The Flip Property - When It’s Time to Give It the Slip

Even through the downturn, I see flip properties regularly.  You might wonder how the flippers make money.  The answer is that they likely have acquired the properties through the actual Trustee’s Sale auction process at a substantial discount.  This usually entails some up-front title work and a large sum of cash.

It’s key that the property be purchased at a sizable discount to its likely market value once the property is in acceptable shape.  A diligent flipper will essentially backtrack from the anticipated market value, factor in costs (this spans a wide range of items), desired profits, and estimate what they should and are willing to pay for a property. 

But here’s the question which came up that a client asked me:

“Are flips something worth seeing?”

Short answer: Yes.  Long answer: Many often don’t fit the bill for my clients.  My estimation is that 50-75% of the flip properties don’t really impress my buyers to the point of considering an actual purchase.

Why?  Because the flips often share the same characteristics and lack a focus on the end buyer and what that end buyer may want.  The flips often feel cosmetic and superficial. 

What Characteristics Do Flips Share?

1. Light tan or ‘eggshell’ paint throughout the property.
2. New granite counters.  Often this is a ‘retail’ grade or what I usually see at the gym.
3. Low quality brown carpet with higher quality pad (buyers would be more prone to detect the poor grade of the carpet if their heel felt the concrete more) - Cheap carpet, good pad.  Unfortunately, it will be the carpet that shows the wear over a short amount of time.
4. Once in a while, they overpower the home with travertine believing travertine is a solution for everything.
5. They install designer choices in fixtures rather than install fixtures that are elegant AND practical.  I often wonder if the choices flippers use in the selection of carpets, sinks, counters, and the like aren’t based more on what’s on sale rather than what is appropriate for the property.  This often leads to a mismatching.
6. They don’t address inconsistencies in a home effectively and so it won’t be unusual to see mixed flooring, mixed paints, mixed cabinetry, mixed counters, etc. 
7. Cheesy staging.  They stage the home to attempt to make it feel like a model home (of course, a lot less effort and money spent to do so).  I happen to believe that today’s buyers mentally prefer to see nice staging that is just slightly upgraded from their own lifestyles rather than grand size beds with cheaply framed reprints of masterpieces next to a glass vase with artificial flowers and velvet hand towel.
8. It feels like a hotel room and not a home.  Many flippers get caught up in choices that make the home feel like a souped up hotel room and not like a home. 

Most Flips Don’t Address the Fundamentals

Many times, flips don’t really address any fundamental issues with the property that may exist or they don’t really add value to the property.

A flipper doesn’t want to replace a worn roof or upgrade an aging air conditioning system.  Rarely do they change the structure of a home to make it more compelling with buyers in such a way that clearly adds value.

Most flippers look to turn the property back on the market with the minimum amount of work and money put into it.

I hate to say that it can be half-assed but this is the reality.  I wish flippers would pay more attention to the detail to make the home feel like a solid value to the Buyer and communicate it as such.  Tell the Buyer how the air conditioning system was serviced and adjusted or replaced, how broken roof tiles were corrected, how plumbing was upgraded in parts of the home, etc.  Most often, flippers won’t do this so they leave the Buyer guessing as to the extent of what the flipper repaired or remodeled the property. 

Perhaps flippers don’t do this because they hadn’t given it thought.  Or, perhaps the list of what items most flippers do to properties to recondition them would be too short and cosmetic only. 

Why Buyers Have to Be Cautious

Flippers will often cite that they won’t be providing a Seller Property Disclosure Statement or insurance claims history for the property.  This means that they are behaving much like a bank that has foreclosed on the property.  And they may not be disclosing something.

So, a buyer has to make sure to perform any and all diligence on the property - i.e. home inspection, termite inspection, A/C inspection, roof inspection, etc.

Whether this could really spell a lawsuit in the future is an issue I look forward to hearing about.  Because unlike a bank that can much more effectively argue that they know nothing about the property, flippers become intimately familiar with a property through the level of work they put into it.

