Number of REOs in the market. the particular property (unique with defects that are hard to correct vs. bread and butter in move in condition), the regulators, the amount of capital the bank has to put to work and other things.

but i would at least remove that from the ceiling, and at least paint over the walls...There could be some serious defects in the ceiling.

There’s no need to put the house down or make them feel bad by pointing out all the defects.

@Elizabeth Colegrove @Matt Good Chinese drywall or toxic dry wall is defective drywall used mostly in the early 2000 to 2007 that emits toxic sulfa entities.

What, if any, experience do you have in finding any attempts made by the seller to conceal defects with the property? 

In the event the BUYER(s) do not elect to have such inspection or to so terminate within ten (10) days, the SELLER(s) and the Broker(s) are hereby released from liability relating to the defects in the premises which the BUYER(s) or BUYER(s)' consultants(s) could reasonably discover.My questions are:1) Do I have to use a form like this with the carbon copies, or can I make up my own form in Microsoft Word?

You'll still have the issue that the apartments have an "incurable defect" of being next to the warehouse, but you'll just be trying to finance an apartment building and not a mixed use property.  

On the other hand, it could be a new house in a primo neighborhood with a seller that keeps the house like pigs, with a turd in the toilet when you view it ... you can get a discount and it is more likely to be a good deal because the defects from "perfectly good" are easy to remedy (a little bleach, paint, elbow grease and a dumpster).

This came about during the last RE boom where people who didn't know what they were doing, rehabbed homes and then the new buyer found out that the electrics and/or plumbing hidden in walls was defective but the LLC that sold it to them had been dissolved and so they had no recourse.I do like the idea of having extensions written into the loan to start with, so if the rehab takes longer or just doesn't sell quickly, it's already covered.I do have a couple advantages, firstly my friend owns a third of some of my rentals and so the loan will be written with a clause that I can use part of his share of the rents to cover this loan if the loan goes over the fixed period of the term.  

In Mo. you must disclose known material defects, (that doesn't mean a knot hole in a rafter) means significant matters that are not obvious but known to the  owner.