Buyer Inspections & Selling a Property ‘As Is’

A senior associate from Marcus & Millichap discusses three steps that savvy owners of small- and mid-sized apartment buildings can take to avoid buyers requesting concessions or the deals falling out of escrow.

Inspections are a necessary evil and always a bit stressful for the sellers.

Typically, inspections are scheduled within a week or so of an intense negotiation on price, and buyers are still excited about the acquisition. Unnecessarily letting the air out of their balloon by reminding the buyer that the asset that they just agreed to spend millions on has a “no return policy” may not be your best move. This tactic may increase their apprehension and signal to an investor that the seller has reason to be concerned about the inspection. As a result, it will make it more difficult for an investor to disregard minor items that would have been otherwise easily overlooked.

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WHAT DOES “AS IS” REALLY MEAN?

There isn’t a “lemon policy” in real estate. Buyers are typically aware that assets are purchased “as is”; however, any prudent investor will want to inspect the asset to begin to prepare a budget for potential maintenance items that may be on the horizon.

A preliminary walk through with the broker is often preferred over the property manager and should be conducted prior to going to market. A property manager is there all the time, so a fresh set of eyes will come in handy. This preliminary walk through will identify areas that can be tidied up to ensure you’re making the best presentation. Prospective buyers spend 70 percent of their time in common areas and viewing mechanicals. We always say that “you can’t tell a resident how to live,” but common areas are controlled by and reflect the landlord.

Making sure the buyer and inspector has easy access and able to move from apartment to apartment as quickly as possible is important. This is easily achieved by means making sure that residents have proper notice.

Early the morning of or within 24-hours prior to the inspection, the building manager should walk through the basements, yards, hallways and rear porches to make sure things are well-swept, clean and neat. All debris should be cleared away and garbage receptacles should be emptied. Any outstanding landscaping work should also be completed.

Increase management presence in the days leading up to the inspection as it not only ensures that the physical condition of the property is in order but also discourages any potential distractions by residents. The renters will usually want to tell management about potential issues when they haven’t seen them in a while. Seeing your team around the building beforehand will get those “let me talk to for a minute,” moments out of the way and give you the ability to address some work orders before the inspector is there looking for problems.

Sellers always have the option of getting a second opinion, to get a better understanding of the issue at hand. Structural and environmental problems make it a lot more difficult to get over the finish line. Major Cap-Ex Items (roof, boilers, building code violations) could come up; however, they rarely derail a deal. I’ll use the roof as an example. This area comes up because some sellers only send someone look at the roof when there is a leak, while the buyer is going to have his inspector take a hard look. Often, the inspector will find an issue that started off as a minor issue but was exacerbated over extended periods of time. If the seller finds that the issue at hand is as serious as indicated by the inspection report, then its typically something that an owner will need to address regardless to what any one buyer does.

These issues come up from time to time, but we are experienced brokers and are well-versed on how to approach and resolve them. Just about nothing is insurmountable!

Anthony Hardy is real estate investment coach and team leader of The Hardy Apartment Group at Marcus & Millichap, a team of Chicagoland multifamily specialist dedicate to helping clients create and preserve wealth through the timely acquisition and disposition of commercial assets.