The property may not be how it appears in the listing photos
In the market for a new-to-you home? Are you scouring listings and running from property to property hoping to find the right one? Have you noticed that some look amazing in the listing’s photos and then when visiting find that looks can be deceiving? Home sale listings are kind of like dating profiles — what is presented online isn’t always reality.
The real estate market across the country is loaded with investors who are buying and flipping houses for a profit. Just watch HGTV and you will find at least 17 shows about flipping houses. While the updates may look great, they may only be cosmetic to attract buyers.
What is a Flipped House?
A flipped house means that a real estate investor or group of investors bought a house with the intention to increase its value through updates and repairs before selling it for a higher price, thus making a profit.
CoreLogic says the share of home sales going to investors, large and small, climbed steadily during the pandemic, rising from around 14 percent in the spring of 2020 to a peak of 26.9 percent last October.
The longer the home sits on the market, the more money the flipper loses. Flipped houses are often competitively priced and located in areas with strong real estate markets. Investors want their properties to sell quickly, and to be worth their investment. These turn-a-rounds are done as quickly as possible to minimize the cost and maximize the profit for the investor/flipper.
Flipped houses are not the same as remodeled houses. Typically, remodeled houses are occupied by an owner who intends to live in the home and is updating it to suit their lifestyle.
The Pros & The Cons
These houses are typically move-in ready and sport the latest design trends. The buyers don’t need to upgrade the appliances, fixtures, flooring, or paint.
. . . and that about covers the pros.
“The majority of the time, flippers buy these homes in poor condition. The homes may look great on the surface, but sometimes not so great underneath,” says Bob Vaughn, IQ Home Inspections LLC , a Rosie-Certified Partner.
Sometimes the updates are great and sometimes they are terrible. It is not unheard of for flippers to cut corners, and one of the biggest corners they cut is not pulling permits or using licensed contractors.
There are house flippers who are honest, good at what they do, and abide by the state’s contracting requirements. On the flip side, so to speak, there are plenty more who are covering up old issues with cosmetic fixes.
When a property is sold, the sellers are required by law to truthfully fill out the disclosure form to the
best of their knowledge. When you sell the property, you will be required to fill one out too. Know what you are getting into first.
“It is typical for flippers to not live in the home being flipped. They are not expected or required to know anything about the home. Nearly every disclosure I’ve read on a flipped house has ‘UNKNOWN’ checked straight down the page,” says Vaughn.
Brian Coumont, owner and inspector, Veteran Inspection Professionals, a Rosie-Certified Partner, offers this list of what they often see with flipped properties.
- Open electrical junction boxes in the attic, which is a fire hazard.
- Electrical junction boxes behind the drywall — another fire hazard.
- Convoluted/improper electrical panel wiring — fire hazard again.
- Fresh paint is everywhere to hide deficiencies.
- Improper construction remodels including:
- additions without permits
- load-bearing walls removed
- closing in patios and Arizona rooms without reinforcing the foundation and/or properly tying into the roof structure
- Flexible drain lines in the bathrooms and kitchen. “These are meant to be a temporary stop-gap until a plumber can properly repair drain lines,” says Coumont.
Improper or missing Ground Fault Circuit Interrupter (GFCI) protection.
Amateurish and improper remodeling of counters, cabinets, light fixtures, etc.
Improper repairs – done as cheaply as possible, resulting in foundation cracks, structural damage, and roof repairs.
Identifying A Flipped House
At first glance, identifying a flipped house might seem tricky. However, there are plenty of clues if you know what to look for.
“To investigate the history of the home, simply ask your real estate agent to dig into the ownership of the home,” suggests John Gluch, Gluch Group, a Rosie-Certified Partner.
A thorough realtor will check the property’s history from the records at the county assessor’s office. Is it owned by a corporation or LLC? Does the owner/seller have multiple properties under their name? If so, the house may very well be a flip. Zillow, RedFin, and Trulia often have a property’s recent sale history available. Did the current seller buy the house within the last year? If so, there is a good chance that the house has been flipped.
“Lastly, ask your agent or search the tax records for other homes owned by the owner of the home you are considering,” says Gluch. “Consider reaching out to the owners of those homes (easily found on social media) to see how their experience has been. You can make this step easier by asking the flipper to provide a list of all past projects and several references of happy homeowners, but just be aware that this list will likely be cherry-picked.”
When visiting the property, look at the areas that are more likely than others to be renovated — the bathrooms and kitchen. Updated fixtures, tiles, and appliances may offer clues. You may also be able to glean information from chatty neighbors who are checking you, the potential new neighbor, out.
An experienced real estate agent will be able to tell not just by the home itself but by pulling the property records.
