Make offer subject to inspection - Sherlock Holmes, a house, and a contractOnce in awhile, properties listed for sale on the MLS instruct real estate professionals that the home cannot be seen until and unless there’s an accepted purchase offer on it.  The way it reads in the multiple listing is this: “make offer subject to inspection“.

What does “make offer subject to inspection” mean?

This clause means that first a buyer must write an offer and get it accepted by the seller, and then – and only then – can the buyer check out the property in person. The “subject to” part means that the buyer will have a contingency for approving the home’s condition. If it is terrible or unacceptable inside, the buyer will have the right to back out. (Those terms, such as the number of days for inspection and investigation, will be spelled out in the contract.)

The idea that an contract would be written without seeing the house, townhouse, condo, duplex etc. or that someone should plunk down hundreds of thousands of dollars on a home “sight unseen” is absolutely shocking to most Silicon Valley home buyers. But “make offer subject to inspection” is the way that apartment buildings and many investment properties (duplexes, triplexes and fourplexes) are sold.

Think of it this way: if one is buying a tenant occupied property that is being sold as investment property, whether it’s 1 unit or 2o, the main thing is not so much how it looks physically, but how it looks on the books.  How’s the cash flow? How good is the return on investment? What is the upside potential with renovations?

Who would sell with a “make offer subject to inspection” requirement?

As mentioned, investment properties are the main types of real estate offering that will be sold in this fashion. The larger the project, the more likely that is to be the case.

It is unusual to find a house or condo for sale in Silicon Valley where the showing restrictions are limited to this extent. But it’s not unheard of! With COVID, some home sellers really do not want looky-loo buyers, or low ball buyers, coming through.

Back in 2013, when I first broached this subject, approximately 3% of listed homes on the MLS were offered this way. Now it’s almost none. In the last month there were 1043 single family homes sold and closed in Santa Clara County, and just one of them had this clause in the showing instructions that MLS members could see. Of course, there’s a lot less inventory now – home sellers who may feel on the fence about selling are just staying put and not testing the waters with difficult showing instructions. At least not at this moment in time. In 2013 there were many more short sales, and those distressed sellers likely  had some strongly mixed feelings about selling and may have been more likely to slow the process down with the “make offer subject to inspection” requirement. As you can imagine, it is not a selling feature for buyers.

In fact, most buyers cannot see risking this – writing an offer “blind” as it were (read about blind offers here).  They don’t want to tie their 3% earnest money deposit in title only to find out that the property only looks good on paper. They certainly don’t want to order an appraisal or spend additional funds to check out the place in person. (In some states, buyers put down option money and then can do inspections. It’s separate from the initial down payment, which may be refundable. But that is the topic for another article.)

In a crazy market where many homes sell fast, homes with extreme showing restrictions may provoke buyer anxiety, but that same thing may prove to be a buyer opportunity.  If you want to buy in this market, seek out the home that not everyone else is seeking.  This could be the ticket for you to get a home which is being overlooked by most buyers.

The odds are slim that you can find a good home that meets your needs and budget, but why not try? Right now there are 10 such houses for sale in Santa Clara County out of 758 for sale. Want to target a home that few others want to see? That’s a good subset of the market to consider. One of the ten is a short sale and the rest are usual sales. One is even in Cambrian.