The housing market is certainly hot these days, but so are the houses going on the market. Even in tight seller’s markets, it appears sellers are upping their game by updating kitchens, bathrooms, bedrooms and backyards to appeal to more buyers and encourage them to offer top dollar at a chance to win the bid.
There’s good reason for that: The sellers are often real estate investors. Property information company ATTOM Data Solutions released its Year-End 2017 U.S. Home Flipping Report in March, which revealed that 207,088 houses and condos were flipped last year, an 11-year high for home flipping.
The increase in flipped houses is an answer to demand. Bobby Montagne, CEO of Walnut Street Finance, a private money lender focused on home flipping in markets in Virginia, North Carolina and surrounding the District of Columbia, says homebuyers are, on the whole, looking for move-in ready condition.
“Especially, we find, in urban areas, the housing stock is old by definition,” Montagne says. “Folks who buy houses these days, whether they’re millennials or others, I’ve noticed, do not want to move into a house where they have a whole honey-do list of things that need to get done on the weekends.”
Greater demand for houses that have already been updated, of course, doesn’t guarantee the work is always solid. While many home flippers are savvy, established real estate investors, others may be willing to cut corners for the sake of profit. Flipped houses can get a bad reputation when the investor doing the work opts only to address cosmetic fixes, allowing structural problems, old electricity or an outdated furnace to remain.
“There are folks that are very good at this and folks that are just in and out of it for a buck,” Montagne says. “The way you avoid the latter is you ask for a year warranty … and a good builder, a good flipper, does not have a problem with that.”
Here are eight things to check for to know if the house you’re considering is a flip – and whether the work is worth your investment.
Check out the property history. A simple way to know if the house you’re looking at is flipped is to look up the property’s history. Transaction records are available through your county assessor’s office, but recent sale history may also be available on sites like Zillow or Trulia.
If the property sold to the current seller within the last year, it’s most likely been flipped. Montagne says the timeline for a house flip is typically “closing to closing, nine months,” with six and 12 months being the outer ends of the range for getting a property ready and on the market. Old listing photos from the most recent sale can also show you if the property changed drastically with the current owner.
Inspect the doors. Once you’re at the property, you can detect where a house flipper may have corners to stretch the budget. The first spot to check is right at the front door.
For the sake of insulation, soundproofing and security, exterior doors should be solid, and the doorknob should be sturdy and carry some weight. “If they skimped on the door hardware, they probably skimped in other places as well,” says Seth Argo, president of Focus Builders, a custom home developer based in Nashville, Tennessee.
Give the windows a try. As you’re touring the house, check the windows – do they open and close smoothly? The windows in a flip may also be new, and you can ask about the make of the windows and conduct a little research to see if they’re the cheapest option or if they’ll help make the house more energy-efficient. “Who was the window manufacturer, and what line of windows did they put in?” Argo says.
Take a look at the bathrooms. Bathrooms and kitchens are the most important rooms to many homebuyers, so a fresh renovation will likely be most obvious in those rooms. “They’ll be bright and shiny and clear,” Montagne says. Fresh tile work and new fixtures in the sink aren't hard to spot, for example.
Turn the HVAC on and off. You typically don’t want to mess with the heating and air conditioning during an open house or initial tour, but if you’re trying to formulate a purchase offer based on work that may be needed in the future, turn the heat or air conditioning on and off.
“New heating and air conditioning units work really well,” Montagne says. If it seems to take a while for the system to get going or you hear rattles and roars as the HVAC shuts down, the system likely hasn’t been updated. Especially if you know the property’s been flipped, you may want to know more about updates beyond cosmetic changes that have or haven’t taken place.
It's not just about counting bedrooms. Get ready to do some homework before you walk into your next home.
Investigate custom cabinets. A flipped house or recent renovation will likely speak to “new custom cabinets” in the online listing. Argo warns homebuyers to be wary of the phrase and ask questions because the cabinetry often isn’t the custom build the phrase implies.
“It is custom cabinetry in that the components were custom to that house, but whoever the local cabinet person was probably didn’t build them,” Argo says. “They’re probably what we call in the industry a factory line of cabinetry.” He recommends getting the name of the cabinet manufacturer and, especially if it’s a local business, call and ask if the cabinets for that house were factory ordered or a true custom build.
Pay no mind to “luxury.” Like custom cabinets, references to “luxury” in a home listing shouldn’t hold weight, as the word doesn’t guarantee a certain level of craftsmanship, amount of work or cost that went into renovations. “It’s just hard for you to distinguish,” Argo says. “And how do you hold someone to that – that it’s not an accurate description?”
