Why Flipping Homes Can Carry Strong Liability...

By
Real Estate Agent with The HBH Group (Keller Williams affiliate)

 Q&A: Complying with statutory warranties on remodeled homes
I occasionally buy older homes that need a lot of work. I remodel the homes and sell them for a profit. I heard that the Legislature made some changes that place the responsibility of complying with the statutory warranties concerning new homes on me. Is this true?

People who buy homes, remodel them by making a material improvement, and don't live there for at least one year following the completion of the remodel are responsible for the statutory warranties for the remodeling work in the same way a builder or remodeler is responsible for the warranties. This is true even though the owner is not required to register as a builder.

The key issue here is whether the person buying the home makes a "material improvement" to it. A material improvement is a modification to the home that changes the square footage of the living area and also modifies the home's foundation, perimeter walls, or roof. A material improvement does not include modifications that are designed primarily to repair or replace the home's component parts. So, if you occasionally buy a distressed home and remodel the home by making a material improvement, you would be responsible for the statutory warranties for the remodeling work in the same way that the remodeler or builder is responsible even though the you are not required to register as a builder.

Note that the contractors that you may use to remodel the home will provide at least the statutory warranties to you in the contracts that you use to engage the contractors. You could have the warranties transferred to the buyer, but you would still be responsible for the statutory warranties to the buyer in the event the transferred warranties were not honored. Additionally, there are third-party warranty companies with whom you can contract to provide and administer warranties to a buyer that cover the statutory warranties of the remodel. For more information concerning the statutory warranties, visit the Texas Residential Construction Commission's Web site.

This information is brought to you as a public service of the The HBH Group Realty Team with Keller Williams Realty. You may learn more about us at our websites located at: http://www.TheHBHGroup.com/ and http://www.TheHBHGroup.biz/ or contact our offices at (512) 439-3772 or toll-free at (877) 268-1877.

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Rainer
1,946
George N. Piandes
Law Office of George N. Piandes, PC - Southborough, MA
MA Real Estate Attorney

Wow, pretty useful information.

I bet a lot of "flippers" did not realize this.

 Thanks

Apr 07, 2008 11:51 PM #1
Rainmaker
438,402
Ricki Eichler McCallum
CastNet Realty - Corpus Christi, TX
Broker,GRI,ABR, - Your Coastal Bend Home Source
Steve,   This is great information.  Well done post!
Apr 08, 2008 12:51 AM #2
Rainer
33,782
Greg Taylor
Greg Taylor and Associates, PLLC - Murray, KY
Murray Kentucky, Real Estate Attorney and Investor
Steve - This only applies in Texas, right?
Apr 08, 2008 01:27 AM #3
Rainer
150,345
Steve Homer
The HBH Group (Keller Williams affiliate) - Round Rock, TX
Greg:  Yes this is a Texas statute that I am referring to.  You should check the laws in your own state for the liabilities there...  Thanks! Steve
Apr 08, 2008 01:29 AM #4
Rainer
33,782
Greg Taylor
Greg Taylor and Associates, PLLC - Murray, KY
Murray Kentucky, Real Estate Attorney and Investor

Thanks, Steve - That's what I thought.  We don't currently have a statute like that in Kentucky, but you never know, it could be on its way.

 

Apr 08, 2008 05:53 AM #5
Rainer
150,345
Steve Homer
The HBH Group (Keller Williams affiliate) - Round Rock, TX
By the way - I have now taken to recommending that new investors only pursue a buy and hold strategy due to the amount of newbies that I have seen who have taken themselves into the poorhouse trying to FLIP homes for profit.  Thanks HGTV!  LOL
Apr 09, 2008 02:12 AM #6
Rainer
33,782
Greg Taylor
Greg Taylor and Associates, PLLC - Murray, KY
Murray Kentucky, Real Estate Attorney and Investor
Steve - I think you have to have some balance, some properties are great for turning a short-term profit and some are more for buying and holding.
Apr 09, 2008 04:49 AM #7
Rainer
150,345
Steve Homer
The HBH Group (Keller Williams affiliate) - Round Rock, TX
Well and this is very market-specific as well...  Some markets are just not made to be flipping markets, especially not for the casual investor...
Apr 09, 2008 06:13 AM #8
Rainmaker
670,820
Sandy Shores FL RealtorĀ®, Melbourne Real Estate
M & M Realty of Brevard Inc. - Melbourne, FL
Brevard County Real Estate, Florida's Space Coast
Just one more thing for us to remain aware of. Thanks for sharing!
Apr 09, 2008 11:58 AM #9
Rainmaker
254,197
Robert Machado
HomePointe Property Management, CRMC - Sacramento, CA
CPM MPM - Property Manager and Property Management
Thank you for the post. 
Apr 10, 2008 05:32 PM #10
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Rainer
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Steve Homer

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