12 Ways To Not Get Fooled When Buying a Flipped House
When buying a flipped house, sometimes looks can be deceiving. While fresh finish updates and new appliances might draw your eye during a tour, it’s crucial to look beyond the surface-level sheen when looking for a new home.
As material prices continue to soar, and trade labor shortages elevate installation costs, flippers are relying more and more upon DIY work and sweat equity. Despite what home improvement shows might tell you, mistakes made by amateur renovators can come at a serious cost.
In this article, we’ll give you a step-by-step guide to investigating a flipped house before placing an offer. These twelve steps will sharpen your eye for shoddy workmanship and keep you from being fooled when buying a flipped house.
1. You Will Review the Property Card and History
A Property Record Card, or simply a Property Card, is an entry in a database detailing crucial elements about a parcel and any structures on that parcel. In most jurisdictions, the Property Card will tell you:
- The square footage of the parcel or lot
- The square footage of any structures on the lot
- The long and short legal property descriptions
- Permitting information for that parcel
- Permits pulled
- Permits completed
- The type of permit
- Surveys completed
- Ownership history
- The 911 address
- The parcel number
- Any replatts of the property during its history
The Property Card is an excellent place to start looking for red flags. For instance:
- If previous owners only had the deed to the property for short amounts of time, it may have been flipped repeatedly.
- If adjacent properties have been vacant or owned for short amounts of time, the neighborhood might be undesirable due to crime, heavy traffic, or poor utility infrastructure.
- If an LLC or a Corporation owned the property for an extended period, it may have been a rental in the past.
Reviewing the Property Card before placing an offer will help you identify potential issues with the property before committing.
2. You Will Carefully Review Seller-Provided Disclosures
Seller-provided disclosures are another crucial resource for identifying potential problems with a flipped house listing. Some examples of seller-provided disclosures include:
- Defects to the property’s condition
- Hazards like radon gas, asbestos, or above- or below-ground fuel tanks
- Water damage and wood rot
- HOA fees and information
- and more
While different states and jurisdictions have different laws regarding disclosure requirements, reviewing the seller-provided disclosures not only will uncover potential red flags but will also serve as a springboard for questions to the property owner.
While you might think that a long list of disclosures is more likely to reveal property defects, thorough disclosures usually mean that the seller has done their due diligence. Be wary of short or non-existent disclosures.
3. You Will Ask for a Complete List of Renovations and Repairs
While a list of repairs and renovations needs to be included in the seller-provided disclosures in some states, ask for a complete list of repairs and renovations regardless. Asking for a complete list has two benefits:
- You’ll be able to confirm or find inconsistencies in the disclosures or listing.
- You’ll be armed with a complete list of items to inspect during a tour or open house.
In addition, this list will help you determine if the appropriate permits were pulled when necessary (more about permits in steps eight and nine). While not all renovations and repairs require permits, beware of plumbing, electrical, roofing, or structural work performed without a permit.
4. You Will Make a Checklist of Red Flags to Look for In-Person
The three items above—the Property Card, seller-provided disclosures, and a complete list of renovations and repairs—will help you assemble a checklist of red flags to look for in-person when you tour the home.
Even if you’ve already toured the property once, don’t be afraid to ask for additional tours to put your mind at ease or look for more potential defects. In addition, don’t forget about another crucial resource when looking for red flags: the listing.
In addition to whatever you find in all of these documents and resources, be sure to check for the proper function of appliances, thorough craftsmanship, and the following items:
- Working switches for lights and ceiling fans
- Working air conditioning and heat
- Consistency in finishes like paint, stain, and wallpaper
- Working outlets
- Running water and working hot water heater(s)
- Wobbly or inadequately secured ceiling fans
- Visible wear and tear on insulation and ducts
- Working, safe attic access equipment
- Smooth opening and closing of windows, doors, and cabinets
- Cracks in windows or door glass
- Functioning smart systems like alarms and home automation features
While this list may sound exhaustive, you’ll want to examine as many elements of a listing as you can to check for—or confirm—red flags.
