Recouping inspection and appraisal costs due to dishonesty

[Kerresha Musgrove]

I put an offer on what I thought was a 2 unit property. While in escrow we found out that it’s actually a single family residence per county records. We asked the seller and listing agent if the back unit was permitted. They were adamant that it was and after tons of back and forth they sent over permits and the building plan. I took those plans and went to city planning to get clarification. I was told that the back unit was once a garage and was converted into a guesthouse in 1959 (the seller bought the house in 2014). City planning confirmed I was not buying 2 units but rather a single family with a guesthouse and should negotiate the price to match. 

My agent went back to the seller with my findings AND a lower offer price. The seller canceled the contract. Money and time were wasted due to them not being truthful. I would have never made the offer if I knew from the beginning it was single family home. Can I recoup my inspection and rush appraisal costs which totaled up to a little over $2,000? I’m slightly bummed as this would have been my first home purchase, but excited to have come out with so much more knowledge. Thank you for suggestions/advice.

[David P.]

To be honest your actually better shape buying it as a single family residence. Just lending alone they add 1-2 points for 2 unit investment properties. If you can get it as owner occupied you can always refi to the best rates out there. As long as it generates rent and you think it is 2 units then that is what matters. Appraisers are getting better at adding value for ADU conversions now but it is the benefits in interest rate that will help you cash flow.

For example last year i purchased a 2 unit duplex thinking it was all under one APN. Turns out they were actually detached condos with their individual APN number. Besides paying 2 of everything apprasil, escrow fees, i got the benefits of a SFH investment loan at 3.125% with no points. On top of that I can actually sale them seperately in the future if i want. In your case you won't be able to sell them seperately but if it was a true duplex you wouldn't either but you get the benefits of not getting dinged for 2-unit rates.