buyer found new repair items 4 days before closing

Rehabbing & House Flipping
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buyer found new repair items 4 days before closing

Shawn Thom
Investor · McKinney, TX · Member since 2012 · 588 posts · 224 votes

I am hoping to close on my first rehab/sell this Friday.

During the inspection period the buyer did identify 2 plugs in the kitchen that have reversed polarity and some wiring that needs to go into a junction box in the attic. I have the electrician come out, he finds actual 3 plugs in the kitchen to fix and fixes them, then puts wiring in attic in junction box.

Buyer's do an inspection 2 days ago (that's a rant for another thread) and tell me that other plugs are broken too. I told them we fixed the 2 that were identified in the inspection.

today I get the full list. He has others that have reversed polarity and open grounds. He claims that when they put the junction box in the must have "messed everything up". I get one of the plugs pulled that is said to have a open ground and it doesn't even have a grounding cable in it. I talk to my GC and he said what he thinks probably happened is that the house was originally wired with out them and some one later came and put 3 prong plugs in but never cabled the ground.

So my question is that this was found after inspection period. I think I can show that it was that way prior since it doesn't even have a ground cable.

If I push back they would probably walk and I suspect I'd have to fix it anyway for the next buyer. If it came down to it, I suspect they could get the mortgage company to pull the mortgage off the table so they could get ernest money back etc but that is just a guess.

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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
13y

Receptacles with a ground prong but no ground wire do not meet code (unless we are talking about a GFCI that is properly labeled). Your electrician should know that. Sounds like your electrician maybe isn't licensed? Odd that he found a third receptacle in the kitchen and then didn't go and check for others elsewhere.

As Mike G. noted, you can use a GFCI receptacle and label them as not having ground (there is specific wording for that label as required by code); a properly labeled GFCI receptacle is allowed to have an "open" ground by code. Or you can switch those three prong receptacle to two prong receptacles, so that there will be no open grounds.

The credits to buyer might work, but if you have to have an inspection by a code official, you might not pass that. You might be in an area where no code official will ever inspect, so there might be nothing to worry about.

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  • Shawn Thom
    OP
    Investor · McKinney, TX · Member since 2012 · 588 posts · 224 votes
    13y

    ...and obviously, I do now know about checking these myself for the next ones.....

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    13y

    Good lesson if you'll be buying older houses...

    That said, you're right that the buyer could likely get out of the financing and because you know about it, you'll be on the hook to disclose to future buyers.

    I would try negotiating a reduction in purchase price or a credit to the buyer instead of fixing it yourself four days before close. Might be the simplest solution...

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  • Mike G.
    Rehabber / Flipper · Simi Valley, CA · Member since 2010 · 597 posts · 259 votes
    13y

    I like the idea of buyer credits for last minute things like this. If they don't go for it, I'd say just fix the issue because, like you said, it will probably be an issue for another buyer anyway. With an open ground, depending on your area's electrical code, you may be able to use GFCI outlets or a GFCI breaker rather than running new electrical wiring. If the buyer doesn't accept credits, speak with a licensed electrician to discuss options.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    13y

    Receptacles with a ground prong but no ground wire do not meet code (unless we are talking about a GFCI that is properly labeled). Your electrician should know that. Sounds like your electrician maybe isn't licensed? Odd that he found a third receptacle in the kitchen and then didn't go and check for others elsewhere.

    As Mike G. noted, you can use a GFCI receptacle and label them as not having ground (there is specific wording for that label as required by code); a properly labeled GFCI receptacle is allowed to have an "open" ground by code. Or you can switch those three prong receptacle to two prong receptacles, so that there will be no open grounds.

    The credits to buyer might work, but if you have to have an inspection by a code official, you might not pass that. You might be in an area where no code official will ever inspect, so there might be nothing to worry about.

    2Reply
  • Don Hines
    Investor · Little Rock, AR · Member since 2010 · 628 posts · 251 votes
    13y
    Originally posted by Shawn Thom:
    ...and obviously, I do now know about checking these myself for the next ones.....

    And it sounds like you didn't replace any recepticals with new ones? Not digging; I was just wondering.
    Who did your inspection when you purchased the place? My jury is still out about inspectors for flips. I have hired two to help me in my purchasing decisions. Both of them pretty well just wrote the place up as "needing up grades". I knew that already. What is broke?
    You can buy a handy dandy tester at the box stores that will simply plug into an outlet and will tell you a lot about the electrical system.
    Don

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  • James H.
    Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
    13y

    When I bought my personal home my inspector didn't even blink an eye at "open ground" in the 3 prong outlets that are hooked up to two wire cable.