5. You Will Ask About Warranties on Work, Systems, and Appliances
There are a few types of warranties you should ask the seller about before you place an offer on a flipped house:
- Third-party home warranties for the HVAC system, insulation, or electrical systems
- Manufacturer’s warranties for products, parts, and appliances, and labor
- Contractor- or subcontractor-provided warranties for labor and materials
- Contractor- or subcontractor-provided routine maintenance agreements
Ask for or compile a complete list of the warranties available for the home. Be wary of short warranties from contractors and subcontractors—these could indicate the company’s awareness of poor craftsmanship that they hope will only be revealed once the warranty expires.
If the warranties aren’t to your liking, you can request a warranty from the seller or any of the contractors who performed repairs or renovations. While the worst they can say is “no,” be wary of vehement rejections from contractors or sellers.
Need a Mortgage?
6. You Will Hire a Great Home Inspector
Hiring a home inspector—a trained professional who will inspect structural elements, mechanical systems, and renovation craftsmanship for a home—is a crucial way to protect your real estate investment.
While the documents provided by the seller will hopefully be thorough, and any renovations or repairs completed will hopefully be done well and above board, a home inspector is trained to find defects and report them to the buyer and seller.
While the buyer usually purchases a home inspection—and most mortgage lenders require one for loan approval—the seller will pay for the inspection in some cases. However, ensure that you can choose the inspector or inspection company even if the seller agrees to pay. If not, pay for the inspection yourself.
When hiring a home inspector, it’s crucial to:
- Check reviews for an inspector or company online
- Choose an inspector that is licensed or certified if required in your jurisdiction
- Ask if an inspector has residential construction experience
- Provide all seller-provided documents (like disclosures and a list of repairs and renovations) to the inspector before their inspection begins
- Ask for both a hard copy and a digital copy of the inspection documents
After the inspection is complete, check the inspection documents against the seller-provided documents. The inspector may uncover some defects that the seller didn’t report or some problems neither you nor the seller were aware of.
If you’re financially able, consider getting two home inspections from two separate companies and compare the reports. You can never be too careful with a real estate investment.
7. You Will Verify Permits Were Pulled and Closed
Once you have a list of repairs and remodeling work completed by the flipper, research whether or not permits were pulled and closed for the work completed. While some work doesn’t require permitting, major changes like moving walls, major plumbing or electrical work, or exterior changes usually do.
Pulling permits comes at a cost to remodelers but permitted work needs to be inspected before the permit can close. So, it’s crucial to make sure that permits were not only pulled but that they were closed upon passing a final inspection.
If there are still any open permits, ask the seller why. In most cases, you shouldn’t proceed with a sale if there are open permits that the flipper can’t explain.
If you’re having trouble finding a list of permits pulled for the listing, call your local building department.
8. You Will Compare Permits to the Renovation Work
Once you have a list of permits pulled and closed for the listing, compare these permits to the completed renovation work. While some jurisdictions don’t provide detailed information in their public information databases, you can call the building department and ask them to elaborate on the work the flipper proposed.
But, if all permits were closed and passed a final inspection, the work was likely completed per the plans submitted to the building department. However, if you have any doubts about the authenticity of the flipper’s claims, your local building department can be a vital resource.
If there are discrepancies between the permitted work and the seller’s description of the changes, this is a pretty significant red flag.
9. You Will Do Your Research on the Flipper
Doing your research on the flipper is an excellent way to avoid being fooled while purchasing a flipped house.
Some red flags to look out for during your research include:
- More bad reviews than good reviews
- Good reviews in the past but recent bad reviews
- Companies or individuals without a contractor’s license
- Bankruptcies within the last ten years
- Legal disputes within the last ten years
While you probably won’t be able to hunt down every detail about the flipper, you should make a concerted effort to explore the information available to you. There are a few major sources for information about the flipper—state business registrations, online profiles, reviews, and the Better Business Bureau (BBB).
Business Registered with the State
In most states, corporations and LLCs are required to register for a state database. Common information found in these databases include:
- The business name
- Tax ID number
- Operating address
- Names of principals
- Annual revenue reports
- Names of license holders, if applicable
The information available in a jurisdiction’s public database serves as a great springboard for further research. For example, if revenue reports are available, you can explore the financial health of the flipper, which could indicate the capital available to spend on the flip.
Gather as much information as you can from state registries, but focus your efforts elsewhere to get a complete picture of a flipper.
Online Profiles, Reviews, BBB
Online profiles (like social media pages and a company’s website), customer reviews, and a listing in the BBB database are often rich with data about a company and people’s experiences working with them.
