If you’re currently looking to buy a new home, you might come across a house that a seller is flipping. Who wouldn’t “ooh and ah” over brand new flooring, countertops, and bathroom tiling and fixtures? While a flipped house can give you the opportunity to get into a great neighborhood and into an attractive, updated home, there are some steps you need to take to ensure you’re getting what you pay for.
The phenomenon of flipping started before the 2008 housing crisis. Buyers with varying degrees of DIY knowledge bought up homes, made some cosmetic updates, and turned them as quickly as possible for a nice profit. Since the housing crisis, flipping waned for a while but returned with some changes. Flippers today are mostly professional investors with access to cash, due to the mortgage industry’s tightened-up borrowing. But amateur flippers are still around. Because the concept of flipping is designed to reap the most profit with a quick turnaround, buyers need to beware that these investors sometimes cut corners and only fix what you can see outside the walls. They know that’s where they’ll get the return on their investment.
We’re currently in a low-inventory situation for buyers, so you know you’re in competition with other buyers. Because of this, you might be inclined to skip some key research and inspection steps in order to beat another buyer’s offer. Some sellers bluntly indicate that “no contingency” offers are favored. But is this a risk you’re willing to take? Even though not every flipped home is a potential disaster, you do need to take some time to investigate what you’re getting into. Foregoing all contingencies in a purchase contract could mean a lot of unforeseen expenses for you down the line. The upfront steps for buying a flipped home are similar to what you should do for any type of home with a few extra caveats.
1. Research the public record for when the house last changed hands. Your Realtor® can do this for you. You want to know how long ago this seller bought the house with the intent of flipping. If it’s only been in the owner’s hands a few months, then you’ll want to do a more thorough examination of the home. It’s not a given that corners were cut, but it does mean that the house was worked on quickly.
2. Learn how long the house was vacant prior to the seller buying it. The neighbors of the house in question should be able to give you a sense of how long the house sat without attention. Sometimes your Realtor® might also be aware of the situation. If the house went through multiple seasons as a vacant home, there’s a higher potential for plumbing and mechanical issues because of neglect or damage. Since an investor hasn’t lived in the home, they might not have any information on things like mold, termites, or roof and basement leakage.
3. See the house in person. Don’t buy a house after seeing only online photos (or unseen). Be there in person, walk through it, and look for visible problems that raise any red flags.
4. Request to see construction permits. If the seller made any floor plan changes or removed a load-bearing wall, they should have received local government permits for such work. If a seller doesn’t provide this documentation, you have to wonder what they might be hiding.
5. Request documentation that licensed professionals were used to perform work. For example, if the seller discloses that the property was treated for mold or that the electrical system was replaced, check to ensure that licensed people performed the work rather than a DIY friend or the unlicensed owner. Undocumented work could mean that you need to pay for an expert to thoroughly inspect the area of concern during your inspection period.
6. Hire additional specialists for things like heating, cooling, and plumbing. It’s common for a flipped house that’s sold in the summer to have a new AC system but an old and outdated one if sold in the winter. Flippers often only invest in what is needed for the sale. Beware of very old heating systems that the seller has documented as safe. Furnaces are an expensive replacement and all types of owners will try to pass that cost on to the next homeowner. An unsafe furnace can produce high levels of carbon monoxide or cause a fire, so make sure you have a specialist inspect it. If the furnace was replaced by the seller, you’ll still want to check the fan’s blower for dust. It’s common for flippers to keep the fan blowing during construction sanding and dry-walling, which clogs up the interior of any furnace. With plumbing, flipped homes tend to have pipes that are either in acceptable condition or they’ve been replaced. However, the drainage system is where problems are seen. Check for leaks and clogs. They’re often found in basement floor drains, basement showers, and basement sinks when upper level sinks are filled and drained. Tiled shower floors that weren’t properly installed also commonly leak.
7. Factor in some items you’ll have to take care of on your own. There are key items that rarely get replaced by flippers because they’re expensive and don’t get a return on investment. But they are necessary for the livable long-term condition of your home. A new roof, chimney maintenance, and attic insulation are prime examples. You need to decide if these expenses are deal breakers for you or not. Also take a close look at the home’s overall exterior. Flippers might put a new coat of paint on the house and even have windows replaced on very old homes. But the paint also serves to hide some flaws, such as rotting wood around the windows. Also inspect for flaws in siding and improper fixes.
8. Avoid legal entanglements. Before signing to close the sale, make sure that either an attorney or title agent thoroughly checked for transfer of ownership issues. There are many kinds of legal issues that can arise with flipped homes. For example, if the flipper acquired the home via a short sale, there should be documentation that he met the specific requirements for both the state and the original lender involved in the short sale. Proof of lien payments must be present. And sometimes an investor needs to own a property for a specified amount of time before selling it.
There are plenty of serious issues to consider in a flipped home sale. But with proper research attention and a willingness to pay for expert inspection, you may still discover that you’ve found a desirable home to buy. Check your comfort level. If buyer competition pressures you to do something irrational in a flipped home offer (like skipping inspections), reconsider your buying options.