Buyer BEWARE of the FLIP!

First, let’s define a flip.  A flip is a house that is purchased by an investor to update and resell at a profit.  The investor is therefore, a business person, doing a job, to make money.  The investor must assume all risk and pay all costs involved in purchasing the property, holding the property, updating the property, and ultimately selling the property.

When the market was rocketing up in the early 2000’s flipping was awesome…something I helped clients do, and I did myself.  Once the turn happened and things were on the way down, flipping became next to impossible, and my clients and myself got stuck with properties we didn’t plan on keeping.  We took the risk, we won a few, but when we lost, it made the wins a distant memory.

Flipping has come back around these last few years.  If investors were flush with cash, buying anything in 2011 would have been a win.  But as the market has appreciated at a healthy rate flips are around, but usually the “flippers” are more professional than when anyone could do it.  Profit margins are smaller, so the business person needs to be smarter.  Meaning they need to keep their costs down as much as possible, but they still want the property to be as attractive as possible to potential buyers.

Buyers on a budget love coming across a flip.  Even though they know they can update a property on their own, and they can find similar properties for less money…having all of the upgrades done  for them so they can finance them into their mortgage and not spend all of their free time and money doing them themselves is awfully attractive.  I understand this, and respect this.  Therefore I often represent buyers buying a home that is being flipped.

A flipped property is different than buying from an owner that lived in the property.  The updates and new features that the investor put into the house have never been used…the person that used that kitchen every night to make dinner isn’t the one that updated it.  For these reasons, and many more, buyer BEWARE takes special meaning when buying a flip.

Here are 4 things buyers should pay EXTRA close attention to if considering purchasing a flip.

1.  Make sure to do a very thorough home inspection.  Make sure that all of the plumbing is used, run the dishwasher, run all of the appliances, see if the hood is hooked up and exhaust is routed to outside of the home.  Let everything run longer than a normal inspection.  Sometimes things are put into place, but behind walls all connections are not made.  If the home inspector has concerns, take the extra step to do additional inspections.
2. If appliances are put in by the investor, check when they were made…and that they are in full working order.  You don’t want to be excited about a Sub-Zero refrigerator if will only work a week past closing.  Often investors will replace appliances with used ones that have very little life left in them.
3. Be wary of waiving your right to the SPDS (Seller Property Disclosure Statement) and the insurance history.  In the purchase contract the buyer has the right to these documents within  the first 5 days after contract acceptance.  The seller has an obligation to disclose all they know about the property.  Often they ask the buyer to waive this right, stating they have never lived in the property.  There are still a lot of things that the investor will know…right?  Such as all of the improvements they did to the property.  Or if there were any issues they repaired.  Or if they saw a snake or scorpion on the property during the remodel.  If they refuse, you must ask yourself what they are hiding, and what do they want you to waive your right to knowing?  If the SPDS are filled out and they fail to tell you something material, you can address after closing.  If you waive your right, you waive your right.
4. Beware of the home warranty promise.  Often investors will offer to pay for a home warranty if you have any concerns.  It should be made clear to the buyer that a home warranty will not cover pre-existing conditions.  So if the investor is hiding something  that the buyer discovers after closing and moving into the property…that home warranty is worthless.

Also, make sure to think of your life.  Is that super cool island in the kitchen the investor installed going to cause traffic jams in a busy kitchen?  Try to open to oven, and the refrigerator…and bend over in front of them to peer way in the back, like you would when you just know there is something delicious hiding.  Is there room?  Go into the bathrooms and closets, shut the doors.  Make sure the closet doors, if sliding, have guides installed and aren’t just swinging.  Make sure the doors latch and locks work.  Sometimes investors are in a rush, and details are missed.  Hold the flipper, the investor, the seller, to a high standard for the quality of their work…just as you would hold any business to a high standard.