You’ve found a property that looks great, and you’ve just received the inspection report. It lists a number of deficiencies, most of which are typical, and the cost of correcting them is clearly specified. However, there are some items that are troubling because the reports list symptoms rather than specific defects, such as mold, Kitec pipes, Chinese drywall, aluminum wiring, roof leaks, subsidence, and more.
These unclear issues are red flags because fixing them is not “fixed”. For example, suppose mold is detected. How much does it cost to correct a mold?
I met a guy who learned about a mold problem during an inspection and thought $1,000 would be enough to fix the problem. Meanwhile, $25,000 later, the problem still isn’t completely solved.
It doesn’t matter how low the price is or whether you like the property. You cannot purchase a property that contains high-risk items. However, you can often get a flat fee to fix some of the issues with the secondary inspection.
For example, if a property inspector points out a roof problem, we will perform a secondary inspection by a roofing contractor.
One issue with secondary inspections is time. In Las Vegas, the typical due diligence period is 10 calendar days. If the initial inspection occurs on the fifth day of due diligence, you will not have time to conduct a secondary inspection.
high risk vs low risk
Below are examples of high-risk and low-risk renovation projects.
Low risk renovation project
You can get fixed bids for:
- Electrical appliances
- painting
- curtain
- floor
- landscaping
- lamps
High risk renovation project
The cost to correct these items is unknown. Suppliers often give preliminary estimates, but they cannot provide fixed costs until work begins. They include:
- Basic questions
- high water level
- structural issues
- Mold
- Improper wiring
- fire damage
- Roof leaking or damaged
- dry rot
- termite
- Added without permission
- major pipeline issues
- water damage
- Chinese drywall
- Swimming pool leaking
As mentioned before, secondary inspections can provide a fixed cost for certain issues.
Handle high-risk items
We typically require sellers to repair high-risk items before closing escrow.
Is the seller obligated to make repairs? In Nevada, no. However, a document called Obligations Owed by a Nevada Real Estate Licensee is part of every real estate transaction. A provision of the document obligates the real estate agent to disclose material facts about the property:
“Disclose to all parties to a real estate transaction as soon as practicable any material and relevant facts, data or information about the property that is known to the licensee, or that the licensee should exercise reasonable care and diligence to know.”
When we ask the seller to make repairs, we will also send an inspection report and point out the defects. In this case, both the seller and the real estate agent now have actual knowledge of the defect and, by law, must disclose it to any future buyer if the seller refuses to make repairs. The seller may choose to conceal, but the real estate agent is equally responsible for disclosure.
Cash in lieu of repairs
It’s not uncommon for sellers to offer cash without making repairs. This is usually acceptable if the cost is clear, because if you do the repairs yourself you know the job is done correctly. However, it is not advisable to accept a fixed amount of cash in lieu of repairs if the total cost is not clearly defined.
For example, a property inspection uncovered several damaged roof tiles. The seller is willing to pay $500 without making repairs. We declined the offer and the seller made repairs. If the seller performs repairs, we require an invoice for the work completed. In this case, 140 tiles had to be replaced, costing the seller more than $2,500.
final thoughts
Always have your property inspected by an experienced and knowledgeable inspector. If there are high-risk items, either resolve the risk through secondary inspection or cancel the purchase. You cannot buy a property with high-risk repairs.
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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
