Beware - Flippers May Be Wolf In Sheep's Clothing

The problem is not the flipper. It is the anti-capitalistic rules made on the assumption that profit is a bad thing. What does it matter what the investor bought the property for? The value is in the house as an individual asset and the Wolf is sitting behind a desk at FHA playing puppeteer while we all dance to their tune.

I find it ironic that these rules against making too much profit are being made by people will insatiable appetites for our money and power. I think you need to get it straight. The rules and the rule makers are the problem, not the entrpreneur being robbed by them.

Wow, great point Ken!

OMG...first Jen and thenKen...my flippin heart is all a flutter! You go Ken..I despise this enetitlement, anti=profit state that we are becoming. I get villified all of the time for being an outright Capitalist. I am unashamed at the profit we generate because I know what goes into generating that profit. I applaud you, Jen, Lane and everyone else who realize that they call it real estate INVESTING for a reason.

It's very hard for a lot of people who have no real skin in the game and who never really put their buts on the line to understand the risk v. reward mentality one must have and to say that one should not make that much is pure insanity..it might also be a bit of jealousy.

Since when is Capitalism such a bad thing? Are we entrepreneurs really tearing down a fellow Capitalist because they made a profit? And one that the appraisal supports? This is crazy, but the times we live in, I guess. So if I read this correctly....in order NOT to be greedy, they needed to buy a home WAY under-priced and then sell it the same way? How much profit is OK? 10%? 25%? shouldn't they be "good guys" and take a loss since they must have cash to even buy it in the first place?

Ugh....the only one with any responsibility in this is the listing agent. He/she should not have taken the FHA offer and known the requirements ahead of time. I know everything I need to to be able to represent my sellers.

Harvey...here is what came out of me as I read your interesting post....

Nice photo to accompany your point.....this reminds me of the statement that I make to everyone  (when it is appropriate) and that is that there is enough for everyone. You may have guessed that I make this statement every-time greed pops up with its ugly head. I am in support of making money, a living and a deal or two, but a steal every day is not good business for all.....just for the one who stole.

I hope I don't get in trouble here but I don't see what the flipper did wrong.  He bought low and sold high...the American way.  How was there an issue except the 90 day rule for FHA.  Not his problem, it is the buyer and the buyer agents problem.

Harvey,

Before jumping on the flipper may you should understand the rule.  There is nothing in the FHA waiver that prevents the sales price from being 300% or the acquisition cost.

The rule states:

2. In cases in which the sales price of the propertyy is 20 percent or more over and above the seller's acquisition cost, the waiver will only apply if the lender:

a. Justifies the increase in value by retaining in the loan file supporting documentation and/or a second appraisal which verities that the seller has completed sufficient legitimate renovation. repair, and rehabilitation work on the subject property to substantiate the increase in value or, in cases where no such work is performed, the appraiser provides appropriate explanation of the increase in property value since the prior title transfer: and

b. Orders a property inspection and provides the inspection reportto the purchaser before closing. The lender may charge the borrower for this inspection. The use of FHA-approved inspectors or 203(k) consultants is not required. The inspector must have no interest in the property or relationship with the seller, and must not receive compensation for the inspection from any party other than the lender. Also, the inspector may not compensate anyone for the referral of the inspection. Additionally, the inspector may not receive any compensation for referring or recommending contractors to perform any repairs recommended by the inspection, and may not be involved with performing any repairs recommended by the inspection. At a minimum, the inspection must include:

I. The property structure, including the foundation, floor. ceiling, walls and root:

II. The exterior,including siding, doors, windows, appertenant structures such as decks and balconies, walkways and driveways;

III. The rooting, plumbing systems, electrical systems, heating and air conditioning systems;

IV. All interiors; and

v. All insulation and ventilation systems, as well as fireplaces and solid-fuel-burning appliances.

If you look at 2a the appraiser can easily justify the diifference buy showing that the acquisition was by short sale at liquidation pricing. If the agents and mortgage brokers involved knew their business like they should then there should not have been a problem.

