HOMEBUYING HAZARD AHEAD!!!!
Tom’s cautionary advice before you consider purchasing a ‘flipped house’!!
With real estate prices escalating at full throttle and the growing interest in home fixer-upper projects, we’ve seen more and more people try their hand at flipping houses.
House flipping involves purchasing a home that ‘needs work’, renovating and repairing it to bring it up to date, then selling it for a much higher price. Because of their affordability, neglected or visually unappealing homes often present the best opportunities for house flippers. Many concentrate on cosmetic improvements and buyers who make emotional, aesthetics-based decisions are their prime target market.
For the seller, house flipping can be a smart investment with potential for great profits.
However for the purchaser, I can’t stress enough that it’s a case of BUYER BEWARE!
My words of warning come from knowledge gained from conducting home inspections for more than thirty years combined with my personal experience flipping homes.
First and foremost, it’s important to remember that a flipped house was purchased with a purely profit driven motive. Unlike a buyer who intends to actually live in the home, the flipper is preparing the home for a quick, lucrative resale. In my experience, proper permits are not obtained in 9 out of 10 flips and in 8 out of 10 cases, it’s obvious that the renovator took shortcuts.
Whereas obtaining a home inspection before purchasing any property has become standard practice – the need to have a thorough inspection done in a flip situation is absolutely essential.
To illustrate, let me tell you about two recent situations I encountered on flipped home inspections.
#1 A ‘Pre-inspection’ can prevent a Hasty Move!
In especially hot real estate markets, a trend has emerged whereby the seller opens the home to be shown and receives bids for a defined period (usually a week or so). No offers are accepted until the viewing period closes. The thinking behind this approach is that potential buyers are well aware there will be stiff competition and feel pressure to elevate their offers.
A potential home buyer was in this exact situation recently when I was retained to perform what’s called a ‘pre-inspection’ i.e. an inspection done before making an offer. Knowing it was a flipped home, the client decided that the cost of an inspection was money well-spent so he could be fully informed before making an offer. As it turned out, it was a very prudent course of action on his part.
Although the flipper did a fair job on renovations in this case, they were not completely done correctly. To create an open concept living and dining area, walls were replaced with a supporting beam. If done properly, the added structural support should have included basement reinforcement to distribute the load and the fact that this wasn’t done was an indicator that permits were not obtained. The pre-inspection helped this client avoid future headaches and likely major costs because of this flaw that would be undetectable by the untrained eye.
#2 It’s Wise to Inspect before You Invest!
Another recent job I undertook involved inspecting a home that a potential buyer was considering as a rental property.
The home made a good impression at first glance with attractive finishes and current décor in the interior – however, my misgivings quickly arose when I noticed that the floors were all wobbly and unstable. Then just as I began the inspection, I was approached by the seller’s hostile neighbour who made sure I was alerted to the shoddy work that had been done. He even produced photos as proof! Sure enough, further investigation of the crawl space revealed that the foundation was caving in and columns were out of plumb. The furnace and air conditioner were 17 years old and would be imminently in need of replacement. Scarier yet, the plumbing was routed inside the exterior walls with the potential to freeze being a disaster waiting to happen!
Had this client purchased this home as an investment, issues with these defects would inevitably surface and she would have been plagued with constant problems, repair bills, and tenant complaints or legal action.
Advice for Prospective Flip Buyers
Helping home buyers avoid potential nightmares like the ones described is one of the most rewarding aspects of being a Home Inspector.
If you ever consider purchasing a flipped house, please protect yourself and remember these tips:
- Ensure that all permits for any renovations were obtained. Knowing quality work was done will give you peace of mind and confidence that no unforeseen major problems lie ahead.
- Retain a reputable Home Inspector, preferably one with experience inspecting house flips. The cost of $400 to $500 for a typical 1,400 sq. ft. home is a sound outlay to know exactly what you’re getting into. Considering that your home will be your largest investment, the inspection fee is a minimal but worthwhile expenditure that will pale in comparison to the costs of fixing poorly done work.
- Get a pre-inspection before the offer deadline in the case of a bidding period sale. Being armed with knowledge from a pre-inspection will keep you from making an emotional decision in a high-pressure, time-sensitive situation.
It is to your advantage to be an educated buyer. Hiring a reliable Home Inspector is always well-advised before making any home purchase, but never more critical than when buying a flipped house.
Tom Vattovaz, RHI