Author Topic: First time home buyer(Durham), inspection revealing unexpected expenses  (Read 1945 times)

economist

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Greeting Mustachians,

I hope your collective wisdom can help me decide how to proceed in this scenario. My gf and I have made an offer on a home that was accepted. We are in the midst of our due diligence period and inspections have revealed some unexpected issues. Our realtor is of the opinion that these are typical considering the age and price of the home (built 1930). Nonetheless, they are additional expenses we will need to pay out of pocket.

The numbers:
Price: $92,000
Down Payment: 20% $18,400
Payment: $646/month. 15 year fixed, 3.375%, P and I of $522, taxes $85/month, insurance $40/month (estimated)
Our current rent: $850/month
Est. Closing Costs: $0 (sellers are paying up to $3k, doubt closing costs will go over that).

The damage:
Termite damage to the supports in the crawlspace- This is the first issue. The sellers treated the home to kill the active termites, we had a contractor take a look at it, and the repair was estimated at $3,600. The sellers refused to cut the price or contribute towards the repairs.
Various electrical and plumbing issues- This came up in the general inspection that was recently performed. An electrician has taken a look and estimated it will cost about $1k to fix some electrical issues (wires hanging around in the crawl space and attic being the bulk of it). We also believe the gas furnace unit would need to be replaced, which could be an additional $1k-$2k. The water heater likely needs replacement, (another $1k?). So potentially something like $8k in repairs, not all of which need to necessarily be completed immediately after purchase (water heater could last a while) but probably all need to be completed in the first six months to one year.

As I said, our realtor believes these are pretty normal issues, and certainly this house is on the cheaper side of the area we are looking in (Durham NC). Given that the sellers have already expressed unwillingness to compromise on the price, what do you think we should do? I currently oscillate between 3 modes of thought:

1. It's a great deal! We'll save $200/month vs our rent AND be building almost $300/month in equity! The sellers are paying all closing costs! Suck it up and pull the trigger!
2. Run away! Why buy a house only to sink $10k into repairs right away?
3. Play hardball! Make some offer like "Take $5k off the price or we walk." Then presumably be willing to walk.

Other stuff:
We plan to stay here for at least 3 years, possibly longer. We are into this about $1,200 so far (inspections and due diligence money) so that is what we lose if we walk (but it's a sunk cost and shouldn't make our decision for us). We have more than enough in liquid moolah to cover these repairs. Still, no one likes shelling out a bunch of money. The house is a similar commute for both of us to our current location.

Any and all advice is appreciated.

tralfamadorian

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Termite damage...

As a real estate investor this is the one that would concern me.  Hot water heaters, furnaces, and other appliances are going to fail and that's normal with a relatively fixed repair costs.  But termites and structural damage are a different ball of wax- what if you purchase and the contractor gets in there and the damage is more extensive?  Did they check inside the walls (cut a piece of drywall/plaster out and check the wood there)?  And remember the rule of thumb- whatever your repair estimates are, double that. 

You have a stronger position with the seller than you think.  Properties that fall out of contract due to inspection issues have seriously damaged marketability.  Any potential future buyers are going to ask for a copy of that inspection report before making an offer. 

I don't think your realtor is really on your side.  Wiring, appliances, plumbing, windows- yes, they are normal considerations for an older home.  Termite damage- no.

Personally, I would walk.  There are always more houses and you are right at the cusp of the start of the spring real estate season.  There will be another, better house.  And interview more realtors. 

Midwest

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How much is the house worth after you fix those items?  If you are buying a $150k house for $92k plus $10k in repairs, sounds like a deal.  If you are buying a $100k house for $92k and repairs, not so much.

Also, is your contractor confident in his repair numbers and that there are no other major issues other than those identified?

Megma

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I own a rental in Durham and live in nearby chapel Hill, if you want to pm and tell me the address I'll take a look. I look at the local market almost daily....just in case. 😀

If it's a nice area of durham it's a deal even with these issues but in some other areas they're totally ripping you off.

By NC law  (I'm not an agent or lawyer) if they now know about these issues they have to disclose to future buyers from my understanding. They might act firm until you say you're walking away, id definitely ask them to come down in price probably 8k but I'd be happy with 6k and most likely take 4k, if it was still a good deal. Did you already ask for a specific amount and they said no?

Edit: corrected typos.
« Last Edit: March 02, 2017, 06:56:52 PM by Megma »

GizmoTX

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How much is the house worth after you fix those items?  If you are buying a $150k house for $92k plus $10k in repairs, sounds like a deal.  If you are buying a $100k house for $92k and repairs, not so much.

+1. OP, you seem to be basing the value of this against what you are currently paying. It's what the house is actually worth that counts in the long run.

Get another extensive termite & structural inspection -- this could be way more expensive than repairing supports. If there is more termite damage and/or infestation, I'd walk or expect a price reduction that includes enough to continue to rent while the repairs are made.

economist

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Thanks everyone. We've let them know we will be walking away unless they drop the price or give us a credit at closing equal to the cost of the major repairs. We'll see how it goes. At this point we would not mind walking away if they reject that.

In regards to how much the house is worth, the house is basically in the middle of comps in the area. Fairly priced for something with only minor issues, a stretch for something with the issues we've uncovered. I'll update once we hear back.

hoping2retire35

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LET US KNOW!

