My client is in contract to buy an Older home (1962) AS IS. The home has some lovely updates however the wiring is original. The seller replaeced all the plugs with three prong outlets that are ungrounded. Are these plugs safe? How difficult is it to ground the plugs? What type of cost is involved?

Not safe, againist code and should be changed. If there is no ground wire present you are in a tough spot. A 3rd wire is needed and do not even think of trying to use the conduit if that is present. Can't pull a 3rd wire, then install GFCI receptacles and label not grounded. They still won't be grounded but you are safer and within code.

GFCI breakers can also be used.

Did someone actually inspect the outlet and or fuse boc to make sure that 3 conductor wire isn't present.

Rewiring can be a significant expense.

The GFCI breaker would establish a GF circuit but it is not allowed to have a 3 prong receptacle with no 3rd wire attached, it would be deceptive, just like what he has now. The current owner(s) have created a situation which could be deceptive to prospective buyers who don't know about electrical systems.

Mike Holt's forum discusses it here: ungrounded romex [Archive] - Mike Holt's Forum. They even suggested the change incorporated into the 2008 revision, possibly before.

I just checked the 2008 revision of the NEC, section 406.3. It does allow grounded receptacles connected to a GFCI as long as they are labeled "No Equipment Ground" and "GFCI protected".

I did not assume you meant to label the receptacle. I was only responding to exactly what you mentioned in post #3. Labeling a GFCI as ungrounded would be acceptable and not deceptive.

And labeling a normal three prong ungrounded receptical downstream from a GFCI outlet or protected by a GFCI breaker must be labeled:

"No Equipment Ground" and "GFCI protected" is also permitted.

The GFCI would also need to be labeled "NO Equipment ground"

Sorry for all the confusion.

I was reading your post as every outlet must be replaced with a GFCI receptacle which is not true. Three prong ungrounded receptacles must be properly labeled and protected by a GFCI somewhere.

We are on the same page, just got there via different routes

KISS,
Any suggestions for finding the 1978 NEC code?

Yep, eBay. Hurry. NEC National Electrical Code Book 1978 NFPA Fire Prot - eBay (item 310168234465 end time Sep-20-09 17:00:37 PDT)

Don't want to buy it, just check it. My memory says that some time in the past the accepted method of replacing ungrounded outlets with grounded outlets was to pigtail the ground to the neutral. That was of course before the advent of GFIs. That is just my memory and cannot necessary be trusted and I don't want to say it. If my memory is accurate, the correct response to this post would be "It depends on when the grounded outlets were installed."

There is another option here. Not as good as have a continuous ground. I have seen this situation before, and it is deceptive.

Check to see if the wiring in the house has metal boxes and armored cable that runs to the panel. (not broken) The alternative then, would be to ground each receptacle with a pigtail screwed to the box. In a 1960 house, metal boxes and armoured cable is common.