I just got results of home inspection on house I'm buying and discovered they had illegally replaced two prong outlets with three prong ones without correcting wiring. I understand my options may to rewire properly, install GFCI receptacles, either individually or at the beginning of each circuit, or install GFCI breakers in the panel. I understand that each outlet must have a sticker regarding grounding. But I hope and believe I'm wrong, that surge protector indicate that this is not acceptable method for the surge protector to properly work. If that is true, what other options are there to properly correct this problem? Should I cancel this purchase (which I can do based on the inspection results)?
I work from home and have computer equipment that needs to stay protected, especially since there are often storms and power outages.
Best Answer
Grounded (aka 3-prong) receptacles without an actual ground path
Older houses did not have grounded receptacles. Simply replacing a 3-prong receptacle with a 2-prong receptacle provides a false sense of security - and can actually be more dangerous than leaving the 2-prong receptacles in place. There is nothing inherently wrong with a 2-prong receptacle. Many devices do not require a ground wire and come with a 2-prong plug. But devices that come with a 3-prong plug are designed to use that 3rd prong for safety and bypassing that is not a good idea.
There are 2 different solutions available:
Ground the Receptacle
This can be trivially easy or monumentally hard. It is trivially easy if the wires are run through metal conduit. Metal junction boxes connected to metal conduit all the way back to the panel generally provides a good grounding path. In other words, you connect a ground wire from the receptacle (typically attached to a green screw on the receptacle) or other device to a grounding screw. The grounding screw doesn't have to be green, but it does have to be the correct type in order to ensure a good connection.
If you don't have metal conduit then you can either retrofit a ground wire all by itself, which does not have to follow the same path as the other wires, or you can run a new cable, including ground, from the panel (which always has ground) to the receptacles. Running a new cable is typically easy in an unfinished basement or garage but much harder in the rest of the house.
GFCI
A GFCI, Ground Fault Circuit Interrupter, is designed to protect a specific type of problem, a ground fault. Despite the name, a GFCI does not actually use ground itself. Rather, it measures to see if current on hot(s) & neutral matches. If the current doesn't match then by definition it must be flowing through ground, and the GFCI breaks the circuit. So there is a class of problems where a GFCI or a good ground wire would provide protection, so GFCI is considered "good enough" to avoid the need to retrofit a ground wire. However, it does not protect against all modes of use of a ground wire. In particular, as you noted, there are surges and other problems which are resolved by making use of the ground wire and which won't be handled properly if the ground wire is missing. As a result, GFCI without an actual ground must be labelled to indicate there is no ground wire.
What to do?
I would recommend GFCI protection for the general usage receptacles. That is a cheap and easy fix. They do need to be installed properly in terms of Line/Load connections, or installed in the main panel (a little more expensive).
But for the most critical loads - i.e., your home office - retrofit ground if practical or run new circuits with ground. Unless this is a big house with "impossible" wiring and a full panel, adding a couple more circuits should not be that big a deal.