though, especially when buying from homeowners or investors: You can usually get a credit or additional work done based on the results of the inspection report. This amounts to the second negotiation in any property purchase: Negotiating the Resolution of Unacceptable Conditions. What this is (and the name might differ in some states) is a demand from the buyer to the seller to either address a variety of defects or offer a credit to the buyer (i.e., reduce the sales price).

For example, here is one we recently received on a property we sold a few months ago (the numbers refer to the inspection report). Don’t bother reading it for now; we’ll work our way through it later. It looks like a lot, but most of what’s listed was relatively small and cheap.

We’ll return to how we responded and why, but for now, I’ll just note that not only did the inspection ensure the buyer wouldn’t be completely blindsided by something like all the floor joists having been torn apart by termites, but what we ended up agreeing to more than paid for the cost of the inspection (usually $300 to $500).

Most real estate sales have two negotiations: The first before the contract is signed, and the second during the “inspection period.” This is spelled out in the contract and usually 10 days for your typical 30-day close on a single-family residence, and 30 days on the typical 60-day close for an apartment or commercial building.

If you skip the inspections, you are concluding the second without getting a penny. You’re simply conceding that negotiation to the seller.

When Not to Use Resolutions

First, I should note that when buying a fixer “as is,” it’s expected there will be no such resolution. And back when we bought REOs from banks after the 2008 crash, they wouldn’t even consider one.

Of course, with such properties, I would still recommend doing an inspection, especially for new investors. If it’s worse than you anticipate, you can always back out of the deal. And there’s nothing stopping you from asking for a price discount. Just because the seller says “as is” doesn’t mean you can’t ask for a price reduction to buy what is, as is.

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Continued: https://www.biggerpockets.com/blog/dealing-with-resolutions-...

Andrew Syrios

Podcast Guest on Show #121

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