Advice to Home Flippers and to Buyers Who Purchase from Flippers

Contributing author: Andrew McClelland, Real Estate Attorney at Lunski & Stimpert

The purchase and sale of residential real estate is a complicated and daunting process, and this is especially the case when dealing with recently renovated, or “flipped”, homes.  I have practiced real estate litigation in the Bay Area for 15 years and handled many disclosure lawsuits during that time. 

One of the main drivers of these kinds of cases is issues related to nondisclosure of defective and/or poor-quality construction work performed by sellers on residential properties.  Based on my experience handling these types of cases, the following is a list of basic advice for real estate flippers and for those purchasing from flippers, in order to hopefully avoid becoming involved in disclosure disputes subsequent to a real property transaction. 

Advice for flippers (and real estate professionals representing them):

• USE LICENSED CONTRACTORS FOR MAJOR CONSTRUCTION WORK: In California, anyone who contracts to perform construction work on a project that is valued at $500 or more for combined labor and materials costs must hold a current, valid license from the Contractors State License Board.  If you anticipate having major renovation work done on a property prior to resale, hire a licensed, reputable contractor to perform the work.  This may lead to some added cost, but it will result in higher quality work on the home, and it will insulate you against potential liability in any future litigation or other disputes arising out of the work after the property is sold.
• OBTAIN ALL REQUIRED PERMITS FOR RENOVATION WORK: To the extent applicable and feasible, work with your local city government to obtain all applicable permits for the work you intend to perform on the property prior to resale.  As explained above, this may result in some additional time and costs, but it will ultimately benefit you by lowering the risk of future disputes related to unpermitted work at a property after it is sold.
• WHEN IN DOUBT, DISCLOSE: Even with the enhanced disclosure requirements of AB 968, many “gray areas” remain in terms of what must be disclosed during a real property transaction.  Recall that, even if something may not technically fall within one of the categories listed on the transfer disclosure statement, you still may have a duty to disclose it if it constitutes a known condition that materially affects the value or desirability of a property.  When in doubt, it is usually a good idea to “over-disclose” when selling a residential property, so that all parties enter into the transaction with clear eyes and with the same information in terms of all relevant information related to the property.

Advice for those purchasing from flippers (and real estate professionals representing them):

• USE A LICENSED REALTOR: There are several different categories of real estate professionals you can hire to represent you when purchasing a home.  As a real estate litigator who deals with situations where something has gone wrong during or after the purchase process, I always recommend that prospective purchasers engage a professional to assist them in that process and that to the extent possible, they hire a licensed realtor.  Realtors undergo additional training and are held to a higher ethical standard than other real estate professionals in terms of their representation of their clients, and this results in a higher quality of service in general, and specifically related to discussion of disclosure issues.
• AVOID “DUAL AGENCY”: Dual agency occurs when a real estate agent represents both the buyer and the seller in a single real estate transaction. While dual agency is legal in California, it requires strict adherence to specific rules and regulations outlined in the California Civil Code.  Despite these additional rules and regulations, it is my personal experience that dual agency in a real estate transaction tends to lead to an increased likelihood of disclosure issues arising after the transaction is complete, and it can limit a buyer’s legal options if and when those issues do arise.  I always recommend that buyers engage their own agent who represents them and only them during a transaction.
• DO NOT WAIVE YOUR RIGHT TO HOME INSPECTION AND WALKTHROUGH: As a prospective home buyer, you have a right to a walkthrough of the property, and you also have a right to hire a home inspector to inspect the property and prepare a report prior to completing the purchase.  In some cases, purchasers may feel compelled to waive these rights in order to save time and money or to gain an advantage over other potential purchasers of a potential property.  Do not be tempted to waive these rights.  Hire your own home inspector to prepare a report for you, read that report carefully, and ask the inspector questions about anything you do not understand.  If the home inspector recommends that you hire some kind of specialist to inspect a specific area of the property (foundation, roof, etc.), consider getting that additional report as well.  This process is meant to help you gain as much information as possible about a property before you decide to purchase, and doing so will help you make an informed decision.

If you liked this article, please see what Andrew says about AB (Assembly Bill) 968.

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Author: Andrew McClelland
Andrew was admitted to the California bar in 2008 and has worked as a real estate litigator for 15 years, focusing his practice on construction disputes, land use issues, co-ownership disputes, insurance coverage, and premises liability cases. Andrew is active in a number of professional organizations including the San Francisco Bar Association and the Alameda County Bar Association.

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The information provided in this article does not, and is not intended to, constitute legal advice, and is meant for general informational purposes only.  Readers of this article should contact an experienced real estate attorney to obtain advice regarding any particular legal matter related to the issues presented in this article.  

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