Renegotiate, walk away, or follow through?

Question

I’ve been under contract to purchase a duplex since October 2019. Property had a messy title and I was told it was cleared and ready to close February 2020. I went for final walkthrough and water to the property was not turned on. Weeks later water was turned and I was told they need to install a new water supply. The water line from the street to the property was dug up, there was a leak in one of the kitchens which resulted in the ceiling being tore out and is in the process of being replaced. Property analyzed fits just over the 2% rule. Should I walk away from deal, renegotiate price being I am sure comps have changed in 6 months, or follow through if all repairs made?

Michael Belmore · Answer

@Cameron ParrSeems like there is a lot that the seller didn't disclose. The times in which I had ended up getting done over (after pure anger subsided) I thought back to beginning of the negotiations and there was always a time that I let the other person get away with a small lie because the deal looked good. I now have a rule to be hyper aware at the beginning and not get blinded by the numbers. If someone is willing to tell a small lie what else are they keeping from me? Thats my two cents. Hope you find the right place soon. - Mike

JD Martin · Answer

If you can rent this property for 2% of your all-in you really have a home run in today's marketplace. Those types of deals are really rare at this point in the market. Perhaps the pandemic will depress the market somewhat and bring more deals to market. In some ways you are benefiting here - new kitchen, new supply line - so long as work is being done in a quality manner.There's really a lot of "ifs" here. It depends on your willingness and ability to wait and what effect that will have on your plans for the property. Try to be objective about it. Once when I was first starting buying rentals again I was under contract on a house that I found they had hid the fact that the city was requiring a re-wire; I only found out when we tried to activate utilities for the inspection. Because they were dishonest I walked; later they came back to me about 7k less than where we were. I said no because I didn't trust them, but in hindsight I should have bought it at that price because it was a real windfall looking back on things.

Mindy Jensen · Answer

@Cameron Parr, if you are relying on the seller to get items repaired, you should ABSOLUTELY get a re-inspection before closing. He has already shown you that he does not tell the truth. What is to stop him from using a sub-par contractor or even using someone who is not licensed at all? Get re-inspected and don't close until everything works out.Or better, get a credit at closing and have the work done yourself. If you are asking him to have it done, find a contractor you want, and make it a stipulation of the contract that he uses them.

Brian Ellis · Answer

I have to agree with Mindy & JD. 2% all in is a steal. Most people could barely make the 1% rule over the last few years.I would ask for a credit at closing. Don't rely on the seller to do good work. He will spend the least amount possible and try and patch things up quickly. Have a re-inspection and bring a contractor with you that can give you a ballpark on repair costs.

Cameron Parr · Answer

Thanks for the insight @Michael Belmore I think that always sits in the back of our mind in hopes sellers are being totally honest and not trying to pass along a deeper headache. One property I just closed on that was appraised and inspected we found out when a tenant tried to move in one unit was missing a gas line in the kitchen which I had to fit the bill for out of my rent money. Only $150 still something seller should’ve added. @JD Martin Thanks. Yes, I know it seems like I should be able to still get the 2% rule but I am not sure how long these repairs will take and how much rents will change with this COVID 19 situation. I’ve had funds on hold for this since Nov 2019 and I’ve seen some other deals come and go, just don’t want to become too emotionally attached ha. When you lose trust with a seller it’s hard to back pedal I am sure no matter what they are offering so I can see how that 7K discount they were offering you didn't really matter. Should I get a reinspection done to certify this work or that things are running smoothly? If so, should I ask seller to pay or should I charge it to the game and get it done. Am I crazy for not wanting to go see this if we approach closing again because my movement is limited due to COVID, my lawyer said we could do a long distance closing if we received a time stamped video of all the things I wanted addressed and the new work done. @James De Stefano You guessed it; this is an off market deal my realtor knows. I brought one from him already that has been running smooth and hitting the 2% rule. Just that this property seems like a headache and he was pushing to close without the water even being on which spurred all these other issues which made me a bit cautious moving forward. Thanks for your reply.

Theresa Harris · Answer

If it is only a matter of delaying closing until everything is done and signed off, I would be patient. Make sure everything is done properly and completed before you close. The sellers are the ones paying for it right now and bearing all of the costs.

Michael King · Answer

@Cameron Parr All sellers lie I'm afraid. I don't know how many times I've bought a home to live in and found blatant cover ups after moving in. At least with the one I'm in I found mold and walked away. The seller came back to me a few weeks later at a greatly reduced price and we went for it. You are fortunate you caught them out and had the water turned on and tested, great job on that. Did you get a sewer inspection done? Survey? Sounds like you know what you're doing. If the numbers work, and if you think there's not much more that can go wrong, then treat it as a business transaction and proceed. Or attempt to get a reduced price due to their delays and cover ups. Obviously the water was turned off for the very reason they had to dig it up.

James De Stefano · Answer

Good info about from @Cameron Parr. Sounds like some skeletons in the closet. To your question about walking away or renegotiating, how much would you lose in E.M. ? Do you have a buying agent on your side, or this is an off-market/ solo deal you're working on?Headaches are always part of the real estate world, and I'm not that many years in-deep to it. So find the right balance is the best I can offer. GL