BUYER BEWARE: Flip Frenzy Follies
Published On: April 11, 2018 Posted by: Jeremy Peterson
As an experienced real estate investor and real estate broker, the current flip frenzy going on in our market has caused me to worry. As a proud survivor of the Great Recession (i.e. Great Housing Depression of 2008-2012) today’s market activity is giving me flashbacks to the crazed buying fever that dominated 2007.
While today’s market is fundamentally much healthier and less risky than it was in 2007, there are some unhealthy aspects of today’s market that threaten buyers particularly. The issue at the forefront of my mind right now is the dominance of “flipped” homes being sold.
Presently, 28% of all homes sold in Ogden are flips. Not only does this wave threaten to drown us in a sea of sterile gray and white kitchens, it presents a question of quality craftsmanship that many buyers simply don’t think to examine until after they have made their purchase. Now, to be fair, there are many scrupulous and good investors out there who do quality work on their homes. However, as housing prices have begun to plateau, some investors have started cutting corners to maintain profit margins.
For instance, we recently took over management of a $400,000 home above Weber State University. The home was recently flipped by a Salt Lake area real estate agent. The buyers thought they were getting a quality home with a fresh face. But, once they took possession of the property, they realized they had purchased a property that had broken bones to mend. Just this week we discovered that the sewer line had become disconnected underground which caused the home to become unusable. The agent that flipped this home probably didn’t inspect the sewer line and probably didn’t care to. While the buyers in hind site should have taken that initiative upon themselves, the cosmetic presentation of the property subdued any suspicions they might have had. Unfortunately, the cosmetic appearance also hid some perils in plain site. The home sports a fantastic deck with great views of the valley. The decking is new. The problem though is that the entire structure is made out PINE! The workmen simply sprayed it down with a redwood stain to make it appear like durable wood. Left untreated, the deck will last a couple years and need to be town down and rebuilt. With treatment, it may last 10 years or so before requiring a rebuild. Either way, its an expense that is waiting to happen sooner or later.
So, if you are a buyer, what can you do to protect yourself? Here are some flip frenzy pointers:
- Look beyond the paint – What is the paint covering up? Is there something out of place about a wall or piece of wood that is painted to match the color scheme?
- Check your plumbing – Vacant homes especially tend to develop problems quietly. If a home has been vacant for an extended period of time, roots can form in old sewer lines and wreak havoc. Get the plumbing line scoped if the home has been unoccupied for several months or more.
- Check the electrical – A new outlet on the wall does not mean you have new electrical throughout the home. Pull off the outlet cover plates and inspect for knob-and-tube or BX wiring. While either of these may not necessarily be a deal breaker, you still need to know what you are buying. Upgrades may be needed later.
- Interior Materials Used Outside – Look at the materials used on the exterior of the home. Did they used pine? Or poplar? If its been painted, it will be hard to tell. Pine will begin to rot in a year or two while poplar will last decades. Inquire with the seller on what materials were used. Get the answers in writing.
- Use An Experienced Agent – If you are shopping for a home, an experienced agent will be able to point out areas of concern in a home. The best agents will help you avoid pitfalls that cost you money later down the road.
Hopefully this punch list sheds some light on where to inquire while shopping for a home that has been freshly renovated. If you are looking for an experienced agent to guide you through the pitfalls of the current flip frenzy, CONTACT ME, and I can help you save money today AND tomorrow.