Drifterrider

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I own a rental in Durham and live in nearby chapel Hill, if you want to pm and tell me the address I'll take a look. I look at the local market almost daily....just in case. 😀

If it's a nice area of durham it's a deal even with these issues but in some other areas they're totally ripping you off.

By NC law  (I'm not an agent or lawyer) if they now know about these issues they have to disclose to future buyers from my understanding. They might act firm until you say you're walking away, id definitely ask them to come down in price probably 8k but I'd be happy with 6k and most likely take 4k, if it was still a good deal. Did you already ask for a specific amount and they said no?

Edit: corrected typos.

Nope.  There has been a provision for several years now called "No representation".  The buyers may elect to tell you nothing. 

For the OP.  Emotional buying always cost you something.  When I look at a property I calculate how much it would cost to repair, then add some for my time and aggravation and then adjust my offer accordingly.

No deal is better than a bad deal.


Nick_Miller

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I own a rental in Durham and live in nearby chapel Hill, if you want to pm and tell me the address I'll take a look. I look at the local market almost daily....just in case. 😀

If it's a nice area of durham it's a deal even with these issues but in some other areas they're totally ripping you off.

By NC law  (I'm not an agent or lawyer) if they now know about these issues they have to disclose to future buyers from my understanding. They might act firm until you say you're walking away, id definitely ask them to come down in price probably 8k but I'd be happy with 6k and most likely take 4k, if it was still a good deal. Did you already ask for a specific amount and they said no?

Edit: corrected typos.

Nope.  There has been a provision for several years now called "No representation".  The buyers may elect to tell you nothing. 

For the OP.  Emotional buying always cost you something.  When I look at a property I calculate how much it would cost to repair, then add some for my time and aggravation and then adjust my offer accordingly.

No deal is better than a bad deal.

Are you citing a specific NC law re: your "no representation" conclusion? In my state, once the buyer is put on notice of an issue, he/she has a legal duty to list it on future disclosures. As a previous poster said, that's one reason that the seller really suffers when a deal goes south in the inspection process. It makes the house "damaged goods" and forces the seller to either sink money into repairs or list the problems later (and as we all know, the subsequent inspector will likely find addiitional issues).

And you shouldn't lose your earnest money because of the sale falling through because of the inspection issues unless you waived your contingencies. I'd double check that.

Drifterrider

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The No Representation can stand.  If asked, the seller must disclose.  If not asked, they are not obligated to notify.
As to earnest money or due diligence money (if you paid any), you may withdraw your offer during due diligence for "any reason, or no reason at all" during the due diligence period and get your money back.

As to earnest money, you are entitled to that back if there is a problem that prevents the sale (virtually any problem at all).

I own property in Goldsboro.  I spent the last year looking at a lot of property with "no representation".  I found issues with some and withdrew my offer (got my earnest money back).  I was out the cost of an inspection but that is the nature of the beast. 

Sellers using the No Representation, to some degree, give the buyer an upper hand. 

I agree doing this diminishes the value of a property but then, I was only looking for distressed property.

economist

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Re: First time home buyer(Durham), inspection revealing unexpected expenses
« Reply #10 on: March 08, 2017, 06:12:56 AM »
Hey all,

After getting some estimates, we requested the sellers come down on price or contribute towards the repairs. The sellers rejected that, so we are walking away. We had asked for a concession of $5,700, their agent apparently tried to convince them to go along with it, but apparently they wouldn't budge at all. Maybe a handyman will find it, but I doubt they'll want to pay full price either.

Anyway, we are out our due diligence money and cost of inspection, but keep our earnest money. Could have been worse

economist

Megma

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Re: First time home buyer(Durham), inspection revealing unexpected expenses
« Reply #11 on: March 08, 2017, 12:41:59 PM »
Hey all,

After getting some estimates, we requested the sellers come down on price or contribute towards the repairs. The sellers rejected that, so we are walking away. We had asked for a concession of $5,700, their agent apparently tried to convince them to go along with it, but apparently they wouldn't budge at all. Maybe a handyman will find it, but I doubt they'll want to pay full price either.

Anyway, we are out our due diligence money and cost of inspection, but keep our earnest money. Could have been worse

economist

Sounds like you dodged a bullet.  I had to look at a few homes before I settled on the right one for me in 2012.  I grew up in Durham, and the area has changed a ton since then. In my opinion, the neighborhood you are in matters a whole lot more than the actual house you buy, and the sub-$100K price point is concerning because there are parts of Durham (NCCU-area, east Durham) that haven't appreciated at all and have been basically written off by the city.  If you're going to pay our exorbitant tax rates, you might as well live in an area that is seeing some of that money return as investment (warehouse district, northwest downtown, rockwood area, my neighborhood ;) )

I also think you made a good call Economist. When looking at the other houses in the area this house were in, I think you could do better. But it's hard to tell someone else that and really hard when I haven't been to any of the houses in-person (they look different online).

If you let the house sit on the market a while, you could always offer on it again and make a much lower offer (ie even lower than the adjusted price you asked for after the inspection). With time, the seller might come around and you've already had it inspected.