In the past I've railed on about my disdain for House Flippers who renovate properties for profit without committing to quality (or style!) during the process. Nothing makes me more aggravated than a "Professional" who doesn't deliver a good product, or who misses the mark with design decisions that ultimately cost the renovator (or buyer) money with their shocking taste specific decisions.
Today's rant really gets me steamed up and flipping mad!
My rational, prudent and educated buyers recently offered on a downtown east house that had been renovated for resale at a decent mid-grade calibre. The property had last sold as an Estate Sale in January of this year and subsequently renovated from top to bottom. Back on the market this August for a $129,000 premium, by the time I took into account the seller's closing costs (legals, land transfer taxes), the extent of renovations (removing some walls, electrical, kitchen, baths, drywall, flooring, etc) plus his resale costs (mortgage borrowing costs, realtor fees and legals), there wasn't a huge profit margin built-in. Certainly there was some, especially if the flipper was proficient in his organizational skills, but I felt any lay person who had bought this house for its original $378,000 acquisition price would probably have invested a similar amount hiring a contractor to complete the renovation to an identical finish. In this respect, I felt it was a fair offering despite the property still required some nicks and tucks. It was by no means "Perfect".
Both as a matter of course, and because the entire interior of the house was dry walled throughout (including the three-quarter basement which covered any access to the crawl space under the kitchen), I felt it imperative my buyers conduct a home inspection as part of their condition of purchase. Furthermore, because this property was an obvious flip for profit by a renovator, along with the condition on home inspection I inserted the following clause into the offer:
"The Seller represents and warrants that all renovations and upgrades to the subject property have been completed in accordance with all municipal and provincial building and zoning codes."
Guess what? After reviewing the offer the Seller signed-back the bid with this clause struck out!
As far as I'm concerned, if a Seller won't warrant his work to say that it complies with the necessary building and zoning codes (it was a single family dwelling so zoning wasn't an issue) then it suggests to me that this Seller either lacks confidence in his work or knowingly cut corners in the execution of his renovation. Either way, if a Flipper can't stand by his work then I don't want my Buyers investing their hard-earned money to buy his property. The risks are too great.
Any Flipper who makes home renovation his profession should renovate with pride, care and to the most basic standards of the municipal and city building codes. They should also take the time to acquire Building Permits and, in some instances, even provide warranties for upgrades like a new roof, wiring, windows and/or heating/cooling systems. This is critical, especially given a home inspection might not reveal either the quality of the work or the deficiencies that have been covered up by drywall.
Note, in the resale housing market it's rare for a homeowner to warrant their house is up to the standards of the building code because of the dwelling's age, the likelihood the property has had multiple owners (and renovations) over an extended period of time, and due to on-going changes to building code standards. No homeowner would be wise to warrant a previous owner's upgrades or renovations, but as far as I'm concerned a seller should be willing to stand by the improvements they've completed during their tenure, if only to the best of their knowledge.
However, a professional renovator should be prepared to warrant all of the work completed under his watch has been executed to code and, preferably, he/she will provide building permits to demonstrate due diligence and care. To purchase the property without this clause in the offer essentially relieves the flipper of all liability, which is a 'no-go' in my opinion.
If you're keen on a house, make sure you complete your due diligence and ensure your Agreement Of Purchase and Sale serves your interests. Use the offer to expose the Flipper who won't stand by his work. His objective may be to pocket a larger profit at your expense.