Purchasing commercial real estate in San Diego can be an exciting yet daunting process. As a buyer, you want to ensure you are making a sound investment that will benefit your business for years to come. One of the most important steps you can take is having the property thoroughly inspected prior to purchase. Here, we’ll explore why San Diego commercial property inspection is so critical and provide expert insights into how it can protect your interests as a buyer.
Why Inspection is Essential
Inspection allows a buyer to have an impartial, third-party assessment of the overall condition of the building. Unlike a real estate agent who represents the interests of the seller, an inspector works solely on behalf of the buyer. The inspector has the knowledge and experience to identify issues that may not be visible to the naked eye. Their detailed inspection and report provides transparency into the true state of the property.
This due diligence is particularly crucial for commercial buildings, which are often complex assets with intricate systems. Items such as the roof, foundation, electrical, plumbing and HVAC can be incredibly expensive to repair or replace if faulty. An inspection can detect defects or issues before you finalize the purchase, potentially saving you thousands in unexpected costs down the road.
In addition, inspections can identify aspects of the property that do not comply with state and local commercial building codes. This information allows a buyer to go back to the seller to request repairs or a price reduction to account for the code violations. Without an inspection, you may inadvertently inherit significant compliance issues.
Key Areas for Inspection
Comprehensive San Diego commercial property inspections examine all aspects of the building envelope and interior. While the inspector will issue a complete list of findings, some key areas of focus include:
Roof: This is one of the most critical inspection items. Roof issues like water leaks can damage other elements like walls and ceilings. Inspectors will examine the age, material, drainage and every inch of the roof surface.
Foundation/Structure: Inspectors will look for cracks or deterioration in the foundation and load-bearing walls that could signal foundational problems. This is especially important in areas like San Diego that are prone to seismic activity.
Electrical Systems: Faulty electrical can present a major fire hazard and other dangers. The inspector will check the service panel, wiring, outlets and fixtures.
Plumbing: Water leaks from plumbing can cause mold and other moisture damage. Inspectors will run all faucets, flush toilets, check pipes and water heaters.
Heating and Cooling: Proper HVAC is essential for comfort and air quality. Inspectors will confirm the system is appropriately sized for the building and operating correctly.
Potential Environmental Hazards: Inspectors have the right equipment to check for conditions like radon, asbestos and lead paint. It’s better to know about these upfront.
Fire Safety: Commercial buildings have strict fire codes. The inspector looks for sufficient alarms, sprinklers, exit signage and egress routes.
Zoning/Use Restrictions: Confirm the building is zoned for your intended commercial use and has proper permits/certificates of occupancy.
Choosing the Right Inspector
Not all inspection companies are created equal when it comes to commercial real estate. You want an inspector with extensive experience surveying large commercial buildings, not just residential homes. Look for:
- An inspector who has all necessary certifications and licenses for commercial inspection in your state/region. Many have professional engineer (PE) credentials.
- Strong knowledge of local commercial real estate building codes.
- Experience inspecting your type of property. For example, an office building, retail space, apartment complex etc.
- A track record inspecting buildings of similar size/scale.
- No conflicts of interest. The inspector should have no association with the seller or real estate agents involved.
- Strong communication skills to explain findings, especially complex aspects like electrical, plumbing and HVAC.
- A reputation for being thorough while meeting deadlines. Rushed inspections can miss key details.
- Ask for references from past commercial inspection clients.
The Inspection Process
The inspection process typically involves:
- On-site inspection: The inspector will do a walk-through and hands-on inspection of the entire premises, from the roof down to the foundation. For large properties, inspectors may work as a team.
- Review of documents: The inspector will also want to review any blueprints, previous inspection reports, and documentation about upgrades, repairs or issues. Documents may reveal underlying conditions.
- Testing: Advanced inspectors can conduct additional testing such as checking for air quality issues like mold.
- Interviews: Speaking with building maintenance staff can provide further insights.
- Report: A high-quality commercial inspection report can run between 50-100 pages. It should detail all findings, ideally accompanied by photographs. Both minor and major issues should be included.
- Review meeting: The inspector will want to review the full report with you and answer any questions. They may provide repair cost estimates or recommendations for addressing more serious issues.
- Third-party contractors: For complex issues identified, the inspector may recommend reaching out to specialized contractors like a roofer, HVAC technician or electrician to further evaluate.
Negotiating Repairs
If your inspection uncovers significant issues, it provides the opportunity to go back to the seller to negotiate a concession. Most purchase contracts have inspection contingencies that permit this. You have leverage to:
- Renegotiate the purchase price: If repairs will be costly, ask the seller to come down in price.
- Require the seller to fix defects before closing: This may involve extensive repairs that are expensive for the seller.
- Obtain credits at closing: A seller may agree to provide a credit that you can use to offset future repair costs.
- Walk away: If repairs are too extensive, you may be able to cancel based on inspection findings. Get your earnest money back.
Any negotiated solutions should be added as amendments to the purchase contract. Savvy commercial real estate investors always use the inspection report to get the best deal possible.
Impact on Financing
Your lender will require a commercial inspection to secure financing. If the inspector discovers issues, the lender may make repairs a condition of approving the loan. They want to minimize their risk as much as you do as the buyer. The lender may even decline financing altogether if the inspection reveals too many problems or code violations.
Don’t Waive Your Right to Inspect
Some sellers may ask buyers to waive the inspection contingency and buy the property “as is.” This may tempt some buyers to skip the inspection, especially in hot real estate markets where competition abounds. But this removes your opportunity to uncover latent defects and negotiate with the seller based on inspection findings. Waiving inspection is extremely risky for commercial buildings that can conceal many issues not visible to you as the buyer. Push back on “as is” requests and refuse to forfeit your right to inspect.
Partner with the Right Inspector
While inspection adds cost upfront, it more than pays for itself by preventing you from overpaying for real estate that turns out to need significant repairs or even total renovation. Work with a trusted and experienced commercial property inspector to conduct thorough due diligence. Let the findings guide negotiations so you can maximize value. This prudent step provides peace of mind that your investment will not come back to haunt you down the road. Your commercial property advisor can connect you with reputable inspectors who will help safeguard your interests during the acquisition process.
Key Takeaways on San Diego Commercial Property Inspection
- Inspection allows a comprehensive, impartial assessment of the overall building condition. An expert inspector can detect issues not visible to the buyer.
- Inspection is especially critical for complex commercial real estate assets with expensive maintenance items like HVAC and plumbing.
- An inspection report provides transparency into the true state of the property, enabling negotiations around price reductions or repairs for defects uncovered.
- For large commercial properties, choose an inspector with extensive experience, proper certifications, and a track record with similar buildings.
- Negotiate with the seller based on inspection findings, seeking price concessions, credits or repairs as warranted.
- Inspection findings can impact financing terms or availability. Lenders want to minimize their risk.
- Never waive the inspection contingency. “As is” purchases are extremely risky for commercial buildings.
- A quality commercial inspection is well worth the upfront cost to support a sound investment and reduce surprises down the road.