While you don’t necessarily need to stay away from flipped houses that talk about a luxury master bath or luxury renovations, don’t let yourself be tricked into thinking the adjective guarantees a higher standard.
Bring an inspector in. Whether the seller advertised the property as a recent flip, it’s in fact a newly built home or you can’t quite tell, you should always hire a third-party inspector to examine the house during the due diligence period.
“It’s inexpensive relative to the transaction, so there’s just no reason not to do it,” Montagne says.
Flip or no, an unbiased inspector will be able to spot problem areas in the home, signs of shortcuts in priority systems like plumbing or electrical and tell you what work may be needed in the near future.
Buying your first home is an exciting – and often daunting – endeavor.
In addition to setting your budget, comparing neighborhoods and visiting properties, you'll likely also get a crash course in mortgages and home inspections, among other things. According to the National Association of Realtors' 2017 Home Buyer and Seller Generational Trends report, first-time buyers made up 35 percent of all homebuyers, up from 32 percent last year. U.S. News talked to seven first-time buyers from across the country to find out what they wish they'd known before jumping into the real estate market.Beware of wire transfer scams.
Beware of wire transfer scams.
Two hours before Shannyn Allan, founder of the blog Frugal Beautiful, was supposed to close on a home in San Antonio, she received a last-minute email with instructions on where to wire her down payment. Turns out, fraudsters had scraped her information from the title company and posed as the company when they emailed her instructions. She later discovered the fraud and spent weeks trying to get the banks to recover the funds so she could close. "I wish the title companies would have let me know what to watch out for with wire fraud, and advised me to do a cashier's check," she says.Don't skimp on upgrades.
Don't skimp on upgrades.
After freelance writer Leah Ingram and her husband built their first home in 1999 in New Hope, Pennsylvania, they immediately regretted choosing the smaller model with a lackluster kitchen and bathrooms. "A couple thousand dollars for those upgrades spread over a 30-year mortgage would not have been a hardship," she says. The couple also thought that buying on a cul-de-sac would ensure there were other kids nearby. There weren't, however, and they moved after seven years.Save extra money for closing costs.
Save extra money for closing costs.
Christine Cummings and her husband are in the process of buying a home in Somerville, Massachusetts. Cummings, who is VP of marketing at All Set, a mobile app that aims to connect homeowners with lawn service and house cleaning professionals, says she wishes she'd known how much to budget for closing costs. "There are all these little fees here and there adding up to the actual closing date, making the closing costs just a little harder to pay," she says. In addition to a down payment and closing costs, new homeowners should also budget for potential surprises such as a broken air conditioner and other maintenance costs.Check the sewer line.
Check the sewer line.
After buying a home in New Jersey in 2003, Kenneth O'Connor, founder of a YouTube channel on saving for college, discovered his single-family home had major sewer problems. "If there are large old trees on the path of the sewer line, you need to make sure the roots are not constricting the pipe and cracking it," he says. It used to be harder to detect sewer problems, but "now [a home inspector] can send a tiny camera down the sewer line to determine if it's safe," he explains, emphasizing the importance of not overlooking this step.Consider the school district.
Consider the school district.
When Ali Wenzke, founder of The Art of Happy Moving, and her husband bought a townhouse in Chicago, they didn't consider the school district because they didn't have kids yet. "When we sold our home four years later, we had three kids and their educations to consider," she says. "We moved because we needed the space, but we were lucky that we accidentally bought in a great school district." Even if you don't plan on having kids, she recommends investigating the school district for future resale value.Price out renovations in advance.
Price out renovations in advance.
After buying her first home in Atlanta, Kali Hawlk, founder of a marketing firm that specializes in working with financial advisors, wishes she'd factored in the cost of upgrading to double-pane windows. "I could never get the temperature downstairs above 65 degrees in winter because the entire back wall of the house was single-pane windows," she says. "I wish I had been aware of how expensive it would be to replace all of the house's single-paned windows with new ones," she explains. She thought upgrading the windows would be a simple fix, but it wound up costing around $10,000.Look beyond surface details.
Look beyond surface details.
Fancy fixtures and accent walls are nice, but some flipped homes mask bigger problems. "When we purchased our first home, we found out very quickly that aesthetically pleasing did not mean physically sound," says Dan Mackin, host of the Ditching 9 to 5 podcast. "Your inspector can't find things underneath the walls. Just because a flipped home is pretty doesn't always mean it's [of] better quality," Mackin says. His first home (a flip in Colorado) had so many problems, he moved out two years later and earned his real estate license so he could help others avoid the same issues.Read More
She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at email@example.com.
Teresa Mears | May 3, 2019
Conventional wisdom says 20%, but you can buy your first home with much less down.