BiggerPockets

Hi
I am in the process of buying a property that is a bank owned (REO). Initially I gave the offer for thirty two thousand though the asking price was forty four thousand. The bank accepted the offer.However yesterday I had the inspection of the property. It revealed the following:
The roof need to be replaced
The furnace is twenty years and in a year (max) need to be replaced
Some electrical work need to be done
Some brickwork needs to be done which may go to nearly three thousand dollars.

So the total cost of fixing will be nearly ten thousand dollars.

With this situation should I ask bank to lower the price of the property by at least five thousand. Since this is my first REO I have no experience how things work. So I am looking for your advise to deal with this situation. Thans in advance.

So long as you are in your option period, you can request anything that you want. Doesn't mean that they have to say yes to it though. You can send an amendment stating a new sales price, or a certain monetary concession be made for the issues discovered in the inspection.
In the end it just comes down to the numbers. Take what you are offering on the property, add in the dollar amount of the repairs that you now know that you need, and get your final after rehab value of the property. Does that value still make for a good purchase? The answer may vary depending on whether you plan to flip it, hold it, or whatever. When the day is done though, if the numbers don't work, then you just need to let it go. I see a lot of investors get a little too attached to a property and end up losing more than they should because they couldn't walk away. Either the numbers work or they don't. Try to keep it simple, and usually the answer will present itself to you.

Most of what people are concerned with are what I call the Big 5. Foundation, roof, plumbing, electrical, and the HVAC. That typically ends up having the largest price tag of the things that usually need repairs. Out here in Texas, foundation problems are the norm. Yet that isn't the case in many other places. If you look at the ridge line of the roof, that can be an indicator of some issues there. Sagging, deflections, bowing of the ridge line, etc. can all be indicators of other issues. Poke your head in the attic with a flashlight and look for water stains on the underside of the decking. Look at the rafters to see if they are pulling away from the ridge beam or is they are bowed or cracked.
For the electrical, pull the panel cover and see if you have corroded connections, aluminum wire connections, wire sizes correct based on the breakers that they are attached to, ground wires visible, signs of burn marks, etc.
For the plumbing, run everything at once. If you get really poor water pressure at that point, it could indicate a bigger problem. If it is pier and beam, look under the house with the water running to see if there are any active visible leaks. With everything off, go look at the water meter and see if it is still moving. That will let you know if you have a supply line leak somewhere.
With HVAC, the general age shoudl give you a good indicator on how much life it has left. Look at the blower fan to see how dirty it is. A dirty blower fan has worked more than it should due to a lack of proper maintenance. Make sure air is coming out of all the ducts in the house. With the AC running, check the temperature of the air going into the unit versus what comes back out. There should be a 15-20 degree temperature drop. Anything outside of that range indicates an issue. This does not apply to the heater.
In general, look for signs of water damage. I don't make a huge deal about mold because it is easy to take care of. However, you always want to know where water is getting in, and how to best stop it. Check the walls behind the showers (usually bedroom closet walls).

That's kind of a long answer to your question I suppose. I don't know of any list that I have seen. These are just some of the things that I think about as an inspector, property manager, and investor. Hope it helps.

Not a problem. Glad I was able to help.

Thanks Lee and Jon for the great advise. I appreciate it. Even with the rehab the number looks OK. However I am probably going to ask for credit of about three thousand dollars for electrical work. As you said does not hurt to ask.

Thanks for your advise. I appreciate it. Next time I need to work on it with a contractor prior to giving an offer.

Great answers,

I always have a number that I will not go over when it comes to rehab jobs before I close the deal. Once the offer is accepted, I get an inspection and also get quotes on all repairs. If my numbers are way off, I back out but if I'm within reason I close or ask for the price reduction. Usually I don't get to the point that bids are way off unless there are serious issues that no one would have know about. I usually try to sell the idea that it's a bigger mess then it is. This sometimes works and the banks want to dump the place. If not I usually follow up in 2 weeks when no offer has come in and they tend to want to do business again. It's a big numbers game, but as investors we have all the time in the world.

You made an offer for $32,000 when the asking price was $44,000.now you want the bank to take another $5,000 less?just because it needs repairs? I think you need to understand that you got yourself a house for so cheap because of the bad shape its in. Sounds like you want the bank to give the house to you. Don't be greedy
You're geting an excellent deal at $32,000.

Thanks folks. Actually being new to this field makes things little tougher to that if a REO purchase is a great or decent deal. That said it is not a question of greed but to ask for some credit due to some of the non standard issues.