Saturday, March 24, 2007

Oh, to be a Flippee!

In today's Homes section of the Times Colonist there is a story from the perspective of the couple that bought the house of a subject of a recent article about flipping. Apparently the Flippee's were happy to purchase a home that they knew had been bought in the past year for considerably less than they paid for it and had been 'updated' and received minor renovations. The article isn't available electronically, so I can't link to it.

But one question really stood out for me: could I be happy buying someone else's home? As we hunt around for a new place to live, one of the reasons why we want to buy, is we want a house that is ours. This means we want to take some time, put in some 'sweat equity', not to gain value so much in the monetary sense, but to gain the value of emotional attachment to our living space and the pride of ownership.

So why would we buy a flipper's house? We won't. We don't want someone else's decorating and interior design ideas preventing us from making a place our own. Why would a flippee's house prevent us from redecorating? Simply because the house is priced accordingly to their improvements. We could negotiate a $5K discount to change paint etc... sure. But we couldn't get a $25K discount to redo a brand-new kitchen with different cabinets could we?

I know my arguments here are purely anecdotal. But I got the sense that in the way the author wrote her article she was really suggesting that there is an increased market for flipped homes. Come in, clean up, change non-structural layout, create space, fire in new kitchen and bathrooms, slap up some new paint and baseboards, and SELL TO MAKE A PROFIT. It's apparently a great home-based business, pun intended.

But as a buyer, would you want this? One of the bonuses of buying a new home is that quite often you get to make some choices for yourself: paint, flooring, cabinetry, extra bathroom, finished or unfinished basement etc. Yes, the choices are almost always limited, and there are financial consequences to those choices, but in a flipped house you get one choice: buy or don't. If you want to make changes for aesthetics, fine, but don't expect a discount because you don't like the new paint and cabinets.

You also don't get a warranty. The only warranty you get is a home inspection that you pay for.

We for one, want the discount associated with an older property; and the emotional attachment of purchasing 'good bones' that may require a bit of non-structural upgrading. We want to put the time and little-bit of money in to make our house our home. In this market, pride of ownership may be the only attractive thing about purchasing. Being on the receiving end of the flip doesn't seem like a good deal to us. Why can't the TC write that story?

13 comments:

Mark said...

On the flip side (no pun intended), those of us selling older homes get smacked pretty hard if you don't have everything up to date. We are spending $6500 updating the wiring to 200amp, replacing the oil tank and the furnace because not doing it means buyers are asking for $20k in discounts. If you don't paint the house you get hit with another discount far in excess of the cost to paint. There is also a lot of pressure from (hyper-conservative old fart) real estate agents to "stage" homes with furnishings that look like something out of the latest Home and Garden catalogue. Uhm, I kinda like our hip retro stuff.

Maybe there needs to be a blog where private buyers and sellers can come together to negotiate prices on older homes before sellers spend thousands on paint jobs, renos and upgrades that buyers don't really want. A little objective research could produce a realistic cost list of typical upgrades and necessary repairs and this could be used to adjust realistic discounts to prices. And of course, keeping agents out of the loop saves another $15-20k (or more).

Real sellers (not flippers) would still make a very good return on their investment and buyers could save thousands that in this market frenzy seems to be ending up in the hands of people who are neither buyers or sellers.

greg said...

mark,

what market frenzy?

If you really can make $20,000 more after painting your house, it makes sense to do it, if you ask me...

hhv said...

Mark,

"$6500 updating the wiring to 200amp, replacing the oil tank and the furnace because not doing it means buyers are asking for $20k in discounts. If you don't paint the house you get hit with another discount far in excess of the cost to paint."

From the buyers perspective... I don't mind if you do these things when you've been the owner for some time. My post was about the 'pro' flippers who attempt to make the profits and the choices for/from the buyer.

Personally, I'd prefer if you didn't paint. I'd also be surprised if there aren't a lot of buyers out there who feel the same way. And yes, I expect a fair price for this.

The real problem stems from 'seeing' the newly-renovated house up the street go for double what it was worth three years ago getting the rest of the block excited to cash in. Then sellers don't take into consideration that they haven't made any major improvements to their homes and still expect top dollar.

From the seller's perspective, they have a responsibility to themselves and their families to get as much as possible for their property. But if wiring needs upgrading and furnaces/oiltanks must be replaced, then the market value of the home needs to be reflective of these major projects. You can do one of two things as I see it: price it high and negotiate based on the work, or price it taking into consideration the work that needs to be done and negotiate less.

You will get more for a home that is updated. And rightfully so. If the seller can't afford to make upgrades or can't be bothered, then they shouldn't expect the same price as the house that just sold up the street in like-new condition.

As a buyer, I'm looking for the seemingly good deals and opportunities to make my own home that come with purchasing lower-end market offerings. There is a cost beyond materials associated with paint, electrical and flooring. They increase value well beyond dollar for dollar and they decrease value to the same extent.

talus said...

My bigger concern in the flipping craze is the quality of workmanship.

Last week, while looking at rental homes, we viewed a "flip" that had recently sold in James Bay - the ask was $650K. This is not a heritage house or character anything. Just an 1800 sq/ft bungalow on a crawl space with a shed for storage.

The workmanship was abysmal. And I'm being generous.

What I thought was poorest taste in laminate floor turned out to be fake wood plank linoleum (living room, kitchen, and dinning room). Nice. Not!

The bathrooms had been retiled - OVER the original tile. How could I tell? The flipper couldn't fit the new tile behind the toilet tank and the wall - so he just went around it!

