Real Estate Fixer Up Homes or Flip Home?

By
Real Estate Agent with Coldwell Banker Residential Brokerage

Do REALTORS really know the differences between a FIXER UP listing on the MLS search result and a property that is prime for a flip home? Most Realtors lump these two types of properties into the same catergory which is a big mistake. They are totally different. First let me define each property and how they are percieved in the market.

FIXER UP OR FIXER UPPER PROPERTY: This type of home for sale in the MLS in most cases refers to a single family property. It is a property in need of major cosmetic restoration. New paint, replacement of carpeting , replacement of light fixtures, minor plumbing upgrades, restoring existing hardwood flooring. The costs will vary but most of the line items are moderate in price. The work can be done by the owner. In the event that the property is described by the agent that you will need "a contractor" or "seek a professional estimate then you are most likely looking at a flip home.

FLIP HOME:  This type of home for sale in the MLS in most cases refers to a property needing extensive replacement of mechanical systems, structural changes to the floor plan, additional space and or complete replacement of kitchens and bathrooms. It is the Buyer's intent to resale the property quickly based on a capital improvements and not to occupy the property. The FLIP HOME also needs major exterior improvements for curb appeal. New landscape, lawn, shrubs, walkways and items of this nature complete the criteria.

The flip home is a complete retro fit from top to bottom vs. the fixer upper that needs less work and the Buyer in most cases will live in the property. Knowing the key differences and expressing this knowledge to a consumer is important in making the right selection of property.

REALTORS take note....when you don't know the differences and present the wrong property to the consumer you risk your credibility in front of them. One trade secret when working these properties with your clients is to view the home PRIOR to the showing with the BUYER. Have a list of the Fixer up items ahead of time and prep the consumer.

You will have better success at closing on this type of property with your clients.

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Rainmaker
89,332
Paul Moye
Benchmark Realty - Franklin, TN
Broker, GRI, SRES

Well here is my experience...Real estate agents and consumers watch a TV show where 3 high energy perky "professionals" add a coat of paint, some flowers and mulch to the landscape and a few items from Target or Pier 1 around the house, hold an Open House and get an offer for $50,000 more than the owner paid that day. This is the mentality of a vast majority of people in our society based on a staged TV production; remember if the house does not sell then the audience will not tune in again next week! 

My other issue is however more along the lines that agents tend to "Puff Up" the listing calling it a Fixer-Upper when it is in need of structural repairs and is functionally obsolete. Experience is our best tool; learn what agents exaggerate and which ones are more realistic agents, your clients want you to help them through this process and here in lies your success! 

Apr 14, 2007 01:12 AM #1
Rainer
29,004
Michael Ross
Coldwell Banker Residential Brokerage - Beverly, MA
North Shore of Boston

So true! I have alot of sub contractors as clients that have the skill set to "flip" but most of them get turned off after reading the "puff" from the listing agent making the property appear to be better then it is. I have had them bluntly tell the listing agents a few choice words!

The television shows you talk about never crunch the $$$ to the end. They never add in real estate commissions, legal fees, recording stamps etc!!!  The actually profits are small and any prudent investor that does "flips" would NEVER invest in these homes period.

 

 

Apr 14, 2007 01:37 AM #2
Rainer
45,287
Ginger Wilcox
Sindeo - San Francisco, CA

It is interesting that these shows always leave out the broker's commission.  Many so called flips are probably more accurately termed flops when the commission is taken out of the "profit"!

Apr 14, 2007 03:48 PM #3
Rainer
29,004
Michael Ross
Coldwell Banker Residential Brokerage - Beverly, MA
North Shore of Boston

Flops! I like your comment. I have done several "flips" and I am talking putting in $100K on a property bought at $200K with a resale of price of $400K in a stronger market. Now even with a gross profit margin of $100K  you still have debt service, carrying costs on materials, legal fees, taxes, recording fees, and the biggest and most hidden cost that these TV shows and the new wave of flippers never talk about is capital gains!

Add them up and your  projected gross profit dwindles very quickly. I didn't mention real estate commissions because I try to sell my own properties but add in a Buyer's agent commission of 2.5% and the margin shrinks.

Now trying to find a suitable property in my market for $200K is a long shot even in this down market and I look at everything!!!  So when will the television shows get real?

Apr 14, 2007 03:59 PM #4
Rainer
5,364
Sandra Mannaravalappil
Wilkinson & Associates Real Estate - Charlotte, NC
Realtor/Broker - ABR

I just saw one tonight on TV where they actually went back to see what really happened. The projected profit was 50K the actual was 15k.

 

I am now flooded with people who want ot by foreclosures and think that just because a house is in foreclosure doesn't make it a good deal. Unfortunately a lot of people have watched wya too much HGTV and think they know better then the agent and buy the house. Then in a month or two want it sold because they hstrat it realize they are way over their head and want out.

Apr 14, 2007 05:08 PM #5
Ambassador
930,013
Frank Rubi
Frank Rubi Real Estate, LLC - Metairie, LA
FrankRubiRealEstate.com
I agree with most, that these TV shows are very far from accurate. Last night my wife saw a show where the sub contractor was threatening a Lien on the property. These are the areas, which these show truly do a fast forward. I have been flipping since 1993. The staging portion are the only things I fine helpful.
Apr 15, 2007 01:22 AM #6
Rainer
29,004
Michael Ross
Coldwell Banker Residential Brokerage - Beverly, MA
North Shore of Boston

Frank, I agree that the shows have excellent interior designers and give the homes a wow factor, One point they always avoid is labor costs. Never a word on what the peice will be to a consumer that doesn't have the skills to "flip" or remodel a room etc.

Wow It's easy beingh a critic! LOL!

Apr 15, 2007 09:37 AM #7
Rainmaker
189,486
Herb Hamilton
RE/MAX Preferred Inc. Realtors - Portland, OR
Real Estate Broker ,CDPE, Downtown Portland
Michael, I invite you to join and post this to the Group Fixers flips and rehabs. http://activerain.com/groups/flips
Apr 17, 2007 07:13 AM #8
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Michael Ross

North Shore of Boston
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