    Just pull the plugs that have reverse polarity and change what side of the plug the wires are hooked up to. (black goes to gold, white goes to silver) You don't need an electrician to do this. Just turn the breakers off before you start. If you want, you could switch to 2 prong outlets, but I wouldn't spend the money on GFCI's.

    This buyer clearly needs to be educated that any house of the vintage in Texas which he is shopping will have these types of circuits without a dedicated ground.

    I own two 1950's houses and am under contract on a third and they are all wired without a dedicated ground.

    1Reply
  • Shawn Thom
    OP
    Investor · McKinney, TX · Member since 2012 · 588 posts · 224 votes
    13y
    Originally posted by Don Hines:
    Originally posted by Shawn Thom:
    ...and obviously, I do now know about checking these myself for the next ones.....

    And it sounds like you didn't replace any recepticals with new ones? Not digging; I was just wondering.
    Who did your inspection when you purchased the place? My jury is still out about inspectors for flips. I have hired two to help me in my purchasing decisions. Both of them pretty well just wrote the place up as "needing up grades". I knew that already. What is broke?
    You can buy a handy dandy tester at the box stores that will simply plug into an outlet and will tell you a lot about the electrical system.
    Don

    You are absolutely correct. I bought one for $5 and I'll be adding that to my list of things to inspect in the future.

    0Reply
  • Marc D.
    Accountant · Woodland Park, CO · Member since 2012 · 40 posts · 10 votes
    13y

    The whole deal hinges on a few outlets? Jeez... Must be a very tight profit margin.

    Posted with my BP Reader app

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  • Shawn Thom
    OP
    Investor · McKinney, TX · Member since 2012 · 588 posts · 224 votes
    13y
    Originally posted by Brian Hoyt:

    Just pull the plugs that have reverse polarity and change what side of the plug the wires are hooked up to. You don't need an electrician to do this. Just turn the breakers off before you start. If you want, you could switch to 2 prong outlets, but I wouldn't spend the money on GFCI's.

    I agree, easy fix on the reversed polarity. Most of the times (from what I've heard) when they put a repair addendum they say it has to be done by licensed electrician.

    Marc Donovan I have already have an electrician doing the repairs. I was just asking about options and the fact it was discovered after inspection period.

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    If your buyer's lender will accept a repair credit, I'd go that route. This is the trouble with all of us who re-sell to buyers who don't have cash. We're in contract with the buyer, but we're actually working for the bank. There's no one to really hold accountable for performance except a seller, a seller who probably has a financing contingency.

    I would go to 2-prong in all the outlets. Except bath and kitchen where I'd put GFCIs that are properly labeled (assuming that's up to code where you are). That way it's not deceptive or confusing visually about grounds. I don't think reversing the polarity is up to code where I am.

    1Reply
  • Marc D.
    Accountant · Woodland Park, CO · Member since 2012 · 40 posts · 10 votes
    13y

    http://www.inspectionnews.net/home_inspection/electrical-systems-home-inspection-commercial-inspection/15305-new-installation-two-prong-receptacles.html This is a thread where home inspectors are discussing the "replace three prong with two" Apparently you are not allowed to do that and remain legal.

    Posted with my BP Reader app

    1Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y

    Shawn, in my opinion, you have two options here. One, do as J Scott suggested and provide a credit or two, get a licensed electrician in there (not the original one used even if he is licensed) and fix these minor issues now.

    Lesson here is that the inspection period should be as short as possible and any requests for repairs to be made within the inspection period. Then, any agreed upon repair requests should be done ASAP and give the buyer a limited amount of time to re-inspect to make sure it was completed to their satisfaction and not 5 days prior to closing date.

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  • James H.
    Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
    13y
    Originally posted by Marc Donovan:
    http://www.inspectionnews.net/home_inspection/electrical-systems-home-inspection-commercial-inspection/15305-new-installation-two-prong-receptacles.html This is a thread where home inspectors are discussing the "replace three prong with two" Apparently you are not allowed to do that and remain legal.

    Posted with my BP Reader app

    Holy crap. Mind all this kind of minutia and never accomplish anything in your life.

