You’ve found a great deal, the seller accepted your offer, and it’s now time to schedule an inspection.
Having a property inspected by a licensed professional is one of the most important property due diligence we have as investors. While there is no such thing as a perfect inspection report, the purpose of paying for an inspection is to avoid any surprises after closing.
I’ve had to learn this lesson the hard way through the many surprises that have come up after closing on properties throughout the years. For example, I’ve found broken side sewers, unpermitted remodels, termite infestations, lease agreements that surfaced after closing, and that one property where the seller failed to mention that four feet of the backyard was in the flood zone, requiring flood insurance.
All of the above issues could have been avoided had I completed all a thorough inspection of each property.
You never want to be in a position where you find out something later, so making sure you’ve covered all of your bases is imperative. Here are the items that I make sure are, at a minimum, are inspected or check out during the inspection phase.
Full home inspection
A home inspection involves hiring a licensed professional to go through the property, every unit, to check the major systems. This includes plumbing, electrical, siding, windows, crawlspace, attic, heating & cooling, fixtures, appliances, and other items that may be specific to a property.
I highly recommend following the inspector (if you’ll be there, which you should) like a hawk. There have been many times when I’ve pointed out issues to an inspector who would have totally passed over it. When I am investing out-of-state, I ask my agent to be my eyes and ears, going through the property with the inspector.
Ideally, the property manager I’ve hired to manage the property will show up during the inspection to share their opinion, along with a contractor, if the intention is to renovate the property. Having the home inspector, property manager, and contractor weigh in on the condition of the property is essential.
Side sewer inspection
After having purchased more than one property with a broken side sewer, we now scope the sewer for any property we purchase.
In some areas, this is not commonly done. Do it anyway. You do not want to spend upwards of $10,000 repairing a side sewer after closing when you can spend a few hundred dollars inspecting it prior to purchasing.
With older properties, the inspection may be a challenge, you can expect to pay extra if the plumber has to remove a toilet for the inspection. Again, this is money well spent.
Verify that the property is not in the flood zone
FEMA changed their mapping system a few years back, and multiple times I’ve come across sellers who had no idea their property was now considered to be in the flood zone.
A few years ago I helped an investor purchase an off-market property that was literally miles away from the nearest river. But, due to the FEMA flood map changes, four feet of the backyard was now in the flood zone due to a small creek in the area.
Once we learned that flood insurance was required due to this, we reviewed the seller disclosure statement and sure enough, the seller had checked no. We did not think to ask otherwise.
Due to the quick close, we were not made aware of the flood insurance requirement until after closing. Now, I verify this using the latest online FEMA map during my due diligence period.
Look for evidence of water issues
Most recently, I had a property under contract that showed sandbags near the garage in the listing photos. My first question prior to submitting an offer was is drainage was an issue at the property. The response was that it was a one-time event that has since been remedied, except what we found during the due diligence stage showed otherwise.
Evidence of past water/drainage issues is not always easy to spot. You’ll often find water line marks on the foundation wall, the obvious bubbled ceiling, stained sheetrock, etc.
In the example mentioned above, we noticed the entry area by the front door was bubbled up. After inquiring with the tenants, they confirmed that water was a major issue at the property, every heavy rain meant they needed to move their stuff away from the door.
This was more than I wanted to take on because it appeared to be more of a grading issue than just adding in an additional drain.
Check for outstanding permits or violations
Unpermitted additions and remodeling is another surprise that I’ve learned after closing. I recently had a property under contract, and this time I checked for permits on the county’s website. There I found an open building permit for an attached three-car garage.
In reviewing the seller disclosure statement, they had answered yes to the question about remodeling, and yes to the question asking if all permits were finalized. I used this information as a bargaining chip and had them finalize the building permit prior to closing.
I’ve found many interesting details about properties when searching for permit records including complaints and code violations. By simply taking a few minutes to research the permit history, you could be saving yourself a lot of time and headaches down the road.
Review seller disclosure statements
All real estate transactions should come with a seller disclosure statement. I’ve found that some are very in-depth, Washington is a full seven pages, other areas are not.
Every buyer should spend the time to thoroughly review the seller disclosure statement, and know that is it completely reasonable to request the seller to elaborate on anything you find out about the property.
For example, I was representing a buyer on a sound view property on a bluff. The area was known for erosion, and we wanted to gain information from the seller, in writing, about any potential erosion issues during their ownership. The template seller disclosure statement did not ask the sort of questions that we wanted answers to, so we typed up our own, called it Exhibit B to the seller disclosure statement, initiated the bottom, and send it to the seller with the offer.