Michigan Buyers- Thinking About Buying a Flipped/Rehabbed Home?

By
Real Estate Broker/Owner

 

Flippers…love ‘em or hate ‘em, they are here to stay. I am also one of them. I know, I know, but I swear I am going to help you separate the good, bad and the REALLY, REALLY bad and prime you on what to look for next time you go out looking at homes!

But before we get started, let me just tell you that it is a very rare occasion that I sell a flipped home to a client. Because I do this as well, I am very picky when it comes to these properties. I know where they cut corners and I definitely know if they flew under the radar and the municipality has had no idea what’s going on right in their town! Believe me, city inspectors REALLY, REALLY dislike when permits are not pulled!!

I recently took out a client on showings, in a city I am pretty familiar with. This house had it ALL! Gorgeous backyard with an above ground pool, fenced in so his dog had plenty of room to roam. Fantastic curb appeal, new roof, new gutters, some new concrete. Entering the home, it was clear that someone had really dropped some cash on this place. The kitchen had been expanded, all new cabinets, sink and appliances. Finished basement with a full new bath, loads of new lighting, new plumbing, hardwood floors redone, everything repainted and looking like a million dollars! My client was literally shaking as we were walking through. He just could NOT believe that all of this was in his price range! And trust me, neither could I, (insert smart-aleck laughter)…

He turned to me and said, ‘How long has this place been listed?’ I said, ‘2 days.’ He walked to the kitchen sink, looked out toward the pool and said, ‘Wow, my dog is going to love this backyard. Let’s write this offer today. Full price. Even over, I don’t care, I have to have this house!’ The next thing that left my mouth probably sounded to him like a semi-truck hitting the brakes really, really hard. In the next 20 minutes he went from full on elation to flying out the windshield! No, not literally, geez…

I took him back outside and showed him the pool. I told him to look up. See that electrical wire running right over the middle of the pool? (Nice place for a wire. ‘Hey kids, jump in!’ This is like dropping a blow dryer into a bath tub full of water.) Then I said, come downstairs. Look at the electrical panel. Do you see any inspection tags? No? Okay. Let’s go back upstairs. Any inspection tags on the windows? Doors? Huh. Okay, hang on. I hit ‘Speaker’ on my phone as I dialed the building department. ‘Hi, I am a real estate agent, and I am at blah-blah-blah street. Can you tell me if any permits have been pulled for anything at all on this property within the last few years? No? Any city inspections? C of O? No, you haven’t been able to get access? Oh, okay, thank you.’

He said ‘So, who owns this house?’ I said, ‘the bank’. He said ‘The bank? The bank did all of this work and didn’t pull permits?’ I just nodded. ‘Well, what does that mean?’ he said. ‘That means that this city requires you to have a C of O to move in. In order to get that C of O, they must inspect the property. Any new work, or anything that looks like new work, will be scrutinized. If the inspectors see that no permits were pulled for the work, they can make you tear everything out, and your really great deal just turned to into a nightmare.’ ‘Well’, he said ‘I am going to call the building department and ask.’ And so he did. Then his father called the city. Then his mother called the city. About 2 hours later, they all showed up at my office. His father, who is not known for his tact, super nice guy, but more than a little rough around the edges, was red faced and pleading with me to do something about it. ‘After all of these months of searching, this couldn’t be happening! My son needs a home, please call the building department and see what you can do!’ (I am giving you the PG version of course, it was much more passionate!)

Obviously, there is nothing that I can personally do in a situation like this. This particular city is KNOWN for their brutal inspections, they are by the book and flying under the radar makes them very, very angry. I did call the building inspector the following morning around 8:30 before he left out for his day of inspections, and he told me that if anything has gone on over there that has not been permitted, which of course was EVERYTHING, it is all coming out or no one is buying the home. Huh…I would say that’s pretty clear! I redelivered (is that a word?) the bad news by 9am to my client and he was, well, let’s just say that ‘angry’ would be too delicate. He called the bank, he called the mayor, he called anyone and everyone who would listen to him. How can banks dare to rehab without pulling permits?! That’s a bait and switch! The Buyer is the REAL victim here! And on and on and on.