    0Reply
  • Shawn Thom
    OP
    Investor · McKinney, TX · Member since 2012 · 588 posts · 224 votes
    13y

    Will Barnard that is a great suggestion. I am going to explore how to word that in a repair addendum. Unfortunately on this particular one it wouldn't have helped me much because I was still doing other repairs as recently as Sunday. I had a horrible time getting my contractors to go out there to do stuff. Needless to say I learned a lot on dealing with contractors and timelines etc but I hope to be able to work this into any future ones. Great suggestion!

    1Reply
  • JOAN DICKIE
    Residential Real Estate Broker · La Crosse, WI · Member since 2013 · 360 posts · 110 votes
    12y

    In Minnesota, it is written into the contract that you have a set time for inspection. After this inspection period is finished, the sellers don't have to allow an inspection. If a buyer does an inspection, its for their information only. They aren't allowed to come back and ask for credits. An agent with my brokerage had that happen to her. Instead of a final walk-through, the buyer had an inspector go through the house. The buyers tried to claim a credit for repairs they said the inspector found or they wouldn't close. Didn't work.

    0Reply
  • Roman Pak
    Investor · Arlington Heights, IL · Member since 2014 · 135 posts · 34 votes
    11y

    If they've submitted earnest money, done the inspection and passed attorney review, and are now out of the allotted time for due diligence (typically 5 days), you can keep their earnest money. 

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  • Shawn Thom
    OP
    Investor · McKinney, TX · Member since 2012 · 588 posts · 224 votes
    11y

    @Roman Pak , this issue was almost a year ago.

    i can tell you this though, I am closing on another flip that I am selling tomorrow.  I had repairs and I did as @Will Barnard suggested.  I said I would fix it and they had 3 days to reinspect or repairs would be considered good.  I also put in that addendum that $1500 of the earnest money was non refundable if the buyer backed out for any reason.  I have not experienced this yet but I have heard that getting earnest money back even if buyer defaults is as cut and dry as most think.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    11y
    Originally posted by @Roman Pak:

    If they've submitted earnest money, done the inspection and passed attorney review, and are now out of the allotted time for due diligence (typically 5 days), you can keep their earnest money. 

     Depends on the state, the broker, the agents involved and the buyer/seller whether keeping the EM will be easy or not.  In theory, it should be pretty cut-and-dried, but in reality, many states make it very difficult for a determination to be made by anyone other than the courts should a buyer and seller argue over the EM.  

    While -- in my experience -- the seller can generally get EM they are entitled to, the process can be long and cumbersome, and in some cases, the seller will be prohibited from executing a contract with another buyer until the matter is resolved.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    11y

    This post is over 18 months old.  Pretty sure the original situation has been resolved one way or another.

    1Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Shawn Thom:

    @Roman Pak , this issue was almost a year ago.

    i can tell you this though, I am closing on another flip that I am selling tomorrow.  I had repairs and I did as @Will Barnard suggested.  I said I would fix it and they had 3 days to reinspect or repairs would be considered good.  I also put in that addendum that $1500 of the earnest money was non refundable if the buyer backed out for any reason.  I have not experienced this yet but I have heard that getting earnest money back even if buyer defaults is as cut and dry as most think.

    Did you mean to say that getting EM back is NOT as cut and dried as most people think?  Where I am escrow will not release EM until both the buyer and seller agree to whom it shall be paid and sign docs to that effect.  Escrow does not release EM funds upon default of the contract, even if such remedy is outlined in the contract.  If the buyer and seller don't come to agreement and/or settlement, the EM will sit there until one of the parties sues the other and obtains a judgment.  Definitely not cut and dried if you are using title company escrow agents in CA.

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  • Shawn Thom
    OP
    Investor · McKinney, TX · Member since 2012 · 588 posts · 224 votes
    11y

    @Account Closed Yes, I always leave one significant word out :)  I mean NOT as cut and dry as people think.

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  • Richard C.
    Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
    11y
    Originally posted by @James H.:
    Originally posted by Marc Donovan:
    http://www.inspectionnews.net/home_inspection/electrical-systems-home-inspection-commercial-inspection/15305-new-installation-two-prong-receptacles.html This is a thread where home inspectors are discussing the "replace three prong with two" Apparently you are not allowed to do that and remain legal.

    Posted with my BP Reader app

    Holy crap. Mind all this kind of minutia and never accomplish anything in your life.

     And never kill anyone either.  

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