Home buyer beware: Make sure that updated flip is not a flop with costly problems
When you buy a home that's move-in ready, you don't expect to need tens of thousands of dollars for hidden defects and surprise repairs.
But, local real estate experts - from brokers, to inspectors to real estate attorneys, say that's what's happening to many people who by flips.
Flips are homes that investors purchase to renovate and resell for a quick profit. While many flips are very well done, many others are really flops, where defects are covered up, ignored, or overlooked.
If everything goes as planned, Derek Rippe will finish working on his house by Mother's Day.
For months now, he's been fixing the flip that he and his wife purchased three and a half years ago.
Last summer, Rippe discovered the ceiling over their "open concept" living area was sagging, because the seller had removed critical interior walls during renovation.
The structural engineer they hired determined the roof support timbers, known as trusses, were failing. The couple had to quickly install emergency supports to shore up the ceiling.
According to the engineer's report, the metal plate connectors holding key trusses together started pulling away after the interior walls were removed. The engineer said the contractor removed a load bearing wall during renovation and should have gotten permits. City records show that didn't happen.
"That was really scary, that we had a not yet two-year-old running and playing around a roof that could've fallen in on us!" said Michelle Rippe, holding the couple's recently-born second child.
Adding to the frustration - the home inspection they paid for raised no red flags.
"The engineer, he's on the record as saying the home inspector should have seen these things," said Derek Rippe.
Buying a home in a seller's market means you're not just competing with other buyers, you may also be rolling the dice on repairs and updates.
Certified home inspector Paul Rogers sees the horror stories.
“The flippers will buy them (homes) on the courthouse steps, or however they buy them, sometimes without any indication of what’s going on with the property," said Rogers, owner of Residential Inspection Services.
A former building contractor, with 23 years of experience in the local home inspection industry, Rogers said some flippers appear to avoid making extensive inspections or expensive repairs that might drastically lower their profit margins.
In one recent flip he inspected for a prospective buyer, he found rotted siding, an insect-infested electrial panel, extensive beetle infestation in the crawl space and foundation beams in the crawl space with no support to keep the floor from sagging. And that was just in the crawl space.
"I would probably venture to say that crawl space had in excess of 60 to 80 thousand dollars in damage to fix," Rogers said.
The prospective home buyer backed out of the deal. Rogers said that's the case with numerous flips he inspects, acknowledging that some real estate agents consider him a deal killer, but he doesn't care.
"I work for the best interest of my clients," Rogers said.
Common flip failures Rogers finds:
- Insect infestation
- Rodent infestation
- Rotten siding,
- Faulty plumbing and electrical work
- Work done without permits
- Building code violations
Dismayed home buyers report finding:
- Deteriorated flooring that have been covered up
- Defective grout applications in tile, causing the grout to break loose
- Improperly repaired plumbing systems
- Substandard building materials,
- Mold and more.
While some defects are relatively inexpensive to fix, others can be cost-prohibitive for unsuspecting home buyers.
As for your legal recourse after the fact - it's slim to none because it's on you to prove the flipper knew about material defects, and concealed the information.
And to go after the inspector (if you paid for an inspection) you have to prove the inspector was legally negligent in doing their job. That's a very high bar.
Rogers also points out that the clauses in many home inspection contracts may limit your claim to the amount you paid for the inspection.
While sellers and agents are legally required to disclose known defects in a property, especially when they've been made aware of an inspector's findings, Rogers and other real estate professionals said that doesn't always happen.
In a market where many buyers are waiving inspections, it can be a game of home inspection roulette.
Derek and Michelle Rippe figure it's costing them nearly to $25,000 to fix their home, doing the repairs themselves with the necessary permits. Derek figures they'd be out closer to $50,000 if they hired a professional to do the work
"We're lucky that it didn't start off a different way," said Michelle Rippe, about the sagging ceiling.
"We're looking forward to being here for many more years," added Derek Rippe. "And it'll be nice to know that it's safe."
HOW TO IDENTIFY A FLIP
Check county property records for the sales history or search the address online. If the last sale was very recent- that's a good sign it's a flip.
When touring flipped homes, pay close attention to workmanship and the quality of materials. Ask about recent updates renovations and whether permits were pulled.
Be sure to contact the city building department and verify the permit history. If there's been no permit issued for work that requires a building or electrical permit - that's a red flag.
And even if the house you're considering is not a flip, think long and hard about waiving a thorough inspection. Don't let the emotional pull and urgency of wanting a home override the importance of making sure the home is free of costly problems you can't afford.
Based on the information in their structural engineer's report, Derek Rippe filed a complaint with the state against the flipper - who was also the real estate agent who sold the house.
The Department of Licensing confirms that its real estate division is investigating.
