Both sellers and seller’s agents are lying about houses that were bought, renovated, and sold for profit. This is a disturbing trend.
Buyers are more leery that houses and condos that are renovated for resale are renovated poorly, or at least not as nicely as a place renovated for the owner to live in. To minimize a buyer’s reasonable doubt about flipped places, I hear all manner of stories about owners who suddenly decided to move, but first put all this renovation into the place.
This season, I heard sob stories about sudden family illness, elderly parents who chose not to move in, wonderful new opportunities that the current owner couldn’t resist, and other vague “once in a lifetime” opportunities that dragged the sellers from these newly renovated houses that they lovingly restored and now heart-brokenly are selling.
Yes, stuff happens, and people do renovate a house and then have a sudden need to leave. But all sellers save big on capital gains tax when they sell their primary residence. The profit limit before taxes is $250,000 for an individual and $500,000 for joint owners who file taxes together.
Flippers know that the definition of a primary residence where one lives for two of the last five years. If it takes a year and a half to do the renovations, it is well worth it for a flipper to stay another half year to save on taxes.
Thus, if a seller has a pattern of selling property every two or three years, he, she, or they are probably flippers. Check public record. It is pretty easy to see how many times a seller buys and sells. Someone who buys beat up properties every two or three years and sells them for a profit probably isn’t experiencing “sudden” changes and “once in a lifetime” opportunities that drive them from his or her lovingly restored homes, over and over. Stuff happens, but not every two or three years for most people.
What cautions are reasonable when buying a flipped house?
Check the public record. Quick and dirty renovations may not pass muster with the town’s Inspectional Services. Proceed with more caution if there are no permits for recent work. Some repairs don’t require permits, such as floor sanding, changing counters and cabinets, and painting. But if electrical or plumbing has been done without permits, alarm bells should go off.
Don’t be a fool! Don’t waive your right to home inspection. Home inspectors can check for many defects. If there are no permits, but the work passes muster with a home inspector, that is a good sign. But, you are not out of the woods yet. There can be problems under the surface that inspectors can’t detect. (For example, bathtubs are very heavy when full of water and a person. To properly install a new one involves building a strong frame into the floor. After the tile is on, you can’t see whether that was done.) Ask your inspector what could be beneath the work he or she sees as recently done.
If there is an agent involved, that agent has legal and ethical obligations that go with his or her license and membership in the Board of Realtors®. Sellers are held responsible not to make comments at make a material (financial) difference. The quality of your proof will make a lot of difference. Agents keep records. If you are a buyer seeking vengeance, be prepared. Keep a log of what you were told. Keep emails. If your Registry of Deeds search showed that the so-called owner-occupier who “hated to leave” has a history of hating to leave a profitable property every two or three years, you can give the agent spinning the story a black eye. You may even get him/her out of the profession. File a complaint with the Board of Realtors ® or Massachusetts Licensing Board.