Bank REO, needs new septic. Scenario(s) and advice please

[William Carson]

This is my first contracted deal. Welcome to the game Bill!

The following story involves a bank owned, 3 bed, 1 1/2 bath 1 car SFR ranch with full basement, 1200 sq. in the beautiful Poconos. Bank has held for well over a year, been listed for 7 months and had been listed from $58,300-$34,900. The plan is to finish the basement, make it 2 full baths, add a bedroom turning it into a 4, potentially 5 bedroom, 2 bath, 2200 sq.

ARV assumption is 125K

Rehab assumption is 40k

Purchase: 33,200, contingent on a septic inspection. We had seen something suspicious on our initial walk-around.

In-ground septic failed a hydro/pressure test. Badly. Summation is that a new, $20,000 mound will need to be installed. Good news is my stepson works for a septic guy, with whom I've set up a relationship that I'll send him business by not being afraid to purchase properties everyone else is afraid of with septic issues if he helps me out.

Upon learning the septic failed, I told the realtor to cancel the sale. She shot off an email and we were done. Or so I thought.

Bank shoots back: Would your client be interested in proceeding with the transaction if we were to offer financial concessions? If so, please state expected terms.

So now I'm thinking...they want to get rid of it, this could still happen. Bank has a copy of the invoice with the prognosis and the $20,000 estimate. Here's what I've thought of. Please feel free to make a suggestion or bring up something I may not have thought of.

The roof will cost about 1/2 what I initially budgeted, so I'll be saving about $4000 there. It's not as bad as we had initially thought.

There is a $5000 overage factor in the rehab budget. It's there, but I really would rather save that for "inside" surprises.  That puts 9k back into play. I'm halfway there.

Do you think it's possible that they will go with a 10k credit? That would be me saying "I'll pay for half". If they do, I would then ask my septic guy to do it, working on dropping the bill 3-5k, as I have another I'm looking at that will also need some minor septic work done. I have no idea what the contractors cost is for a mound, so I hope I'm not expecting too much help without insulting him.

That would pretty much pay for it, without completely draining the 5k reserve. (10k from bank plus the 4k from the roof)

That would be a lot quicker that asking them to do it. That's not what they offered anyway.

I think I can move on relatively unscathed and this becomes a minor setback rather than a deal killer, if I can pull this part of the art off.

Ideas, suggestions, comments? Thanks for reading.