But you know what? He was right. Was this a one-time mistake on behalf of the bank? Uhhh, that answer is NO.  Had I not had the experience, I would not have known any of this, and he could’ve bought the property, closed on it and he never would have been able to move in. And if you assume that your agent has your back, think again. If you walk away with any lesson from this writing, it is this…do your own due diligence. You should make calls to the building department, or better yet, go there and have the file pulled. See what work has been permitted or not. That new addition on the back of that dream home you’re buying? Was it done correctly? Were footings inspected, the electrical inspected, the ductwork connected from the house to the addition? The wall they took out for the add-on, was it load bearing?

Here are some basic things to look for when you are looking at homes that could be flipped/rehabbed properties, beyond the obvious new items, freshly painted walls/trim and redone hardwood floors or new carpet:

·         Have your agent pull the sale history. If they bought it for 30k a year or less ago and are selling it for 125k, you may have a flipped property. If you are thinking of offering on it, have your agent pull the listing ticket and any attachments that may still be online.

·         If the listing ticket says, AS-IS, Buyer responsible for C of O, tread lightly.

·         Professional Staging – Very common. It allows your eye see the stuff and not the home. Look beyond this. WAY beyond this. Do not get caught up in the scent of the perfume and listen carefully for ‘oinking’ sounds.

·         Window Tags/Electrical Box Tags/Door Tags – The municipality WILL let you know they have been there in one way or another. If you do not see anything like this, take a note of it and call them. If you do see them, look for the words PASSED written on them and note the date that they were passed.

·         Is there new granite in the kitchen? Is it sloping?

·         Are the floors sloping or pitching?

·         The windows should ALL open and should stay up when opened.

·         Are there new smoke detectors everywhere? If you’re tall enough, slide open the battery compartment. There should be a 5 year (at least) lithium battery inside. It will be printed on the battery. Even if they are hardwired, they still have to have at least a 5 year Lithium battery. This is a definite code.

·         Is there a CO2 detector near the furnace?

·         How is the tile work? Is it straight, lines running properly? Is the tile flat?

·         Are there air arrestors (air hammers) at the laundry tub? Look at the copper piping. If you see a small tube with a cap on the end, running parallel to the main piping, one on the left of the hot water side, and one on right of the cold water side, this is code.

·         Is the basement finished? Is there an egress window? This is a trick I have seen on homes that are rehabbed. The flipper will get the C of O, THEN finish the basement. And this is also where it gets preferential. Some inspectors will say if you have a bedroom in the basement, you must have an egress window. Some will say if you can put a couch down there and enjoy the space, you must have an egress window. These are NOT cheap to install, they start at about 3k and just go up from there. If you have a finished basement and no egress window, double check with the city.

·         Can you see the duct work? Do you see any black plugs that run along the duct work? If they are present, that means that the duct work has been cleaned at some time. BUT, during rehab, the duct work can become filthy and no one wants to breathe that in. Ask your agent to ask the seller if it’s been done and provide the contact information for the company that did it. Verify it or ask for a receipt.

·         Is the electrical box CLEARLY labeled? Is there a separate, smaller box for the A/C unit? Is the A/C unit on its own meter?

·         If the home does not have an A/C unit, does the front door have a screen door? Does it work?

·         Are there GFCI’s at all the water sources? This is that electrical outlet that has the little square buttons that would trip the circuit should any water be near the source. Look for them at the kitchen sink, bathroom sinks, laundry tub and at least one in the garage.

·         As long as you are in the bathroom, has the tub been resurfaced or is it new? Look closely. Run the water and pull the plug. Does it stay full? Does it drain? Turn on all the faucets and tub at the same time? How’s the water pressure? Do they drain fast or slow? There should also be an access panel for the bathtub and/or shower. Please remove the panel. If the plumbing has been replaced it should not be galvanized plumbing. (See below for further explanation).

·         Are the exterior electrical outlets covered in a clear box that protrudes from the outlet?

·         Are there tree limbs hitting the garage roof? Is there major overgrowth of foliage? Cities typically don’t like this and will want it cut back before issuing a C of O.

·         Are there electrical wires hanging on the garage roof or swaying low? Look at the service riser. Is it at least 1’6” over the house roof?

