It seems like every bad idea gets discovered by a new generation of hucksters and marks. Wherever there is a buyer’s market in real estate flipping houses becomes popular and very well may work for the flipper in some cases.
There is usually a distressed property that is on the verge of foreclosure or has some defects that prevent sale at full market price. The flipper buys the house for a discount and then puts the minimum of superficial work into it required to sell at a profit. If the market is hit just right the profit may be substantial.
Flipping the Property Condition Disclosure Checklist
This may however, turn into a nightmare for the buyer as well as the flipper. The State of Washington requires a seller to complete a Property Condition Disclosure checklist and provide it to the buyer before the sale is completed. Any defects or hazardous conditions known to the seller must be disclosed.
Further, even knowledge of a small defect, such as a spongy floor, will make that seller liable for anything investigation of that defect would reveal, such as extensive dry rot or mold. The flipper may become liable for any undisclosed defects at the cost required to return the property to the value at which it was purchased.
How Do You Know If You’re Dealing With a Flipper?
An obvious tip off is length of ownership. This information can be obtained from the county assessor’s or auditor’s office. If the house has only been owned for a short time, pay extra attention to its condition.
A buyer should also have a house inspected by a professional home inspector before buying. Any extensive new sufaces such as paint, wall paper, drywall or flooring, may be hiding a deeper defect. Be sure to test all fixtures, appliances, plumbing, heating and electricity before buying. In older homes it is especially important to know whether knob and tube elecrical wiring, lead pipe or asbestos will make it difficult to insure or require additional work to sell with FHA or VA financing.
The lack of a real estate agent and a closing agent and seller financing on a real estate contract may also be worrisome, especially if a large down payment is required. Lack of a title insurance policy is a red flag that should never be acceptable in a legitimate transaction.
Even work done without a permit may be a clue. You can check the permit file at the City or County office of building and planning. Unpermitted work may also result in an inability to qualify for FHA or VA financing.
If The Deal Is Too Good, It’s Too Good
Remember that a too good to be true deal probably is, especially in a changing market. Take your time and do your homework, including hiring a professional inspector. Don’t get in a hurry or you might get bit by that smiling flipper. An attorney can help you sort through these issues including research into title records, assessor’s and building permit records, as well as monitoring the sale to be sure the proper documentation is used and all transaction taxes and real property taxes are paid paid in closing.