Firday Hold or Fold: Complete Renovation Flip

[Caleb McLean]

XPost From r/Real_Estate:

"

Back in the middle of November I made an offer on a house that was accepted. It was a contractor flip on an old house. A complete renovation job including new electrical wiring and plumbing. By the end of November I had the inspection done. It wen't pretty poorly. I gave the seller/contractor a list of 25 items to address and he agreed to all of them.

This list consisted of some serious issues like the main support beam/girder in the basement being replaced because it was badly cracked and also being held up by temporary support columns.

Fast forward to last week. The seller tells me everything is completed and to bring the inspector back out so we can close. The inspector comes out and we see that 90% of the items haven't be completed and the few that were completed have been poorly done and didn't pass inspection. Also the seller created new issues.

One of the original request items was to put a cover on that main sewer clean out line in the basement, but instead of capping it he cemented it up. This work looks like it's been done by someone that has never worked on a house before.

I had very mixed feelings about this house after the first home inspection, but the seller assured me that when we first had the house inspected he was still "working on it." My inspector had pointed out all over the house armature work, short cuts, and inconsistency in everything done to this house.

It's a big house, an old house, and I'm in for almost 500k and I feel like this house is a potential disaster.

The main support girder in the basement wasn't repaired properly and we noticed new cracks in the walls on the first floor in a newly renovated area. Now I officially have zero faith in this guy attempting to fix this stuff again.

My agent thinks I should request the seller put an amount in escrow and have the repairs completed by a contractor selected by me. I am starting to think I should walk away because who knows what else is wrong in areas I can't see. What would you do in this situation?

The only other point I should note is there currently isn't another house in this neighborhood like it. We've eyed this area for awhile and watched a lot of the good eyes go, but I'm trying not to let that influence me."

What do you think? Would you do it?

[George Skidis]

You have three options
1. Grin and Bear it.  - Not my recommendation
2. Place a substantial money in escrow. - Still a hazard.
3. Break the contract.

The issue is that the shoddy workmanship you see makes you wonder about all the other short cuts the contractor made that you can't see.

Example, the sewer cap. You can see the surface is plugged with cement. How far down does the cement go? Does it block any connecting drain lines? Was the sewer drain actually a drain for some other purpose. A lot of older homes had floor drains because of a high water table. Any history of subsurface water innundating the basement and needing a place to go. That would not be considered a back of of sewer and drains under your homeoner's policy, It is also not meet the definition of a general condition of flooding for coverage under a flood insurance policy. Ready for a wet basement?

Definition of a flood under FEMA and National Flood insurance guidlines: The innundation of two or more acres or two or more properties. The source should be a lake, river, resevior or similar item. City Sewers and private cisterns and septic tanks are not included in this list.

Back up of Sewer and Drains is not normally included in a homeowners policy but can be added by endorsement. Even when not covered an on premises blockage which causes liquids and solids to back up into the property not caused by the sewer system "May" be covered.: 

Here are two reccomendations:

1.  Look for a legal way to terminate the contract. Has the Seller "Breached" the contract?

2. Next time perform due dilligence on the contractror. Make sure they have the knowledge to do the work.

[Caleb McLean]

Oh boy. Sounds like that investor is in for a tough time. Thanks for the sound advice and the reasoning behind it, George!