Dealbreaker? - Federal Pacific Electrical Panels

[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.

[John Warren]

@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.