Real Estate Agents Reveal What They Really Think About Flipping Houses — and It’s Not Good
We’ve all seen the shows on TV: People buy fixer-upper homes at a low price, renovate and update them, and then sell them for a profit. These depictions make flipping houses look easy, fun, and a guaranteed win. But, as you’ve probably guessed, that’s not always the case.
There are a lot of factors involved in buying, renovating, and selling a home under budget and on time. And, for potential buyers of flipped homes, those factors ultimately impact the quality and price of the property they’re considering.
To find out what experts in real estate really think about the process of flipping, we turned to nine agents across the country for their input.
It probably comes as no surprise that the first concern our real estate agents expressed about flipping is quality. Many flippers try to maximize their profit by cutting corners during the renovation process, and that includes cheap materials, shoddy work, and overlooked areas (like not updating electrical and plumbing).
“What was once considered a creative and lucrative process has become something agents and buyers are wary of,” says Miltiadis Kastanis of Douglas Elliman in Miami Beach. “Flipped houses are perceived as homes that look good, but corners are cut. There is a lot of time, effort, and money that goes into getting these homes ready, and not everyone is willing to take on that task.”
Elements that are often low-quality include finishes, hardware, appliances, and fixtures, he says.
“Pretty doesn’t always mean perfect,” agrees Jessica Ellis of Sotheby’s International Realty – Westlake Village Brokerage in California, noting that many buyers of flipped homes mistakenly opt out of several needed inspections simply because the properties appear new.
“This is one of the biggest mistakes buyers make when buying a flip,” she says. “I always encourage clients to conduct each and every inspection needed.”
For those doing the flipping, there’s a great deal of financial risk involved in the process.
“If you don’t know what you’re doing, it could come back to hurt you,” says Lynette Kohn Huber with Walker Reid Realty in Boca Raton, Fla. “HGTV makes it look easy and fun, but those people are professionals with skills and experience, and even they have flops. There are many people out there that get in over their heads with a flip.”
Flipping is a very cutthroat business, says Chris Cusimano of Keller Williams Realty in Boca Raton, and you need to have “a lot of cash and time” to do it right, he says. In his experience, the profits garnered from flipped homes were “OK,” but that there’s more money to be made selling homes the traditional way.
In addition to ample time, money, skills, and experience, flippers need a great deal of luck to profit, says Allen Roth of Sotheby’s International Realty – Beverly Hills Brokerage in California. “They also need to rely on some element of luck with market timing. There’s an incredible amount of risk involved, and I have seen firsthand flippers take significant losses because something got botched along the way.”
As a flipper, if luck isn’t on your side and the process takes more time than expected, it’ll cost you, says Simon Isaacs of Simon Isaacs Real Estate in Palm Beach. Holding onto a property longer than anticipated can leave you susceptible to property taxes and maintenance bills you didn’t anticipate.
It’s quite common that complications arise somewhere along the line, both for buyers and sellers of flipped homes. For example, in some states, including Texas, a flipped home may not qualify for an FHA loan, notes Francesca Conway, an affiliated agent with the Champions office of Coldwell Banker Realty in Spring, Texas. Chain of title rules in Texas state that a property must be owned for 90 days before it can qualify for an FHA loan.
“Therefore, it limits purchasers, especially first-time homebuyers, which is sometimes the broadest market for flipped homes,” she explains.
As a buyer’s agent, there can be several “hiccups” while closing escrow on flipped homes, says Ellis. “The bidding war is obviously my biggest hurdle as they tend to be most desirable on the market.”
From a flipper’s perspective, unanticipated project costs can arise that are totally out of one’s control, such as delays in the permitting process and material orders, says Ericka S. Black, affiliated with Coldwell Banker Realty in the Mid-Atlantic region, Dupont / Logan Circle office in Washington, D.C. “For example, COVID-19 impacted the operations of many government permit offices and building material manufacturers, which created unforeseen delays and unanticipated project costs.”
This can create a chain reaction. Due to such unanticipated project costs, some flippers choose to cut corners — which, in turn, may result in the listing being on the market for even longer.
“If real estate professionals can see the corners cut, our clients and their home inspector will definitely see it,” Black says. “Cutting corners can result in profit loss because the home will sit on the market longer.”
However, there is one advantage to selling flipped homes right now, and it’s thanks to the COVID-19 pandemic, says Mia Cottet of Sotheby’s International Realty – Los Feliz Brokerage in Los Angeles. Before, her clients were wary of buying flips, worrying that they’d pay a premium for low-quality work. Now, things have changed.
“People now are less inclined to have to take on heavy renovations,” she explains. “Social distancing with contractors in the home can be awkward, and obtaining materials domestically and from abroad could result in serious delays. My clients are asking more and more now for a home that is ‘done.’’