An Example

Here’s a description of a property I happened to show a client.  Here’s the description:

“ELEGANT SINGLE LEVEL IN HEART OF CHANDLER, 4BED, 2BATH, 3 CAR GARAGE. WALKING INTO THE FOYER ONE EXPERIENCES WELCOMING FORMAL AREAS WITH FULL WALL OF WINDOWS TO OVERSIZED COVERED PATIO AND PRIVATE BACKYARD. LARGE MASTER SUITE AND BATH WITH INVITING GARDEN TUB…LUSH YARD WITH GRASS, PALMS, FLOWERS, SMALL PUTTING GREEN… NOT OFTEN DOES A CHANCE COME UP TO OWN A PROPERTY LIKE THIS IN SUCH A DESIRABLE NEIGHBORHOOD WHERE NO ONE WANTS TO MOVE. QUIET, WELL MAINTAINED, PRIDE OF OWNERSHIP, EXPLAINS THIS SMALL SUBDIVISION. PLENTY OF ROOM FOR A POOL. JUST BACK ON THE MARKET, ACT FAST, DEFINITELY WILL NOT LAST LONG! SELLER RELATED”

Given that the property was acquired in July 2009 for $212,500 and then subsequently went under contract in October (only to come back on the market), I wonder how an LLC can talk to ‘pride of ownership’ and ‘well maintained’ for the home. 

I don’t believe it is in the LLC’s right to use this language when they acquired the property through the foreclosure auction.  I believe this is misleading.

As well, will the LLC provide a Seller Property Disclosure Statement to show how “well maintained’ the property is? 

Finally, the point about the property, “Just back on the market, act fast, definitely will not last long!’ is inconsistent with the fact that the property went on the market in July and took three months before getting under contract and then coming back to the market, all at the same list price!  My take is that the seller should reduce the price because to spur interest because any other Realtor would perceive this as too high if the home hasn’t sold and that price has been the same for so long. 

Why I harp on this property is that this was a flip where the flipper’s contribution to the property is suspect.  I could tell that the main areas were repainted and they looked nice enough initially. 

However, on closer review, there was no effort to caulk splits in the baseboards at corners or repaint baseboards.  The master was not repainted though it could have used it (for instance, the window sill was dirty from years of dirt coming in.  The open gap between the edge of the tile and the bathtub focused the Buyer’s visual attention there.  The extra bedrooms weren’t painted.  The carpet was cleaned and not replaced.  Some of the appliances were newer while other’s were much older. 

The ‘lush’ backyard was indeed lush - but overgrown and in desperate need to a trimming and cleaning. 

If there was ‘pride of ownership’ at one point, it certainly moved out. 

What to Look For When Seeing a Flip Property

From the beginning, a Buyer should look to answer the following question when considering a flip property:

“Does the home show an original pride of ownership and care from the previous owner and so any improvements are an added bonus, or does the property look like it might have been rough before and could potentially have additional lurking issues?” 

You can really tell the difference between a home that has been well taken care from the start and redone and one that was reskinned to look good when the underlying condition reflects some level of neglect.  Buyers that hone in on this and determine that a property was likely well taken care of before the flipper got a hold of it and so this should give additional comfort that key elements to the property beyond fresh paint are going to be in better shape overall. 

After answering this, Buyers should really walk the property and call out what likely has and hasn’t been done to the property by the flipper.  Were the kitchen cabinets replaced from an outdated wood or design?  Was this carried through to bathrooms and other parts of the home (a cheap flipper, in my opinion, is one that does this work in piecemeal fashion - consistency is important in a home)?  How are the paint touches - are the baseboards and other paint lines done very cleanly or a little sloppy?  Is the flooring consistent throughout the home? 

And, of course, what overall value did the flipper really put into the property beyond the cosmetics?

A Flip: A Flop or a Nice Property?

Identifying whether a flip is a flop or a nice property is the key to the Buyer buying the right property for them.  If there are issues with a property, work to get the best value possible and negotiate for resolution of any material items in regards to workmanship.  

Look past the changes that flipper has made to get a real sense of the property, have proper inspections performed, and negotiate effectively, and a Buyer can walk away with a solid value.

Email this Post

Tagged as: flipper, phoenix flip properties, phoenix flippers