Did I mention the kitchen cabinets? Not a door hanging straight. Then my wife pointed out the door knobs. Not one in the same place - the guy/gal must have free hand drilled them all!

Throw in some cheap burber carpet (nothing against burber) and splash on some paint and you have a flip.

The realtor said the new owner was an out of town investor. I wonder if he even saw the property!

If Holmes on Homes walked into the place he would snap and gut it just to find the "hidden treats".

talus said...

OT - Prices in Oak Bay are dropping.

This place MLS 224659 WAS $714K in May 2006 (reduced from $720K).

Same owners, new agent and a new lower ask of $649K.

Will it be $585K by next summer?

Is expectation catching up with reality?

Vicguy said...

Electrical upgrade, oil tank/furnace,and the roof are what I call the very basic requirements that have to be done. I don't see the problem especially if you are making a huge killing. Paint is debatable unless it is real bad shape.
Bottom line is whats $6500 or so when you are most likely making a hundred thousand or twice that ? Sorry to sound harsh but it sounds a little cheap to me to whine about the basics of any house.

Once this market starts coming back to reality you watch how many deals are going to require every little thing repaired from the ripped screen door to the loose floor trim. Buyers turn nasty in a downturn.

Vicguy said...

Good eye talus,and that is a nice looking house too plus that was a Tim Tadey house too that usually sell. That is a 10% drop,if it sells lower then that could be quite the percentage hit from 10 months ago.

mark said...

vicguy,

not whining at all. And yes, these are basics that should be done to maintain any house. The point I was trying to make was that often sellers will go a lot further than needed and pad prices accordingling because of fears that any imperfection will cost dearly.

I might add that our experience with the couple of agents we interviewed was that they definitely are inclined to hieghten the insecurity by insisting that your house look like something out of a magazine, no matter whether it is a serious defect or, in our case, a personal preference for colours and furnishings.

...and, no surprise, each agent kindly offered a list of services including a "stager", carpenter, painter, landscaper that we could hire. Having been an insurance broker way back in another life there is no doubt that a significant side income for these agents is the finders fees associated with these services.

Its all bs....and do I feel bad for ftbs and guilty for cashing in? Sure I do. But some of you will buy this year or next and sell in 10-15 years with a big profit. Are you going to be charitable when you are on the other side? If a recession hits and some poor schmuck loses everthing and has to sell are you going to add an extra $10-20k to the price just to help him/her out?

I'm not a big fan of markets. They make us act in ways that are almost psychotic (see the documentary "The Corporation"). But this cynical lefty is hoping that I can do this with at least some principles and a little shred of dignity intact at the end.

Good luck to you all.

hhv said...

Mark,

"Its all bs....and do I feel bad for ftbs and guilty for cashing in? Sure I do. But some of you will buy this year or next and sell in 10-15 years with a big profit. Are you going to be charitable when you are on the other side? If a recession hits and some poor schmuck loses everthing and has to sell are you going to add an extra $10-20k to the price just to help him/her out?"

Life's too short to feel guilty. The nice thing about markets is that they are mostly voluntary. They give us options and choices. This blog is all about discussing those options and choices. We don't have to buy during a seller's market. We may buy and make a tidy profit sometime in the foreseeable future.

Why should you feel guilty for having taken a risk in purchasing your home and selling it now that it economically makes sense to do so? No one must buy your home. If they haven't done their homework, that is their issue. With information so readily available these days, markets punish people who don't/can't be bothered enough to do their homework.

No investment is surely recession proof... hence why people would be wise to look at their debt loads and plan accordingly. This is the fundamental reason why we are likely not to buy this year and plan to buy in the next year or two.

vicguy said...

Yes don't feel guilty,my feelings were that if you don't fix the basics then expect to get low balled in a competitive market and the agents will give you a rough time too.
As far as the staging thing goes,that is BS. I would get another agent,and would only do that if I was underfurnished in a high end house.

Vicguy said...

Just posted this on the Victoriatruthblog.

Now I think I have seen everything I need to know that there is now no doubt whatsover that the real estate business in Canada has turned into the sleazy US lending practices.
I was scanning a property off the hotsheets and went to the agents page to see if there was some more info where I see she listed a blog done by herself a DFH agent. Now you tell me if this is not a pathetic joke,her last comment is promoting the borrowing of money a day after claiming bankruptcy AND if you are self employed you might nor have to show income verification. I actually am lost for words so check it out and see for yourself.
And BTW those comments weren't mine but could have been. Not in Canada eh ?


http://www.dianawinger.com/blogs/diana_winger/archive/2007/03/03/did-you-know-you-can-purchase-property-with-no-money-down.aspx

Roger said...

mark said

But this cynical lefty is hoping that I can do this with at least some principles and a little shred of dignity intact at the end.


Good luck on the sale of your home. I just sold our place and think the market has probably peaked. I am going to become a renter again and sit on the sidelines!!

I am curious - what are your plans? Rent or try owning again?

Village said...

In today's market, with prices they are asking. It makes sense to demand a nearly perfect house. At the costs you incur to carry the mortgage, not many will have anything left for repairs so that needs to be put off into the future as far as possible.

If the market is truly slowing, and appreciation levels return to inflation or so. Then new owners may not have the equity to withdraw to handle any major repairs.

Personally, at this point in my career. I have no interest in sweat equity. Between studying, certifications, and trying to get ahead. I have no intention of doing anything other then mow the lawn and maybe paint. Beyond that, everything needs to be done and in survivable condition until I slow down. Of course, I'm more interested in a townhouse because of those factors.