You’ve discovered what seems to be an excellent property and have just received the inspection report. It lists numerous defects, most of which are standard and have clearly defined repair costs. However, a few items are concerning because the report highlights symptoms rather than specific issues, such as mold, Kitec plumbing, Chinese drywall, aluminum wiring, roof leaks, settlement, etc.
These ambiguous problems are red flags since addressing them isn't straightforward. For instance, if mold is detected, what would be the cost to remedy it?
I met someone who found mold during an inspection and assumed $1,000 would suffice for the repairs. However, $25,000 later, the issue was still unresolved.
No matter how attractive the price is or how much you love the property, you can't afford to buy one with high-risk items. Often, you can obtain a fixed cost to address certain problems with secondary inspections.
For example, if the property inspector notes a roof issue, we conduct a secondary inspection with a roofing contractor.
One challenge with secondary inspections is time. In Las Vegas, the standard due diligence period is 10 calendar days. If the initial inspection occurs on the fifth day, there is limited time for secondary inspections.
High-Risk vs. Low-Risk
Here are examples of high- and low-risk renovation items.
Low-risk renovation items
Fixed bids can be obtained for:
Appliances
Paint
Window treatments
Flooring
Landscaping
Light fixtures
High-risk renovation items
The cost to correct these items is uncertain. Vendors typically provide an initial estimate but can't offer a fixed cost until work begins. These include:
Foundation issues
High water
Structural issues
Mold
Improper wiring
Fire damage
Roof leaks or damage
Dry rot
Termites
Unpermitted additions
Significant plumbing issues
Water damage
Chinese drywall
Pool water leaks
As mentioned, secondary inspections can sometimes provide fixed costs for certain issues.
Dealing With High-Risk Items
We typically request the seller to repair high-risk items before closing escrow.
Is the seller obligated to make repairs? In Nevada, no. However, the "Duties Owed by a Nevada Real Estate Licensee" document is part of every real estate transaction. One clause in this document requires the real estate agent to disclose material facts about the property:
“Disclose to each party to the real estate transaction as soon as practicable: Any material and relevant facts, data or information which licensee knows, or with reasonable care and diligence the licensee should know, about the property.”
When we ask the seller to make repairs, we also send the inspection report highlighting the defect. In this case, both the seller and the real estate agent must legally disclose the defect to any future buyer if the seller refuses to make the repair. The seller might try to hide it, but the real estate agent is equally responsible for disclosure.
Cash in Lieu of Repairs
Sellers often offer cash instead of making repairs. If the cost is well-defined, this can be acceptable since doing the repairs yourself ensures they are done correctly. However, if the total cost isn't clear, accepting a fixed cash amount instead of repairs is not advisable.
For example, an inspection revealed several damaged roof tiles. The seller offered $500 instead of making the repair. We declined the offer, and the seller completed the repair. We require the invoice for completed work if the seller makes the repair. In this case, 140 tiles were replaced, costing the seller over $2,500.
Final Thoughts
Always have properties inspected by an experienced, knowledgeable inspector. If there are high-risk items, either resolve them with secondary inspections or cancel the purchase. You can't afford to buy a property with high-risk repairs.
In previous post; "Why would you need a commercial broker?"
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