Seller said property was turnkey--inspection said otherwise

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Seller said property was turnkey--inspection said otherwise

Elizabeth Guarnieri
Silver Spring, MD · Member since 2016 · 10 posts · 0 votes

Hi--I'm very new to this site and to investing.  I found a property that sounded like a good deal but I went under contract at a price that I thought it was worth if there was nothing majorly wrong with the property.  I have an inspection contingency and the inspection turned up major electrical problems that could cost close to 20K to fix (fixing electrical and fixing the damage done to fix the electrical).  There are a lot of good things about the property (2 of 3 units are rented; new roof; cosmetic upgrade to one apt w new appliances, cabinets, counters, and in an area that is seeing some significant new development).  We asked the seller to cut the price by 13 (about ten days ago), they came down 5 (just today).  Now I have one day to decide if we exercise our inspection contingency and I'm torn.  Any advice or wisdom would be appreciated! Thanks much!

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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
9y

Exercise your contingency right to withdraw your offer.  FAR too much involved and once the job is begun, there's likely more to follow :sigh:

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  • David Hale
    Saint Louis, MO · Member since 2016 · 13 posts · 7 votes
    9y

    Run the numbers and see if it still meets your financial requirements. If you're not getting the return you want at anything less than $10k off, for example, counter with that as your final offer. If the numbers only made sense at $13k off then walk away. Also do not be fooled into thinking the $20k is the only repairs it will need. I would add at least $10-15K on top of that $20k estimate for other things that might pop up, just to be safe. But everyone has their own way of analyzing properties and what kind of return they are willing to accept. Don't be afraid to walk away, there will be other properties. Good luck!

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    20k sounds exceptionally high for an electrical problem. Perhaps you can expound on what is wrong with the property specifically

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  • Elizabeth Guarnieri
    OP
    Silver Spring, MD · Member since 2016 · 10 posts · 0 votes
    9y

    David and Russell--thanks for your input!  Here is the information from the electrical inspection:

    Service The service was recently replaced with a new 3-meter pack.There was no sign of permitting, and the old undersized SE cable was not replaced, and there was not proper grounding and bonding.It is not clear if the 3-meter pack is PSEG approved.The ZINSCO sub-fed panel is now considered a safety hazard and needs to be replaced.There is not room for the new conduit to rise up the exterior wall to the point of attachment.The steps and newly laid cement must be torn up and replaced for the service to be replaced.There were several instances of unsafe electrical installations in the basement including a live wire that was laying at the foundation wall.

    Price Easily $5000, could go to $6500 not including cement and step repair

    2nd Floor Apt. The sub-fed panel has been placed in the stairwell which is in direct violation of the code.The neutral and ground wires are attached to the same buss which is a safety hazard, and needs to be remedied.Nearly all of the lighting and receptacle circuits show evidence of rewiring but the ground wires do not show conductivity to ground.This is evidence of poor electrical installation and possibly using old knob-and-tube wiring to feed these circuits which were found in the basement.Also, there are broken boxes and unsafe wiring practices evident throughout the inspection which led one to believe that the work was performed by an unqualified individual.The cheated wires must be found or the entire ungrounded circuits may need to be rewired.

    Pricing to move the sub-fed panel, properly install bonding and grounding, and correct the ungrounded circuits $3500-$6000

    Rear apt No entry was gained.The Electrical portion of the Home Inspection report shows ungrounded receptacles and possibly more.Considering the evidence in the rest of the building, it is possible that the circuits are also poorly installed by amateurs. The range to correctly install these circuits is $750-$2000

    These prices do not include the patching of plaster or the repair of any other damaged surfaces.

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  • Elizabeth Guarnieri
    OP
    Silver Spring, MD · Member since 2016 · 10 posts · 0 votes
    9y

    And much like David said about other issues popping up--the electrician who did the inspection said that with this kind of amateur work in evidence, there's no telling what you will find when you open up the walls.  

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    Exercise your contingency right to withdraw your offer.  FAR too much involved and once the job is begun, there's likely more to follow :sigh:

    3Reply
  • Levi T.Pro Member
    Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    I'd pass and find a better deal. Sounds like there will be a lot of headaches, and that's just what you know... more could show up down the road type thing. Plenty of deals, just keep looking for the perfect one.

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    I would pass if you are unsure. If you walk you can always re-approach. They may be more negotiable once they know you are ready to walk if ness.

    Be careful when reading descriptions 

    Turkey and Turnkey

    are just one letter typo apart. 

    2Reply
  • Rich N.Pro Member
    Investor · Haverhill, MA · Member since 2015 · 761 posts · 328 votes
    9y

    wow, I would of asked for a reduction for the whole 20K instead of the 13K.

    Really, I would walk away from this non-deal.

    There is something you can spend your effort on and this is not one of them.

    1Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    9y
    Originally posted by @Elizabeth Guarnieri:

    Hi--I'm very new to this site and to investing.  I found a property that sounded like a good deal but I went under contract at a price that I thought it was worth if there was nothing majorly wrong with the property.  I have an inspection contingency and the inspection turned up major electrical problems that could cost close to 20K to fix (fixing electrical and fixing the damage done to fix the electrical).  There are a lot of good things about the property (2 of 3 units are rented; new roof; cosmetic upgrade to one apt w new appliances, cabinets, counters, and in an area that is seeing some significant new development).  We asked the seller to cut the price by 13 (about ten days ago), they came down 5 (just today).  Now I have one day to decide if we exercise our inspection contingency and I'm torn.  Any advice or wisdom would be appreciated! Thanks much!

    That's ridiculous! Anyone marketing a home as turnkey with major problems like that, should just give it another name! A turnkey home needs to be remodeled 100%. I always make sure a third party home inspection is conducted and passes. If you can't take someone's word on the home, that means the relationship is off to a bad start already!

    1Reply
  • Elizabeth Guarnieri
    OP
    Silver Spring, MD · Member since 2016 · 10 posts · 0 votes
    9y

    Many thanks for all of the advice and wisdom.  Sent my letter canceling the contract today.  The seller sent an "estimate" of what he thought would fix the electrical problems, which not surprisingly didn't cover half of the things my electrician said it needed to be safe.  Then had the gall to suggest that we were being unreasonable because he was offering 5k toward the ridiculous 6,500 estimate that he came up with--so in his view we were walking away over 1.5k.  Through the negotiations it seemed more and more clear that they weren't really being above board about this, so why would I trust any of the work they'd done?  It's disappointing, but clearly there will be other opportunities.  I thought originally that having something that didn't need work would be a good place to start investing, but am rethinking that.  Maybe it's better to buy something cheaper and know the work is being done properly?  Mulling this and reevaluating my ever evolving plan...

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  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Elizabeth Guarnieri , one of the most intelligent things you can do is to walk away when it doesn't work. Not every property is a deal, and sometimes deals fall through due to inspection issues. You are smart to walk away.

    I'd remind the seller that this is now a material defect that must be disclosed to all buyers. (You are in MD, I'm in CO so make sure this is true for your state.)

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