A compression problem such as this can only come from the piston/cylinder or the head. Possible culprits include piston or ring damage, valve seating problems or perhaps a crack in the head.
Next step is to put about 5-10cc of oil in through the spark plug hole and recheck compression. If it comes up a lot, say to 150 or so, the problem is likely the piston/cylinder/ring interface. If it does not come up a lot the problem is the valves and head.
The step after that is you have to remove the engine
. It is not possible to remove the head with the motor in place with this model. I know this from experiance.
We have seen similar issues with this model a number of times. We do not know why this normally robust engine design gives such problems, but it does.
I would debate selling it as is, this is what I did with mine. :?
It is fixable, but I threw in the towel with mine.
I think these engines develop problems early, so I figured if I fixed mine with original parts it would just puke again. :x
I only paid like $150 for mine so it did not hurt my feelings to see it go.