Inspection and Renegotiation of Airbnb Investment Property #3

5YafC1525988073We used a home inspector on the first house we bought that was 100 years old.  It was someone the realtor recommended, and we took her advice because we had never done this before.

Always choose your own home inspector, and get recommendations from people that you trust.  

I had always said that when we buy the next house, we would hire a separate HVAC, roofer, plumber, and electrician to come and evaluate each section of the property separately.  It makes sense to me that instead of hiring one jack-of-all trades, hire each one individually that specializes and is an expert in their field.  Our first inspection was $500, and I think the money would have better spent hiring experts.

In this case, the electrical box had been passed by the city inspector less than a month ago, the roof had been completely replaced last year, and the plumbing had all been updated by the flippers.  I felt comfortable not calling in those experts, but it is a 100 year old house.  In addition, I put the home inspection contingency in our offer in case we didn’t find funding or changed our mind.

In the end, I am extremely glad we got the home inspection, as it saved us 8,700 dollars off our original offer price.

The biggest thing we did differently was researching our inspector before we hired them.  I asked local investors for recommendations, and then checked out their websites and social media reviews.  The inspector we chose had fantastic reviews, and their website said they welcomed the home owner walking the property with them and asking questions.  They also had a product called a 5 point investor inspection, where they just check out the main areas of the home.  At only $195, it was the perfect choice for us.  I figured at the very least I would pay $195 for a crash course in home inspections.

There were a few small things that the inspector pointed out, and he also confirmed the parts of the house that were fine.  He said that we were missing a chimney cap and that the downspouts on the gutters needed to extend at least 10 feet away from the property.   These are things we would not have known about, but we can easily and cheaply fix ourselves.

The interesting part came when the inspector went down to check out the HVAC.  I knew that the unit was old, however I did not realize exactly how old it was. The inspector said that it was a gravity furnace from the 1920s, and showed us where they used to shovel coal into the unit.  This is commonly known as an octopus furnace, due to the large and multiple ductwork arms that extend to the basement ceiling.  To top it off, the ductwork was covered in asbestos tape.  If left undisturbed this isn’t hazardous, but pieces of the asbestos can break off the tape and then enter the ductwork, spreading asbestos throughout the house.  I asked him how much he thought it would take to replace the unit and ductwork, and he said between $8,000-10,000.  That’s a pretty hefty price tag for a $99,000 house!

We had already scheduled and HVAC technician to come to the property and give us a quote on adding central air conditioning, and he said the exact same thing the inspector did.  His bid was $10,000 – $3,5000 to replace the furnace, $3,5000 to properly dispose of and replace the ductwork, and $3,000 for the central A/C unit. When I spoke with him afterwards (out of earshot of the real estate agent), he said he could actually do it for $8,000, but put $10,000 in the bid to give us more negotiating power.  This is important information to know when entering a real estate negotiation.

After receiving his written bid, I asked the real estate agent to submit and addendum asking for either $12,000 ($10,000 for the furnace plus an additional $2,000 for miscellaneous siding issues), or for the required repairs to be complete. I felt like that was a pretty reasonable offer, and expected them to counter with 6 or 7.

They came back with 5! Their reasoning was that we knew there wasn’t central A/C prior to offering, so we should have taken that into consideration before we offered.  The seller said he had an HVAC guy who could replace the furnace for $3,500, and that it would work with the original ductwork.  We would then be responsible for paying for the A/C and some of the siding.

Can a new furnace use the old octopus ducts? The internet didn’t really have any answers, although most websites recommended replacing everything to increase efficiency.  I got ahold of our HVAC guy and asked what he thought, and he told me that the old ductwork would have to be replaced to bring the unit up to code, and that the original ductwork is much bigger in diameter than modern furnaces.  The ductwork definitely would have to be replaced.  Just to double check, I called some other HVAC companies around town and asked for their opinion – and they all agreed.

In all fairness, we knew that there wasn’t central air when we made the offer.  However, we knew that their HVAC technician was way wrong and that the ducts would all require replacement. We countered with a $8,700 reduction, which was $3,500 for the furnace + $3,200 for the duct replacement + $2,000 for siding repairs.

Although I expected a counter offer, they accepted!  Which means the property will have a new furnace, ductwork, and central A/C that we didn’t have to pay for, and $700 we can put towards fixing the siding ourselves.  Our funder will still loan us the $99,000 to purchase the house and make repairs, although they want to walk the property first to make sure everything checks out.

They are doing their walk through on Tuesday morning, so after that it will just be a matter of signing some paperwork and the house will be ours.

 

 

 

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