When do you go back and ask for reduction in price after inspect?

Question

Hey BP!

So, I just received an inspection report.  It's for a small multifamily.  The numbers work fine... currently at 2.79% rent to price ratio...not wonderful, but meets my criteria.  So my question is... got the report, and I'm not too happy with the results.  There are a few things, but my biggest problem is with the roof.  The current owner just put about $4k into repairing/replacing parts of the roof (I have invoice and receipts in hand), but the inspector noted this about it after taking pics, showing other damage:  "Damage,  deterioration, staining, moss type growth, improper installation, and  repaired areas were found at the roof coverings. A qualified  contractor should repair/replace as needed."  So my question is would you guys typically go back and ask the seller to replace the rest of the roof, or ask for a concession so you can do it once you close?  Just curious how you all handle this type of thing?

Katrina P. · Answer

@Gerald Demers okay got it! Thanks so much for the info!  I've already called a couple of contractors to take a look at it next week.

Cheers!

Gerald Demers · Answer

I forgot to add that I would not offer to tie up any of my funds in escrow in the beginning.  I only do that if the situation warrants it like when the seller says things like "how do I know you are telling the truth?" or "how do I know you will actually fix the roof?"

Gerald

Gerald Demers · Answer

@Katrina P., only your creativity limits how you resolve the issue.  The solution is the one that you both agree to.  The first thing you need are the facts and to get them quickly.  You don't want to tie up someone's property any longer than you have to.  So get one to three people to look at the roof.  More than one is better.  Are their findings the same?

If yes, you need to have a discussion.  Also, if you are purchasing with conventional financing, they could demand the roofing issues be resolved prior to closing.  I never like this situation because the seller will seek to spend as little as possible and I want it done right because I plan to hold this for a long time.  Since I buy my properties with private lenders, my preference is always to credit at closing and I will take care of it after we close.  That credit can be some or all of the anticipated costs to fix the roof.  From the seller's standpoint, their fear is that you are just creating problems that are not there.  I have seen many get credits for work that does not need to be done and then don't do the work.

If you do plan to do the work, you can add this to the conversation "I am not just creating problems; this issue will be resolved after we close."  Such a solution can even include putting funds in escrow to show the work is actually complete.  If you are putting 50K down and financing and it's 15K to do the roof, that 15K remains in escrow for 90 days.  If you have not completed the roof work in that 90 days, the title company releases the 15K to the seller.  This is just one way to show the seller you are serious and ethical and you will do what you say you plan to do.

Gerald Demers

Katrina P. · Answer

Hey @Gerald Demers, Thank you so much for your input, kind sir :)!  I will definitely have an independent roofer go out there to give a second opinion, then have that conversation with the seller.  Thanks so much!!  So hypothetically, if the roofer says rip off and replace all the shingles, for example, how do I propose to restructure the deal?  Does the seller offer me a credit at the table for that amount?  Take it off the price of the house?  Or does it even matter?  I guess if he offers me the credit, then I can finance that cost, vs paying it out of pocket, right?

Gerald Demers · Answer

Hello @Katrina P., absolutely have that conversation.  You have an accepted contract and the numbers work for you.  Are you saying the numbers including the unanticipated repairs work for you?

If the owner just paid 4K for roof repairs, look at the invoice and call the roofing company.  Was it shoddy work or did they tell the owner what was required and the owner cheaped out?  You may also want to have a roofer/your own roofer look at it and see if they have the same opinion.  Not all inspectors are good.

For me, if there are big issues with any of the 4 major systems (roof, electrical, plumbing, HVAC), or other major expense, we are talking about it for sure.  Actually, I always have the discussion regardless.  Even it if it's to say the inspection found a couple of thousand in required repairs but don't worry, I will take care of them; let's close!

I do not submit an amended offer because that can be rejected and the deal is dead.  I have a conversation and if we have a meeting of the minds, then we document an amended offer.

Gerald Demers