By Redfin agent Alec Traub
If you plan on buying a Los Angeles-area home in the near future, chances are you’ll come across a flip in your search.
2013 was a banner year for house flippers. They grossed an average of $90,200 per flipped home across major U.S. housing markets, according to Redfin research. Of the top 25 hottest neighborhoods for home flipping last year, 10 were in Los Angeles, most of which were on the eastside and in the San Gabriel Valley. This is not surprising since housing inventory was notoriously tight and demand for real estate in these areas led to unprecedented bidding wars in 2013.
As 2014 winds down many of the best deals that were grabbed by investors last year are now making their way back to the market and being sold for a healthy profit. Here’s how to ensure you get a fair deal when considering buying a flipped home.
Spot the flip
There are several telltale signs you’re dealing with an investor-owned property. If the home is vacant and professionally staged, you can bet an investor is afoot. Owner-occupants rarely install brand new landscaping in order to sell their home. If the yard is smattered with saplings, it’s probably a flip.
Of course, one of the best ways to spot a flip is to simply look at the property records. If the home was bought less than a year ago and it’s already back on the market it’s likely being sold by an investor.
Evaluate the efficiency
Now that you know you’re dealing with a flipper and therefore may be paying a premium, an excellent way to judge the quality of renovations is to consider what has been done for the home’s energy efficiency. Yes, buying a high-efficiency home will save you some serious money on monthly energy expenses. But perhaps more importantly, if an investor has paid attention to the details that make for an energy-efficient home, it’s a good sign they did their due diligence elsewhere as well.
Look for Energy Star rated appliances, well-framed, vinyl, double-paned windows with wool pile weather stripping and new attic floor insulation – if you can see floor joints or the insulation looks dingy, it was likely not replaced.
Check under the hood
Many flippers will slap some paint on the walls, throw in a new fridge and range and call it a day. Those who are really committed to quality renovations will also pay attention to the home’s guts. Check under the sink and look at the plumbing – if the pipes are wet or there is lots of mineral buildup, the plumbing was probably not touched.
Look closely at the duct work: Old ducting is simply sheet metal shaped into tubes or rectangles. If the duct work was redone it will be modern fiberglass or even double-backed flexible aluminum
Perhaps most importantly, check out the foundation: A home inspector can do this best, but since many flippers buy at bargain prices, there may be structural defects involved that have gone unnoticed or unaddressed. Look for sticking doors and windows, bulges or visible cracks in the foundation and slanted or uneven walls and floors.
Determine a fair price
Since many well-informed homebuyers know exactly what the current owner paid for the property by checking online records, it’s easy to get caught up in comparing today’s asking price with yesterday’s deal. But there are a few things to keep in mind when assessing the fair market value of a flip.
Don’t put too much stock in the previous sale price. Yes, flippers are looking for profits, but it is very difficult to determine what a flipper’s margin actually is just by looking at the previous price paid for the property. You must consider the cost of renovations, the seller’s closing costs (which can be substantial) and any price appreciation/depreciation that has occurred since the previous sale.
The sale price of comparable properties in the market ought to determine if you’re getting a fair deal. That means a sober assessment of the price other flipped homes in the neighborhood are fetching. Only an experienced local agent can accurately determine this number, but you can get started by comparing similar homes during your online search.