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Flipping houses---deal killer 101

 

There is no shortage of examples of the Profit Motive gone awry.  While not essential to the cause, a co-conspirator with the profit motive is the idea of Maximizing Profits.  After all, if the goal is to make money, why not make as much of it as possible?  Maximizing profits can have a very dark partner on its side as well—the Short-cut.

Lipstick on a frogOne example of the Profit Motive gone seriously awry is the Flipping of Houses. 

I think it would be unusual for someone to be in the flipped-house-market for altruistic reasons.  They probably also to not have notions that they are somehow providing “opportunities” for buyers that they would not otherwise have. 

If such opportunities were the case, I would have seen more examples of it by now. 

In spite of that I have seen flips where the work has been done satisfactorily. 

It is certainly true that ANY house can have unsatisfactory work done to it.

The "flip" is a special category of house-for-sale or there would not be a special name for it.

Flips that are “done right,” have several signatures that are very common.  They will invariably have good curb appeal.  This is typically not difficult as they are often houses found in gentrifying neighborhoods--so of course they outshine the neighboring houses.  This is not a particularly high bar to get over.

This “outside” staging--fresh paint, new roof, new lawn, new fence etc--is consistent with the house also having great “indoor” staging. 

All of this makes for GREAT looking pictures on the MLS listing--especially when done in HD (I like to think the HD stands for "Highly Deceptive").

In the context of this post I am using the term “staging” to be something “beyond/above and disconnected” from real staging that actually has real value in the context of selling homes.  It is meant to point out that work done in flipped houses is more like temporary staging than like the real thing.

And then, along comes the home inspector, to bring everyone back down to earth and to expose the "improvements" for what they really are.  This is akin to discovering the “lipstick on the frog” or uncovering the attempt to “make a silk purse out of a sow’s ear.”  They stand out in the swamp if you know what I mean.

I HAVE GOTTEN TO THE POINT THAT I HATE FLIPS AND I THINK THEY SHOULD BE ILLEGAL!

There, I have said it. 

It might be a bit of hyperbole, but this is pretty close to what I actually think about it.  I don’t however, have any clue how outlawing flipping could be accomplished politically--given the 100's articles on line about how to engage in flipping houses. 

It is one thing for a homeowner to put their home on the market, marred by a few short-cuts taken over the years.  I consider that fairly normal.  What is not normal with flips is to have to deal with short-cuts in relation to nearly EVERY SINGLE COMPONENT of the home.  All of a sudden all those nice listing pictures of the exterior, of the interior and of all the amenities start to go all brown and out of focus like some ancient daguerreotype. And while a daguerreotype is a very nice “look” in my opinion, that is not typically what the buyer has in mind.

DaguerreotypeOn a flip, the list of items that are going to get posted to the report summary should not be any longer than what gets posted to the summary of a report on brand new construction.  Typically they are 3 times as long and 10 times as complicated. 

And think about this:  The inspector cannot typically charge any more for a flip than a similar house that is not being flipped, because most of the time the inspector will not know it is a flip until they are at the inspection and start to hear the croaking. I would rather inspect crawl spaces on some days.

The reason inspections take longer and reports are longer all comes back to the short-cuts taken.  Somewhere along the line, someone said, “I don’t need no stinking permits and I know how to install a water heater, siding, windows, decks and electrical."  (Think maximizing profits again.) 

In new construction, there is a reasonable expectation that someone besides me (jurisdictional inspectors) has looked at the work during the process of construction.  With a flip there is likely to be no such assurances.  The inspector has to wrestle with what they cannot see, as well as what they can see. 

While permits are REQUIRED for most work done, there typically will not be any permits.  If there are permits they are often not finaled and apparently have no intention of being finaled (No house should be allowed to be put on the market until all permits are finaled IMHO).

The kicker is that it will be listed and marketed as if it is the same as new construction--if not better!

You are never going to see a listing state, “Like new---fully remodeled down to the studs---all with no permits!”  And yet this is the way they are constructed, over and over and over again.  It is not uncommon to find serious defects with all components of the home in a flip—but the frog looks "HOT!".  This takes the whole notion of kissing frogs to a whole other level.

It seems that many flips are undertaken by people that have a little knowledge of “how things work”—just enough to “make things work.”  It is extremely rare for flippers to actually know enough about all the nuances of the codes to perform all aspects of the project in a way that meets all current standards.  Hell, it is hard enough for even trained professionals to keep up with the rules.  In this sense, since all this information is readily available, there should really be no excuse for work not being done properly but when you already know everything there is to know, any additional time spent “learning,” is cutting into profits at the end. 

Flippers are gamblers. 

They are gambling that no one is going to notice the mistakes and omissions that might force work to be redone to correct the short-cuts (talk about cutting into profits).  Add to this, that the flipper is more likely to hire untrained workers to help them with the work, and they can't possibly train them to do things they do not know how to do properly themselves.

The most common victims of these homes are first time home buyers

I have kids that are the same age as the typical first time home buyer. 

This mirage, of my own kids being the buyer, does not bode well for a flipper that is having their property inspected by me. 

In my opinion, the flipper is possibly the biggest real estate deal killer there is.

 

Charles Buell, Real Estate Inspections in Seattle

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Seattle Home Inspector

 

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WA State, Home Inspector Advisory Licensing Board

Comment balloon 36 commentsCharles Buell • July 30 2014 12:52PM
Flipping houses---deal killer 101
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There is no shortage of examples of the Profit Motive gone awry. While not essential to the cause, a co-conspirator with the profit motive is the idea of Maximizing Profit s After all, if the goal is to make money, why not make as much… more