“My husband I became very good at spotting flipped houses just from looking at the online listing photos,” says Susan Stein Kregar, staff writer, Rosie on the House. “We found that if the house was built before 1990, and every room in the house was updated, it was likely a flip. When we would see the house in person, it became much more obvious. The workmanship in many investment properties was subpar. The cabinets and counters didn’t line up with the appliances, the tile grout was falling away, and the swimming pool’s surface was painted. One flipper clearly got a screaming deal on cobalt blue paint. The kitchen cabinets, interior and exterior doors, door hinges, pool fence, and pool decking were blue.”
Was the excessive blue paint used to cover damaged areas? Possibly. We can only surmise the seller also cut corners by not hiring professional contractors, making appropriate and correct repairs, or pulling required permits.
Inspect & Verify Before You Buy
Whether it’s a new build, owner-occupied home, or an investment property that is being sold you MUST do your due diligence. This is where a home inspection performed by a licensed and certified home inspector comes into play. Even if you are paying cash and are not required to have an inspection, do it anyway.
The purpose of a home inspection is to give you an expert opinion about the structural and functional components of the house, based on a visual examination. A home inspection points out the existing and potential issues with the home to help you proceed carefully. A professional home inspection is primarily a visual examination of the visible, safely accessible, and readily accessible components of the interior, exterior, structural, roof, electrical, heating, cooling, and plumbing systems. The home is inspected for specific conditions that are currently adversely affecting (or which have the potential to adversely affect) the normal function or operation of those systems and their related components. The systems and their related components included in the inspection are those specified by the Arizona Board of Technical Registration and the Arizona ASHI Standards of Practice.
“Not all investors are created equal. There are investors that do care about the quality of the product they are conveying,” say Kahn. “ANY property should have a thorough home inspection, roof inspection, HVAC inspection, termite inspection, pool inspection (if needed) and definitely a sewer scope inspection.”
Before buying a house, it is important to determine the status of the home and whether the upgrades comply with local codes and the workmanship is up to standard . . . the Arizona Registrar of Contractor’s Workmanship Standards. This booklet details the requirements contractors must adhere to when performing certain projects.
Verify who the contractors are who worked on the property. Make sure they are licensed by the ROC, pulled the required permits, and passed the municipality’s inspection.
Gulch suggests requesting disclosure of all the contractors hired to work on the home and research those people and their companies. In addition to a home inspector, consider hiring a licensed general contractor to inspect the home as well. Ask for a written warranty or guarantee on the work that has been done. Many licensed contractors are required to provide such warranties and getting them in writing will make enforcing them down the road easier.
Regardless of whether the home is a flip, Clayton Janson, Phocus Insurance Services, a Rosie-Certified Partner, suggests potential buyers request from the current homeowner/seller a Comprehensive Loss Underwriting Exchange (C.L.U.E.) report on the home before they finalize the purchase. The C.L.U.E. report, can provide up to seven years of claims or damage history on the property, giving you some vital insight before making a purchase.
“A C.L.U.E. report is typically requested by the seller from their homeowner’s insurance carrier and can take up to seven to 10 days to provide; so best to ask early in the negotiation process,” says Janson. “This report could be vital information about a major water claim, flood damage, or fire at the property before it went up for sale.”
Before house hunting, you need to get pre-approved for the mortgage so you know what you can afford. In terms of buying a flipped property, obtaining a mortgage through the Federal Housing Administration (FHA) or the Department of Veterans Affairs, may be tricky. Per the FHA’s Single Family Housing Policy Handbook 4000.1, houses can’t change hands less than 90 days from the previous sale. If the value of the house doubles, then the waiting period is 180. These rules do not apply to conventional loans.
To obtain a VA loan, it is important ask potential lenders what their flipped rules are, so you choose a lender who will follow the VA’s flip rules.
Once you sign on the dotted line, you become the legal owner of the property. If a problem arises, it will be your responsibility to fix it. When you sell the property, you may be required to bring it up to code. Both scenarios could cost you hundreds to hundreds of thousands of dollars.
There are some great flips performed by talented contractors and designers. Because not all flips are equal, you must do your homework, not get blinded by the bright and shiny cosmetic features, and determine if that kind of property is right for you in the long-term.
When it comes to a flipped home, buyer beware! There’s a chance permits were never pulled and unlicensed contractors performed the work. Rosie has tips to consider when buying a flipped home. Plus various homeowner questions about tile and coatings on roofs, expansion joint repair, mystery liquid seeping thru the floor and more!
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- Joelle Kahn, Realty, Tierra Antigua Realty
- John Gluch, Gluch Group
- Phocus Insurance Services
- Hotchkiss Financial Inc.
- Fairway Independent Mortgage Corporation
- Galaxy Lending Group
- IQ Home Inspections LLC
- Veteran Inspection Professionals