May 7, 2015

How To Avoid A Bad House Flip

By Martin Austermuhle

Eckington in Washington, DC.

Eckington in Washington, DC.

A few weeks ago I went to an open house in Takoma. With an active 18-month-old running around, my wife and I were in the market for something bigger than the 2-bedroom condo we owned in Columbia Heights.

The house was marketed as having been renovated, and it largely was — new kitchen and appliances, updated bathrooms, finished basement. It looked good, but there was something that bugged me about the basement. I walked out convinced that the house wasn’t for me.

That skepticism has only gotten stronger since. Around the same time we were looking for a bigger place, I was reporting out what would eventually become a 3-part series on house-flipping in D.C. and the many horrors that can befall people who buy poorly renovated homes.

In speaking to multiple homeowners, contractors and developers for the story, I came to realize that when it comes to real estate, what looks good isn’t necessarily well done. In fact, many buyers are quickly taken by aesthetic touches — like new floors, drywall, stainless steel appliances, open-concept living room and kitchens — that could well be masking serious problems that could cost thousands of dollars to fix or correct.

That’s not to say that all renovations are poorly done, or that those aesthetic touches always cover up bigger problems. But they should push all hopeful homebuyers to do the type of digging that might bring to light whether they’re buying a well-renovated property or a poorly flipped home.

Here are some tips I came across from my time reporting the story.

  1. Check permits and inspections: One of the things many unscrupulous developers will do is not pull all the permits they need, or only pull some and exceed the scope of the work they allow. Additionally, they won’t get all the required post-construction inspections that might help spot problems that aren’t visible to most buyers. All of this can be checked using the Property Information Verification System (PIVS) database that’s available on the website of the D.C. Department of Consumer and Regulatory Affairs. If a developer got a permit for interior work only but added a third story and didn’t get it inspected, you might consider buying something else.
  2. Check the sales history: It’s always good to know who owns the house you’re looking to buy and when they bought it. The D.C. Recorder of Deeds has sales records on all D.C. properties, and you can check who bought a specific house, when they bought it and even what they paid. If you see that a house was bought and two months later put on the market as fully renovated, there’s reason to dig a little deeper.
  3. Check ownership: The Recorder of Deeds will tell you who the current owner of the house is. If it’s a developer, it’ll often be a limited-liability corporation. DCRA’s Corporations page lets you search for some basic information on that LLC. For example, who’s the registered agent who created it? Have they created other LLCs? If so, you might quickly find a developer that bought a lot of homes at once. More importantly, does the LLC have an owner, address or phone number you can easily find? Would you be able to reach them if you bought from them and encountered problems? That’s important to consider.
  4. Get a good home inspection: This may seem like an obvious one, but many buyers in D.C.’s hot real estate market will waive the inspection. Others will rely on a home inspector referred by their realtor. While that’s not always a bad way to go, it’s good to consider getting a home inspector that is beholden only to you. Additionally, ask them how deeply they’ll look into the house. Do they know the building code? How much will they dig below the surface to look for problems?
  5. Talk to the neighbors: The immediate neighbors of homes that have been renovated may have some insights on how the construction proceeded. Did crews do damage to adjacent homes? Did they work before or after permissible hours? While these alone don’t point to a bad flip, they could give a buyer a better sense of the type of developer behind it.

We sold our 2-bedroom condo a week before the series went on-air, and are now renting. I’m still looking for a new house, but happy to be taking my time. Reporting on the problems others have faced has helped me realize that when it comes to an investment as large as real estate can be, time and due diligence are invaluable.

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