Maybe a more appropriate title would be

Beware - Realtors and Mortgage Brokers may be Wolves in Sheep's Clothing.

Great Post. And Enough has been explained on this thread in reference for Agents and Mortgage lenders to be ALWAYS aware of Guideline Changes. Investors are always welcome to make Money :)

Sounds like the "flipper" has put Capitalism to work. It's not good for buyer or buyer's agent.  The offer should never have been accepted.  That would have prevented disappointment.

It is all about disclosure.  Nothing is wrong with making money as long as everybody knows about it.

Am I missing something?  I thought a short sale was for the benefit of a homeowner seller.  And that seller has to prove that he has no assets, etc., in other words a hardship situation.  So how can an investor pay money to a seller for the property and then become the seller.  Doesn't the short sale lender want to know where the seller went and where the money went?  What am I missing here?

Until you work with someone who is rehabbing a house (and I prefer the term rehabbing rather than flipping), it is easy to think about their "profits" but as someone mentioned above more goes into it than meets the eye.  If you watch "Holmes on Homes" on HGTV, you will get a realistic view of what a rehabber goes through and how expensive it is.  They need to deal with code violations, permits, inspections, etc. to get the house livable again.  Most of them are not doing the work themselves; they are hiring professionals to do it which cuts into "profits" a lot.  I say hooray for rehabbers who are going to bring property values up in neighborhoods that surely need a boost. 

This is the world we live in.  We all must be on top of your game.  Looking out for the client as well as our selves.  You must have the information and be able to disseminate to our clients.

That is too bad for that family that really wants the home. I love to read blogs like this because it really shares what is going on in this crazy market in different parts of the country.. Great Blog...

Harvey I think you are in the minority here.  I've said it before on a number of occasions and I continue to vent about lenders that are so concerned with how much money someone is making (other than themselves) that they fail to see the value of the deal itself. 

Furthermore, I don't mean to bash appraisers and what I'm about to say certainly doesn't apply to all appraisers, but what I've often run into is appraisers who won't appraise a property for more than a contract price even if it is warranted. This type of safe, cover your a#% approach is damaging property values as well.  It could very well have been that the property should have appraised far above the price the investor paid for it. But the play it safe appraiser didn't want to be accussed of being in someone's hip pocket.

If lenders are so concerned about whose pockets are getting lined, maybe they should rethink that "required" second appraisal and fattening the pockets of appraisers.

I think you might need to rethink your position a bit or at least re-distribute the sources of contention to include too many restrictions by lenders who really don't have a clue. 

I recently sold a remodeled flip, and the lender required two appraisals, although it was obvious to everyone who saw the previous MLS listing and inspection reports that substantial work had been done on the home and the comparables supported the sales price.

What I don't understand is why two appraisals need to be ordered. What is wrong with just one appraisal?

Or, conversely, why not three appraisals then? If two are better than one, three must be even better at pinpointing to the exact penny the "value" of the property.

Sheesh.

In olden times, when it was a seller's market, buyers always used to ask me to find out what the seller paid for the house. I had a tough time trying to convince them it was irrelevant.

Interesting post.

Cheers,

Robin

Harvey,

Flippers are back. Unless they find cash buyers the going, however, seems much less lucrative than during the pre-bubble years. What was BofA doing selling it for peanuts?

I appreciate the flippers who rehab houses in need of it, helping neighborhoods recover.  I'm less in favor of those who step inbetween a short sale seller and the ultimate buyer to make a profit without doing anything to the property.  I don't think the short-selling homeowners really know what's happening behind the scenes.

Since when did what you bought a property for become a disclosure?  It's public record, so if the buyer wants to know, just look it up.  And what an investor buys a house for has nothing to do with what it's worth.  If I buy it for a dollar, does that make it only worth $2 because you can't make more than 100%.  Or should it be valued at whatever comparable houses are selling for?  I understand that FHA won't finance it, but that doesn't mean the seller/investor did anything wrong.  FHA's guidelines for financing are not moral, ethical, or legal guidelines.  They are simply their rules for financing transactions, and your assumptions about the investor are way out of line.