Written By: Hyatt Tullu, Commercial Real Estate Intern
Overview: In a typical land development contract, the inspection period is the buyer’s opportunity to investigate the property before moving forward with the purchase. During this time, the buyer evaluates key factors that could affect the feasibility, cost, or timeline of the project. If major issues are found, the buyer often has the option to cancel the contract without penalty.
What Happens During the Inspection Period?
- Title and Survey Review – The buyer reviews the preliminary title report and obtains an ALTA survey. The goal is to confirm ownership, identify easements or encroachments, and ensure there are no restrictions that could limit development. Any title defects need to be resolved before closing.
- Environmental Due Diligence – A Phase I Environmental Site Assessment is usually ordered to check for contamination or other environmental red flags. If the Phase I raises concerns, a Phase II, which includes soil or groundwater testing, may be needed. Environmental issues can delay a project or add unexpected cleanup costs.
- Soils and Geotechnical Testing – Understanding the condition of the soil is critical before any construction begins. Developers often order a geotechnical report, which involves drilling test borings and evaluating soil stability. Poor soil conditions can require expensive foundation solutions or site work.
- Zoning and Entitlements – Buyers confirm that the property’s zoning matches their intended use. If rezoning or a conditional use permit is needed, the buyer will begin that process during the inspection period. This step also includes reviewing general plans, zoning maps, and reaching out to planning departments.
- Utilities and Infrastructure – Access to water, sewer, electric, gas, and roads can make or break a deal. During due diligence, the buyer investigates the availability and capacity of utilities. If any major off-site improvements are required, that could affect the budget and schedule.
- Feasibility and Pro Forma Updates – Developers use this time to refine their project budgets, construction timelines, and expected returns. They also study comparable land sales and assess market demand. If the numbers no longer make sense, this is the time to walk away.
- Discussions with the City or County – Early conversations with planning staff or public officials can help uncover any red tape, opposition, or requirements that weren’t initially obvious. This step helps developers gauge how receptive the jurisdiction is to their proposed project.
Why the Inspection Period Matters
- Reduces Risk: It protects buyers from unexpected legal, physical, or financial issues
tied to the property. - Strengthens Negotiating Power: If issues are uncovered, buyers can renegotiate the
terms or request that the seller make repairs or concessions. - Informs the Go/No-Go Decision: The data gathered during this time helps the buyer
determine whether to move forward, adjust plans, or terminate the deal. - Streamlines Closing: When done thoroughly, due diligence helps resolve problems
early, avoiding surprises later in escrow.
At M Square Commercial, our role often goes beyond simply brokering a sale. We guide
clients through the entire inspection (due diligence) period by coordinating with title companies,
surveyors, environmental consultants, engineers, and local planning departments. This
hands-on approach helps ensure that buyers fully understand the site’s opportunities and risks
before closing.
By managing this process through our consulting agreements, we help our developer
and investor clients reduce risk, strengthen their negotiating position, and make better-informed
decisions about whether and how to proceed with a deal. The inspection period is a critical part
of every transaction, and supporting clients through it is central to a successful development.