Dealbreaker? - Federal Pacific Electrical Panels

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Dealbreaker? - Federal Pacific Electrical Panels

Dennis Tierney
Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes

We are in the process of doing due diligence on a 30 unit bulding we have under conract and have run into Federal Pacific electrical panels in each of the apartments and also the main panel. The inspector and electrician agree they should be replaced as they are deemed an electrical hazard due to a higher rate of failure to properly trip and subsquently overload the circuit causing an electrical fire. I have been told that to replace the main panel the electricity to the building would have to be off for 2 days! They estimate the total cost of replacement of the main and each panel in the apartments would be $90K. Do I walk away or try to get a price reduction from the seller? We are still in the due diligence phase and can get our deposit back. Thanks.

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John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
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@Dennis Tierney this is not a "deal breaker", but it does become a point of negotiation. In a lot of the towns I work and invest in here in the western suburbs of Chicago, the town code enforcement folks actualy flag these things every time a building goes up for sale. It is fairly common for older buildings to be flagged for total re-wiring. I just did a deal in Berwn where the seller ended up having to upgrade the electrical service and replace all the panels, and yes, the electric was off for the better part of a day or two. 

Really, these types of issues are not a reason to walk away from a good deal. Changing a panel is not a big deal, and it is simply another dollar that needs to be spent by someone. If the numbers work with the electrical work, then the deal is a good one. If not, then it is not a good deal and you negotiate or walk away. 

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  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    7y

    @Dennis Tierney this is not a "deal breaker", but it does become a point of negotiation. In a lot of the towns I work and invest in here in the western suburbs of Chicago, the town code enforcement folks actualy flag these things every time a building goes up for sale. It is fairly common for older buildings to be flagged for total re-wiring. I just did a deal in Berwn where the seller ended up having to upgrade the electrical service and replace all the panels, and yes, the electric was off for the better part of a day or two. 

    Really, these types of issues are not a reason to walk away from a good deal. Changing a panel is not a big deal, and it is simply another dollar that needs to be spent by someone. If the numbers work with the electrical work, then the deal is a good one. If not, then it is not a good deal and you negotiate or walk away. 

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  • John CasmonPro Member
    Cincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    @Dennis Tierney Many insurance companies will not insure the Federal Pacific panels, so you will need/want to get this replaced if you move forward. If all else checks out for the property, you can push for a reduction in price. 

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  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    7y

    Check the label in the panel. If it is Federal Pacific Electric “Stab-Lok” panel, those are problematic.  If it is any other Federal Pacific Electric panel you should be OK. 

    My guess is that they are Stab-Lok which is why your inspector is calling for their replacement.

    Fannie Mae has guidelines on this specific panel.  Basically they don’t want to lend on properties that have them. But there is often a workaround by getting a letter from a licensed electrician stating that they have inspected the panels and they are in safe condition.

    If you can’t get an electrician to certify it, you’ll be stuck with replacing them.  You might have to have a few electricians look at them to get a letter—some won’t want the liability of writing it.  Others want the $90K job of replacing them so of course  they are going to tell you to replace them.

    Here is how I approach these panels.  I budget for their replacement when I write my offer (we look for them when we tour properties, I don’t wait for an inspector to tell me they are there so this doesn’t come up later in the transaction).  But you didn’t know to look for them, which is understandable.  But the broker or seller should have known about them and should have been up front about it with you. So now that your price is locked you have a good case for asking for a credit or price reduction.  

    Then I try like hell to get a letter saying the panels are safe so I don’t have to replace them.  When I sell, I resist a price reduction from my buyer and encourage them to get a letter.  If we both get letters, I make $90K (using your case as my example).  If either one of us don’t get a letter and I either end up eplacing them or giving my buyer a credit, I’m even.

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  • Dennis Tierney
    OP
    Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes
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    Brian: They are Stab-Lok and the electrician wouldn't certify them. He actually won't do the work as it is too big a job for him. He does single family work primarily. These were not disclosed by the seller or his agents. There are windows that need glass replacement due to blown thermal panes and some A/cs that were hail damaged but otherwise a good building. Guess it's negoitation time. Thanks for your help.

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  • Jason BottPro Member
    Insurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
    7y
    Originally posted by @Dennis Tierney:

    Brian: They are Stab-Lok and the electrician wouldn't certify them. He actually won't do the work as it is too big a job for him. He does single family work primarily. These were not disclosed by the seller or his agents. There are windows that need glass replacement due to blown thermal panes and some A/cs that were hail damaged but otherwise a good building. Guess it's negoitation time. Thanks for your help.

     Dennis, on the insurance front, if these are Stab-Lok, there are no work arounds besides getting them replaced.

    In 2018 I have tried to find insurance companies willing to insure multi's with Stab-Lok and no one wants them.  If your 1 building was with a much larger portfolio of buildings, maybe the underwriter would give an extended period of time for replacement, but they would still need to be replaced.

    To second @Brian Burke comments, I have clients who have had success getting the Federal Pacific panels passed, as long as they are not Stab-Lok.

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
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    Your quote on the costs seems like about double what it should be. Im in DC, a considerably more expensive market and I pay my elecectrician $2k to swap out a panel. Omaha should be cheaper....and if you are getting 30 of them done, you should be able to get some sort of bulk work discount. Id expect a cost half of what youve been told.  Give a few electrical contractors a call and get some quotes.

