Buying a flip? What to be aware of!
With the rise of HGTV and the multitude of shows showing the journey of “house-flipping” it seems the general public is inspired by our booming market and the promise of making tens of thousand of dollars. Here in the Raleigh area we too see these homes as they re-enter the market being listed to buyers. Some are very well done and quite frankly, some are not. When the difference is not obvious how do buyers know when they are falling in love with a keeper or one that they should run away from. As real estate advisors we work hard to protect our clients interests by looking for potential red-flags. Here are a few quick tips to help buyers understand the difference between a good flip and a bad one:
1- How old and in what condition are the systems of the home such as HVAC, roof, hot water heater? Some “flippers” focus only on the cosmetic look of the home changing out carpets, tile, and wall color. They can be quite compelling and have a fresh updated look! We commonly refer to this as, “lipstick on a pig.” It is very important to work with a real estate advisor that can help the client look at the condition of systems that could put a serious financial constraint on the buyer after closing. Paint can cost hundreds of dollars whereas as new roof will be in the thousands. Not only can an advisor identify red flags, they can connect a buyer with skilled inspectors and vendors to understand the work needed.
2- Do some of the materials seems inconsistent from room to room? There are some variances that go beyond a cosmetic difference. Has there been an addition added to the home? This can be great to add space to a home but also be aware of some potential red flags. Permitting can be an important thing to determine when looking at a flip. This step in the building/renovating process ensures that things have been done to local building code and is designed to ensure safety. A real estate advisor can help identify if building permits have been pulled and approved. Additionally, an advisor may be able to see other inconsistent materials that could pose other safety concerns such as different home wiring materials.
3 - Is the list price justified by comparables in the area? Just because an investor has a targeted price does not mean the home will appraise for that value. We also find at times an inexperienced renovator that spent too much money on the home in purchase price and renovation and is attempting to push off that bad decision with a high list price. It is very important to truly understand the local market with realistic comparables that an appraiser will be looking at when determining value. A real estate advisor can be a tremendous resource on pricing and what is a reasonable price to offer. A great agent has data but also market knowledge that protects buyers from overpaying.
4 - What is the quality of the renovation? Sloppy craftsmanship in the cosmetic areas can send up a big red flag. If it needs to be re-done - how much will that cost? Is the sloppy craftsmanship on the things I can see an indication of the quality of work on the things I cannot see? This doesn’t mean it is necessarily a deal killer but again does mean that further investigation is needed. A good quality home inspector can help determine if there should be cause for pause.
Don’t get me wrong, these homes can be great purchases! In an ideal situation the home has a new life with good modifications that make it appealing to buyers at a justifiable price. Using skilled professionals such as real estate advisors can help identify red flags as well as manage the inspection process to provide more information for an educated decision. Give us a call today at Better Homes and Gardens Go Realty to be connected with an advisor that will guide you on making the best decision for you!