·         Look at the plumbing pipes. Is the copper new? Is there PEX (these will typically be the Red and Blue piping). PEX is, in my opinion, much superior to copper, because it allows for expansion if your pipes should freeze. Are the pipes galvanized plumbing? This type of piping rusts from the inside and would probably be original to the house. Sometimes rehabbers paint over the piping in an effort to disguise it, so it may be hard to tell the difference, but galvanized piping is slightly larger in circumference. If the galvanized is still there, you will want to budget to replace it sooner than later. Another good test if you are not sure is to run the tub and if rust or debris comes out of the water, it has a high potential of being galvanized.

·         How about the furnace? How old is it? If it’s not new, check with the city to see if it was certified. This means that a licensed HVAC contractor came out to the property, tested it and certified, in writing, that it does not leak CO2. I have never heard of a C of O being issued without this. It should be on file with the city. As long as you’re at the furnace, pull out the filter. Is it clean?

·         Look at the hot water tank? Are the connections contaminated? How large is the circumference of the pipe over the tank that is going out through the wall? Newer code calls for it to be a 4” diameter. What is the date? It should be clearly marked on the manufacturer’s tag. You should get about 10 years of life out of a hot water tank. If it is not new, there’s no way to tell how long it will last. Some people like their tank on the hottest water setting and that will decrease the life a hot water tank dramatically.

·         Check out the driveway, garage floor and walkways. Are there uneven spots that people could trip on? Is the driveway super cracked? Is there a lot of patching? Most cities want these items dealt with prior to issuing C of O. If you see a lot of patching, that could be Quik-crete or similar and will last you through one season of weather change before it crumbles apart. Also, how are the cement steps leading into the house? Are there hand rails present?

·         How about the roof? How many layers are on there? If you stand at the edge, you should be able to count them. The old ones will be obvious. Code allows for a maximum of 2 layers.  Are the shingles curling, rounding out at the edges, lifting? This is a sign of age.I am not talking about a little lift or curl here or there, but overall. If they look like they are melting off the house, that is a roof that’s way past its life span.

·         How about the gutters and downspouts? Do they look new or are they repainted? Are they all connected to the house? Are they all there? Do the downspout extensions run at least 5’ away from the house? If the home is 2-story, are the gutters from the second story connected to the first story or will the water just be running down the roof? City inspectors do look at this.

·         What does the exterior paint surface look like? Is it peeling or is it repainted?

·         Is there a deck? Do the hand rails and railings shake? Are they intact? Are the steps in good condition? ANY SAFETY ISSUE is a concern to the inspector. They will note it and want it fixed prior to C of O.

·         Talk to the neighbors, find out about the house. Neighbors can be a wealth of information and they can tell you just about anything you want to know.

These are just some of things that you can see quickly when you are looking at the home. It certainly is NOT an exhaustive list. If you decide to offer on a flipped/rehabbed home, and the offer gets accepted, having an air quality test is always a good measure. Remember that there are things that we cannot see. If there are mold spores in the air (hey, you never know, that home could have been flooded at some time) or other nasty things could be floating around, it is important to know this information.

One important thing to remember, when a flipper/rehabber buys a home and has not lived in it, they do have to legally disclose everythign they know on the Seller’s Disclosures. The only entities that do not have to are banks, Fannie MAe, Freddie Mac and HUD. Unless it's an estate, then they don't have to disclose either. 

Also note that City Inspections are just the beginning. They should NOT be a substitute for a Private Home Inspection. While we are on the topic of inspections, be sure to check out the other inspection reports I have posted on the blog. There’s all kinds of good information to be found and promises to be an education that you deserve when you are buying a home! If the home you intend to buy is built before 1980, and is on a city sewer, PLEASE get a Main Sewer Line inspection. I have a blog dedicated to the importance of this inspection. PLEASE read it! I also have a blog on Private Home Inspections. Even if the home is NEW, don’t let anyone talk you out of it. NEW CONSTRUTION NEEDS TO BE INSPECTED AS WELL!

I have seen GREAT flips, and not just mine! I have also seen a lot of flops. Protect yourself, ask as many questions as you need to ask. The City Inspectors are not your enemy. They are there to help and to advise.

Be armed with good information and remember that the educated decision is the BEST decision!

 

This information is owned by Shannon Hall. Any duplication is illegal.

 

If you would like my permission to duplicate, please ask me. 

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