The truth is factories are more likely to not charge you for bad parts than engine shops. After all, they can replace junk parts a lot cheaper than engine shops right? So they’ve turned this into an advantage to get more business when overhaul time comes. But, this doesn’t mean that the factory will accept an engine in any condition. They do have standards.
Continental could reduce your core value (the value they give to the engine you trade-in) if components aren’t ‘repairable’ which is the same verbiage as many overhaul shops. Lycoming has requirements for cores too. It’s also important to point out that if a part has to be replaced on your engine, the factory may charge ‘list’ price for it. By contrast, most overhaul shops will pass on a major replacement part at their cost. So, while buying a factory engine lowers your risk of added charges, it doesn’t completely eliminate it unless you get the factory to accept your engine in ‘as-is’ condition.
What if you change your mind and want a factory engine while your engine is already taken apart in an overhaul shop? Both Continental and Lycoming require that your engine is assembled so you must have the overhaul shop put it back together before shipping it to them. They do make exceptions to that rule for some shops who they trust. But what will the overhaul shop charge you? Overhaul shops vary with how they deal with this issue but most of them want to get paid for the work they’ve done. One shop I spoke to said they charge a flat $500 for reassembly in addition to the amount of labor they already had in the job.
