“Sold, Subject to Inspection” — Explained

Upper bracket Twin Cities homes may not be moving quickly (if at all), but the pace of sales for more affordable housing — say, under $300k — is surprisingly brisk.

Accordingly, more would-be Buyers are being told that the home that they just asked to see is already “sold, subject to inspection,” even though its status on MLS is still showing “active.” (There’s actually a further refinement to that status — namely, either “good to show” or “no more showings.” By definition, if the latter status applies, there’s nothing for other, would-be Buyers and their Realtors to discuss.)

What does that mean? And what should prospective Buyers do with that information?

“Sold, subject to inspection” means that there’s already an accepted offer on the home, but that the Buyer hasn’t removed the Inspection Contingency yet. Until that happens, other Buyers are welcome to view the home (assuming the contract between the Buyer and Seller provides for that).

Which prompts the next question: should other Buyers still bother looking?

“To See, Or Not to See” (That is the Question)

Standard Realtor advice is “no.” The reason is that the vast majority of the time (say, 85%-plus), inspections don’t scuttle deals.

That’s so either because inspections don’t reveal any major issues, or, if they do, the Buyer and Seller are able to successfully negotiate them.

Per Minnesota law, a Seller who learns about a material defect in the course of a Buyer’s inspection is obliged to update their disclosure. So, the choice they’re confronted with is, reduce the sales price an appropriate amount now, with this Buyer — or take a similar discount with any future Buyer.

Alternatively, the Seller can elect to fix the problem themselves, then put the house back on the market.

Either way, the cost of the repairs comes effectively comes out of their pocket.

Not surprisingly, most Sellers in this situation opt to “take their lumps” now, vs. later.

Inspection Blow-Ups

So what about the other 15%?

Three types of situations account for most of the “inspection blow-up’s.”

First, the inspection reveals a major issue, and the Buyer and Seller can’t come to terms about an appropriate discount.

Given that there are standard price ranges for things like roofs, furnaces, radon remediation, etc., there’s really no reason for that to happen if both sides are negotiating in good faith.

Second, the Buyer and Seller disagree about whether there is a material defect.

Fortunately, most home issues are objective rather than subjective in nature: the roof leaks or it doesn’t, the heat exchanger in the furnace is cracked or it isn’t, etc. Usually, bringing in qualified third parties — typically, knowledgeable contractors — can get Buyers and Sellers past this impasse.

The third type of inspection failure is when the inspection is such a disaster that the would-be Buyer isn’t interested in negotiating a discount (however sizable).

More than most consumer purchases, for many people, a home purchase is especially emotional.

A disastrous inspection can cause the Buyer to “fall out of love” with a home.

When that happens, often times no amount of “rational” inducements (read, financial) can un-do the damage, and the best course of action is to simply move on.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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