While online profiles are generated by the company, check the comments sections on their recent posts. You might catch wind of a recent scandal or find a disgruntled former customer. But, you might also find encouraging information that will make you more likely to trust the flipper.
Customer review aggregators like Google, Yelp, and Angi are also useful. The ideal review profile for a business is an overall score of four stars or above. When it comes to individual reviews, businesses that are above board usually have a significant amount of five-star reviews, some 4-star reviews, and few one- to three-star reviews.
Does the flipper respond to reviews, positive or negative? Pay attention to how the flipper responds to criticism and praise. If they respond rudely to valid criticisms, that may be a red flag.
The BBB is an excellent resource. Like reviews, you can get a feel for a business’s standing among their peers and their past customers by reading complaints in their listing. Plus, if a business is BBB-accredited, they’re likely to be in good standing and practicing ethical business tactics.
10. You Will Do Your Research on the Contractors and Subcontractors
While you should do your due diligence while researching the seller, don’t forget about the contractors and subcontractors they hired to complete the renovation, if there were any. When you ask for a list of repairs and renovations, make sure that the seller includes a name and contact information for the general contractor and any subcontractors hired during the process.
Just like the flipper, you should research reviews and search for bankruptcies and legal disputes within the last ten years. But, you can also use contractors and their subs as a resource.
Consider asking them the following questions about the seller:
- Was the seller easy to work with?
- Did they try to cut corners to save money on labor or materials?
- Would you work with the seller again?
- How do you think the renovation went as a whole?
Plus, if you admire any of the renovation or repair work, you can establish contact with the contractor or sub who performed the work if you need a quote for future work.
Business Registered with the State
While you should search your state’s business registry for the contractors and subs who worked with the seller on the listing, look a little more closely at the license holder field.
In most states, contractors and subs have to have at least one license holder certify the business’s work. But, many businesses will simply hire a license holder to certify the business even if the license holder isn’t involved in day-to-day operations. Check the license holder field against a company’s website or social media posts. If you don’t see them listed anywhere, this could be a red flag.
Online Profiles, Reviews, BBB
While looking at the online profiles, reviews, and BBB listings for numerous contractors and subs can be time-consuming, this is a time investment well-spent. Real estate is a significant investment, and you want to be confident in the work the flipper and their contractors performed on your potential new home.
Don’t skimp on the research, and do your due diligence to dig up any potential red flags. You could regret it if you don’t.
11. You Will Look into the Contractor’s History and Reviews
While reading reviews for the contractor who worked with the flipper, try to get an idea of how the company has evolved. Read reviews in chronological order to try to piece together the company’s general workmanship trends throughout its history.
Perhaps the contractor has an average review of four and a half stars, but most of their positive reviews are ten years old. Since review aggregators typically don’t adjust averages to reflect the most recent reviews, searching for recent positive (or negative) reviews is paramount.
One of the most useful things you can do while researching a contractor is to ask for a recent client reference. While the contractor will likely give you a reference for someone who will say positive things about the company, some review sites allow you to privately message reviewers, and you should consider doing this during your research process.
12. You Will Verify that the Certificate of Occupancy is Current
Certificates of occupancy are provided by the building permit jurisdiction when a final inspection is complete and a permit is closed. You can ask the seller for a certificate of occupancy, or ask the building department if the listing has a current one on file.
The certificate of occupancy confirms that the dwelling is safe to inhabit and that all permits opened have been completed and satisfactorily inspected. While some jurisdictions have these available online, you may need to call the building department and ask for one in some areas.
Due Diligence is Worth Every Penny
If a listing looks too good to be true, it probably is. While you should trust your gut during the real estate purchase process, doing as much due diligence as you can to research the property, the flipper, and their staff will keep you from making a bad investment.
With these twelve tips, you can proceed through the real estate process with confidence, from browsing through listings to closing day. Instead of being fooled by flippers, use common sense and the resources available to you before signing on the dotted line.
About the Author: Kris Lippi is the owner of ISoldMyHouse.com, the broker of Get LISTED Realty and an official member of the Forbes Real Estate Council. He actively writes about real estate related topics such as buying and selling homes, how-to guides for around the house and home product recommendations. He has been featured in Inman, Readers Digest, Fox News, American Express, Fit Small Business, Policy Genius, Lending Tree, GoDaddy, Manta as well as other major websites. Read more about us here.