“Make offer subject to inspection” – what is that about?

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? (more…)