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.
One 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.
On 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.
By Charles Buell, Real Estate Inspections in Seattle
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I wanted to offer a different perspective Charles. Let me start by saying I enjoy your articles.
I wish the terms flip, flippers, flipping had not been hijacked by the small percent of con men in the business. It’s a good term, and I own it. In my 20 years of “flipping” I have seen quality work and good profits. I have created jobs, raised property values and real estate taxes, and I have put money back into the community. I have encouraged the surrounding property owners to make improvements as well. My motives have never been altruistic, but I have been made proud by my flips and I do not believe I’m alone.
I have also seen some of my properties, especially during the early 2000’s, sell to people I knew did not have what it takes to own and maintain a property. I take no responsibility for that. I would place that at the feet of the degreed professionals making the loans. They are certainly more culpable than the first time home buyer with his hand out.
-John Woodall
Thanks John. I so wish your example was so much more often the case. I also agree with you about the bankers–and they still have jobs after too.
I have seen both sides of this issue in my 25 years of inspecting. There is nothing worse for everyone than a bad flip. On the other hand I have seen good flits transform neighborhoods and everyone wins.
What bugs me is when I point out the truth to Mr. and Mrs. Newbuyer and I get blamed for being too hard on the property. After all it “looks great”.
I’m torn by flips, I love and hate them!
Bruce
I have been “flipping” houses for about 10 yrs but just as John said I do them right, if it takes extra $$$ and a little less profit then so be it. I would not sell a flip to anyone that I wouldn’t put my own family in first. I have ran across some really good flips and unfortunately I have seen some really bad flips and have seen the junk some of these guys/gals will build just to make a buck of some unsuspecting buyers. That’s why hiring a good inspector is so important! I also agree that when you do come across the bad ones your report ends up twice as long and sadly we can’t charge twice as much even though you’d like too!
Charles, here is Phoenix, AZ I inspect many homes that have been “flipped” and I agree with you completely that many times these remodels are done by people with little knowledge of how homes work. They always look beautiful with their granite countertops and newly tiled bathrooms, new paint and flooring. Usually, once I enter the attic, the horrors begin. Of course the new home buyer has no idea and is disappointed when I reveal to them my findings. It is refreshing when I inspect a home that has been flipped and all repairs or upgrades have been done correctly, but this is not the norm, unfortunately. Thank you for bringing this issue to light, realtors and buyers need to be weary of the “flipped” home. A professional home inspection is ALWAYS in their best interest.
Having inspected thousands of homes in the Houston area as a licensed independent inspector I would agree, flips are the worst.
With all the flipping success stories on TV a friend with extra cash, convinced me to buy and flip several houses a few years ago. Unlike the HGTV propaganda it is very difficult to rehab a house correctly, add all the lipstick items, granite counter tops, wood floors and nice cabinets and still make a profit. I’m not saying that money cannot be made in flipping, just that it’s not easy. What I’ve seen in most cases is the flipper appears to run out of money toward the end of the project and cuts corners to avoid losing their tails.
On my most recent flip inspection, I found the following; master bath shower floor pitched toward the back wall, resulting in two inch constant standing water, new asphalt shingles installed over old rotted cedar shingles, kitchen sink drains pitched back toward the sink and shiny new dishwasher with the water supply left loose which flooded the kitchens new wood floors and a cracked foundation.
These items were not evident when the young couple fell in love with the granite counter tops (lipstick). The two saddest things about this inspection is my clients paid me $800 for the inspection of a house they now have no interest in buying and the very next week someone bought this house without an inspection.
PS, Charles really enjoy your blog!
As for feeling that, as an inspector, one is compensated fairly, an easy and fantastic solution is to charge by the hour, as I have done since I began inspecting in the eighties. If a flip house takes 6 hours, I am still well compensated. I charge by the hour for all my inspections. Works well for me. Anyone else out there charge by the hour?
Robert, while pricing by the hour sounds all well and good for the inspection part it would fall apart for me when it comes time to write the report. Your client is not going to be hanging out with you in your office to watch you take way more time than you would for an ordinary house.
Charles,
Interesting to note that Seattle is no different than L.A. when it comes to flippers. I have a couple of clients that I inspect for BEFORE they buy a flipper. Not surprisingly, these are the guys that do stuff right. The “shoot from the hip” flipper is the one who buys because its cheap and then proceeds to apply the “lipstick”. Their workers are also cheap. They are mostly unsupervised. Permits are very misunderstood. A pro will install as if a permit was pulled. A hack will install as if nobody’s looking. Usually, buyer’s of flippers are first-time buyers. First time buyers usually rely on their agent for everything, including an inspector. I always praise callers for taking the inspector on themselves. Slowly, people are finding out. Get your own guy who is not afraid to “kill the deal”.