Exercise extra due diligence when buying a flipped home
Local media recently latched onto a Motley Fool report that declared the Tri-Cities two metro areas were among the top five in the U.S. for House flipping in 2022. It was a lead item on the day’s local social media sharing dashboard.
The report was hardly an aha moment. It has been a staple for real estate professionals. In fact, the current flipping market has been much better in the past. But it has been and remains an essential piece of the larger housing market. It’s important because it’s the core of the infill and upgrading process of the housing stock. And although there are several examples of flips at the higher end of the market, half of the flip sales prices were comfortably in the affordability zone. That’s not where most of the current resale or new home market is focused.
Some flips are examples of top-notch craftsmanship in the art of taking an older home and rejuvenating its good bones into an affordable fit for today’s market. There are other examples where the flipper applied some lipstick to the pig and put it back on the market. Those can turn into a money pit for new owners.
Flipping houses has evolved from a minor part of the local housing market to mainstream. Flip sales accounted for about 2% of existing home sales a decade ago. At the end of this year’s first quarter, they accounted for 10.7% of sales in the Johnson City metro area and 8.5% in Kingsport-Bristol. The average sales price in the Johnson City metro area was $190,000 and $160,000 in Kingsport-Bristol.
Buying a flipped house is often smart, but verifying it’s a good deal is important. Here’s a due diligence checklist to help buyers in that process.
The first checkpoint is was the house, the seller’s primary residence. If not, start running your flipped house checklist.
Does the seller have a history as a flipper? Some are local pros. But there are examples of others who make cosmetic changes, inflate the selling price, and get it back on the market. If the seller has flipped several homes, get the names of the people who bought them. How do they like what they purchased?
Get a list of what has been done to the home. With it, you can eyeball the improvements, open and shut the doors, and get a hands-on impression of the quality of the work.
It’s also important to check that necessary permits and/or inspections were made. The seller should have copies – most do because it moves the process along – and they’re interested in selling the property as quickly as possible to recoup their investment.
Some checkpoints include turning on faucets and flushing the toilet to see if the water output is weak. A sputtering faucet could also signal aging pipes. Open the cabinets and drawers and inspect the hardware. If anything is uneven or misaligned, note it. Are the doors and windows in good shape?
One of the best strategies is to hire an independent home inspector to double-check your observations and look for what a professional is trained to do. A licensed, accredited, and insured inspector will inspect the property and give you an itemized list of his findings.
With careful consideration and the help of professionals like a local REALTOR® and a home inspector, you can take advantage of the benefits of newly renovated flipped homes while avoiding most of the risks.
NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region, representing over 1,600+ members and 100+ business partners involved in all aspects of the residential and commercial real estate industries. Weekly market reports and information for both consumers and members are available on the NETAR website at https://netar.us