A recent press release from the NAEBA, National Association of Exclusive Buyer Agents, warns consumers about problems with buying flipped houses. This is a membership organization of real estate agents who advertise their services as exclusive agents for home buyers. The argument is that buyers are not necessarily going to be adequately represented unless they work through a buyer agent to buy their next home.
Whether you agree with this press release titled National Real Estate Organization Warns Buyers of Potential Pitfalls of Flipped Homes, or not, it’s good business to keep up with what’s being said about your business, or just your business niche. If for no other reason, you can be prepared to provide information and assurances to your flipped home buyers that show your work is of high quality.
The press release mentions three areas of concern they identified:
- Work quality – the buyer is advised to check whether work was primarily cosmetic, or if more extensive, is it quality work with any warranties.
- Home condition on purchase by flipper – this one is a bit intrusive, as it advises finding out how much the flipper paid for the home and how much money they put into repairs. Buyers are also advised to check their purchase price against the current market value of the home, a good idea in any home buying situation. The problem with wanting to know what was paid for the home and amount of repairs is that the buyer can be critical of what they may perceive as excess profits for the flipper. They rarely will understand the risks involved in the flip and rehab process.
- What permits were requested or issued? – here we have good advice, but in many localities, there are requirements for a Certificate of Occupancy. If there is one, the exact permits are really not that important, as the authority that issued them would not issue a Certificate of Occupancy if appropriate permits were not pulled…or at least that’s the theory.
The release specifically mentions the supposed motivation of the flipper to keep their costs as low as possible in the rehab, thus possibly delivering sub-standard work as a money-saving strategy. This can be a valid concern, but it’s just as valid for a brand-new home, sometimes more so.
The answer to these type of questions is really very simple. When doing rehab work on a flip, vet your contractors, inspect their work, and hold them to quality output. In your due diligence before buying, allow enough money in your rehab to assure the work is done well and the buyers will be happy with the result.
Consider buying one year of coverage under a home warranty contract. While there is room to debate whether these policies actually are worth the money, they often will reassure the buyer. Many are between $300 and $500, and they cover appliances and heating/cooling equipment as well.
If you’re selling flipped homes to retail buyers, advertising quality and insuring it can be an excellent marketing tool.
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