Input requested on a deal

5 Replies

Sorry for the length. I've been silently following, listening to and reading Bigger Pockets material for 2+ years but don't believe I have posted anything. I've been looking for a duplex for quite some time. I was pre-approved for an FHA loan, then I found a realtor I trusted. She convinced me to re-apply for the FHA loan through her lender. I trusted her judgment, met him and went through with it. I had her bring me to many duplexes in multiple counties in Wisconsin. Eventually, the deal I found was through a friend and not my realtor. A short sale, not to be found easily since it was listed incorrectly as a single family on the MLS. I involved my realtor in this deal. This duplex seemed to be exactly what I was looking for, with 3 beds, 2 baths, a basement and 2 car garage in each unit. Each side rents for 1,150 per month. Taxes are 6,000 per year. This was based on a previous assessment of the property at $300,000. I plan to have the property reassessed and the taxes lowered. It was built in 1991 and looked on the surface to be in great shape. Being a first time home buyer, I was still a little unfamiliar with all of the steps in the closing process. I told my realtor to make an offer at 160,000. The reason for this number is another story in itself. But based on other comps all around this area, this was a low price to ask. The neighborhood and schools are great. We negotiated until we reached an accepted offer at $190,000. This doesn't quite meet the 2% rule, but the location is so great that I was ok with that. I plan to live there, then eventually rent out both sides. Once both sides are rented out, the property will cash flow roughly $500 per month after insurance, taxes and other expenses. After we had an accepted offer, I asked to have an inspector come through. My realtor told me that this is not allowed on short sales that are sold as is. I smelled bs and I did it anyway and we found mold in the basement ceiling rafters, caused by bad gutters allowing moisture into the basement. I told my realtor and she told me that it is definitely something to look into AFTER I close. I hired a mold inspector anyway. The mold inspector gave me a quote of $20,000 to repair. I'm afraid to attempt a renegotiation because if the appraiser finds out about the mold it will not be approved by FHA guidelines anyway. I don't want to walk away from the property but I may have to. I thought about re-applying for a conventional loan and renegotiating the deal. Or possibly attempting to repair the mold issue on my own after closing. The quote seems outrageously overpriced. Any recommendations?

If this is a short sale, chances are that:

1) The price is already lower than comparable properties in the area,

2) The bank is already taking a hit on the price, and

3) Your seller is unlikely to get the bank to agree to a further reduction in price.

You can try to negotiate the price down, but be prepared for a No. At that point, you will have to decide whether you want the property badly enough to buy it as-is and pay for mold remediation (not cheap), or to walk. Tough call. Good luck!

Originally posted by @Robert Courtney :

Sorry for the length. I've been silently following, listening to and reading Bigger Pockets material for 2+ years but don't believe I have posted anything. I've been looking for a duplex for quite some time. I was pre-approved for an FHA loan, then I found a realtor I trusted. She convinced me to re-apply for the FHA loan through her lender. I trusted her judgment, met him and went through with it. I had her bring me to many duplexes in multiple counties in Wisconsin. Eventually, the deal I found was through a friend and not my realtor. A short sale, not to be found easily since it was listed incorrectly as a single family on the MLS. I involved my realtor in this deal. This duplex seemed to be exactly what I was looking for, with 3 beds, 2 baths, a basement and 2 car garage in each unit. Each side rents for 1,150 per month. Taxes are 6,000 per year. This was based on a previous assessment of the property at $300,000. I plan to have the property reassessed and the taxes lowered. It was built in 1991 and looked on the surface to be in great shape. Being a first time home buyer, I was still a little unfamiliar with all of the steps in the closing process. I told my realtor to make an offer at 160,000. The reason for this number is another story in itself. But based on other comps all around this area, this was a low price to ask. The neighborhood and schools are great. We negotiated until we reached an accepted offer at $190,000. This doesn't quite meet the 2% rule, but the location is so great that I was ok with that. I plan to live there, then eventually rent out both sides. Once both sides are rented out, the property will cash flow roughly $500 per month after insurance, taxes and other expenses. After we had an accepted offer, I asked to have an inspector come through. My realtor told me that this is not allowed on short sales that are sold as is. I smelled bs and I did it anyway and we found mold in the basement ceiling rafters, caused by bad gutters allowing moisture into the basement. I told my realtor and she told me that it is definitely something to look into AFTER I close. I hired a mold inspector anyway. The mold inspector gave me a quote of $20,000 to repair. I'm afraid to attempt a renegotiation because if the appraiser finds out about the mold it will not be approved by FHA guidelines anyway. I don't want to walk away from the property but I may have to. I thought about re-applying for a conventional loan and renegotiating the deal. Or possibly attempting to repair the mold issue on my own after closing. The quote seems outrageously overpriced. Any recommendations?

I'm not sure about the market you're looking at, but I'd consider how properties have appreciated in the last year...if they have increased in value significantly, it will be unlikely you'll be able to successfully challenge the tax assessment. 

Make sure you negotiate the cost to remediate the mold, if you're even interested in taking that risk.  It could turn out to be significantly more costly than the mold inspector estimates.  You want to negotiate down the purchase price prior to address the level of risk you'll face when rehabbing the property.   As a buyer, sometimes you'll be in a position where, even with a good inspection, you cannot accurate estimate the cost to repair and there's a risk that the cost will be substantially higher.  I generally will not acquire a property if I cannot accurately evaluate the cost of repair.  Prior to walking away, I will often over estimate the cost to repair and make that offer...that is if you're willing to take that risk.  Otherwise, I'd walk.

To get a good property you need to stay away from negative issues entirely in my opinion.  Negatives have a way of coming back to haunt you forever and mold is one of the most memorable.  Real Estate buying and selling is not a bad business, but if you take more risk, know that you'll not only live with it, you'll have to sell it one day as well.  Real Estate is more or less a commodity and the only way to really affect the price is with attributes... nice location, better upkeep, better everything.  Mold does not fit that model very well.  That said, if you can buy it cheap enough then maybe...  but you'll need some serious profit points on your side going in and the discussion sounds like your first offer was about right.

Thanks to all of you for your input. I think I will try to renegotiate and see if the bank will work with me on it.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.