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
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    @Dennis Tierney I always tell my wife/partner that everything makes sense at some price. She reminds me that some things are not worth the headache, regardless of price. 

    My concern would be both insurance problems and safety of residents. I would only do the deal if I set aside money to fix the problem.

    1Reply
  • Dennis Tierney
    OP
    Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes
    7y

    @Russell Brazil They did quote $2K per panel for the swap out alone and there are 31 panels (including the laundry) and then $15K for the main panel plus some wiring as they need grounding as the current panels aren't grounded.

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  • Owen DashnerPro Member
    Lender · Omaha, NE · Member since 2008 · 1k+ posts · 1k+ votes
    7y

    @Dennis Tierney, I have another electrician you should check with, that quote is definitely high.  PM me and I'll get you his contact info.

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  • Loretta Gray
    Real Estate Broker · Alexandria, VA · Member since 2018 · 89 posts · 30 votes
    7y
    Exactly!

    Originally posted by @Russell Brazil:

    Your quote on the costs seems like about double what it should be. Im in DC, a considerably more expensive market and I pay my elecectrician $2k to swap out a panel. Omaha should be cheaper....and if you are getting 30 of them done, you should be able to get some sort of bulk work discount. Id expect a cost half of what youve been told.  Give a few electrical contractors a call and get some quotes.

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  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    7y
    Originally posted by @Dennis Tierney:

    We are in the process of doing due diligence on a 30 unit bulding we have under conract and have run into Federal Pacific electrical panels in each of the apartments and also the main panel. The inspector and electrician agree they should be replaced as they are deemed an electrical hazard due to a higher rate of failure to properly trip and subsquently overload the circuit causing an electrical fire. I have been told that to replace the main panel the electricity to the building would have to be off for 2 days! They estimate the total cost of replacement of the main and each panel in the apartments would be $90K. Do I walk away or try to get a price reduction from the seller? We are still in the due diligence phase and can get our deposit back. Thanks.

      I would guess that you could get the work done for between $50k –$60k,  so I would get several more estimates. 

     I do have a building that has Federal Pacific breaker‘s and my first insurance company had issues with ensuring it. I found a different insurance company that was just fine with insuring that. The difference in cost was very minimal. one thing to consider even if you do buy it now, is that the next buyer is going to react the same way as you are reacting. You may want to negotiate a credit towards those breakers no matter what you end up doing 

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  • Michael Le
    Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    I've had a building that had Stab Lok and was able to get Freddie Mac agency loan on it and also got it insured without issues. The caveat is that although it is a non-recourse loan, performance issues related to the Stab Lok breakers I was considered personally liable to the lender for. And also that if there was any fire related to those breakers, the lender could request that we replace not only the ones related to the fire but all of them.

    Also, I agree that the price you got quoted was way too high. If I recall my quote was something like $500 per breaker.

    1Reply
  • Jim Adrian
    Architect · Papillion, NE · Member since 2015 · 1k+ posts · 840 votes
    7y

    @Dennis Tierney

    Currently electrical prices are high as a kite right now due to all the data center work going. We have a major shortage of electricians now for the next 7 years or so.  Quotes are easily running double than normal.

    Facebook has a mega facility in Papillion under construction (public knowledge).  Rumor has it, there are 200 - 300 electricians on that job site alone.  I know of several other data centers under construction as well within the area but haven't been made public yet.

    2Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    7y
    Everyone seems to have turned the conversation to insurance and loans with these panels. People’s safety should be #1.
    1Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    I will approach the seller that you can not get the property and ask for some concession.


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  • Dennis Tierney
    OP
    Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes
    7y

    @Matt M. I agree the safety issue is paramount. My other concerns are my paranoia about a fire hazard that I know about and if I don't have it fixed how liable am I and also since I have had 4 fires in 13 yrs. in the business (all caused by careless tenants) the last thing I want to do is knowingly take on electrical fire risk.

    1Reply
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    7y

    I don't have personal experience with FP breakers. Would this be considered a Material Defect that must be disclosed to any future buyers if the OP walks away from the contract? He specifically mentioned that it wasn't disclosed by seller or agent. I have a hard time believing they didn't know about it.

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  • Chris Grenzig
    Property Manager · Orlando, FL · Member since 2016 · 479 posts · 277 votes
    7y

    @Dennis Tierney we're buying a property with 175 FPL stab-lock that we are replacing about about $650 a pop, so $90k do 30 units seems crazy high. I would get a larger company in that does MF properties to bid it out, I would expect it should cost you $20-40k rather than 90k.

    0Reply
  • Collin Schwartz
    Rental Property Investor · Papillion, NE · Member since 2017 · 398 posts · 1k+ votes
    7y
    Dennis Tierney I have received quotes for about $500 a panel. Feel free to reach out to me if you want contact info.
    0Reply
  • Tchaka Owen
    Real Estate Agent · Merritt Island, FL · Member since 2017 · 974 posts · 1k+ votes
    7y

    @Dennis Tierney - FPE Stab-Lok has to go. And as everyone else has stated above, it's a negotiation, not a dealbreaker. Something else to keep in mind......those boxes are around 50 years old. So even if you're paying for half of the replacement, you're coming out ahead. We use way more devices today as opposed to 1970. Today we have multiple TVs, computers, cell phones, microwave, etc. Upgrading is a good thing.  

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