Off market flip - Negotiating price after signed contract

[Lanee Johnson]

Hi Folks, 

We've been active investors for about 15 months, which makes us newbies :).  We just signed an assignment contract for our 3rd off-market property via a wholesaler.  This wholesaler was clear that their contract doesn't allow for a due diligence period. We did end up negotiating the price down after the initial walkthrough.  Our offer was accepted and we provided a nonrefundable $1k deposit , 10-day close. We do get inspections on any property we plan to purchase.  Due to the short offer period, we didn't get the inspection report back until a few days later.  No foundation issues, etc. but the inspection report did indicate the need to fully replace the HVAC system and all ductwork (we agree due to us flipping this property and needing to pass resale/buyers inspection). The rehab budget is a bit tight and we want to reserve our contingency for any other surprises.  

My question is: Should we attempt to renegotiate the price based on this new information? We're 7 days out from closing.  We are trying to balance building positive relationships with wholesalers (keeping our word) and looking out for our financial best interest. 

Thanks in advance for any insight. 

[Shawn Parsh]

Lanee,

From my perspective if you agreed to buy the property knowing the tight timeline and no due diligence time period you should follow through with the purchase as agreed. Your name and reputation is far more important than a single deal. 

How much do you usually plan to make on a flip before you are willing to buy? I would make sure that you build in enough profit that if something like this comes up you still profit from the deal. I would get another estimate and opinion on the need to replace the ductwork. Does it really need to be replaced to pass a future inspection or does it just need work or cleaned? Does the furnace not work?

As I'm sure you know watch your expenses on this one closely to try to re-coop some of the unexpected costs associated with the furnace. See if there are any additional features you can add to the property that will raise the value with a small investment. Anyway, those are my initial thoughts. Good luck.