The Problems of "Flips"..and Why they Don't Often Close!!!!!

Less than
30 Days since Seller Acquisition

· Not allowed unless seller meets one of the following exemption criteria:

· State and Federally chartered financial institutions and government sponsored enterprises (Fannie and Freddie).

· Local and State government agencies.

· Non-profits approved to purchase HUD REO properties.

· Both lenders and property disposition firms they hire or with whom they are affiliated are temporarily exempt from the 30-day
lock out period.

· Profit and non-profit entities that purchase abandoned or foreclosed properties using “Neighborhood Community Stabilization Program” funds are exempt from the 30-day lock-out period.

Problems:

(Since the typical buyer is locked out for the first 30 days…many of the best properties have already been snapped up).

1 to 90 Days since Seller Acquisition

If the property is being sold within one and 90 days of the seller’s acquisition date and the new sales price is 20% or more than
the seller’s purchase price, all of the following are required.

(Professional “flippers” rarely flip a property that can’t be marked up AT LEAST 20(+)%).

A second appraisal is required. Both appraisals must support the sales price and provide evidence that repairs and/or renovations were completed in a professional manner.

(Appraisal problems in our industry are well known and are is just one person’s opinion…now we have to have TWO possible potential problems).

(Another issue…the second appraisal CAN NOT be paid for by the buyer…which means the sellers have to come out of pocket ... Approx. $500 IN ADVANCE OF CLOSING).

(If the second appraisal comes in below the sales price, the LOWER of the two values will be used, leading to you having to renegotiate sales price).
(In other words your deal is probably dead and someone is out $500).

“It gets better….keep reading”.

A property inspection (cost $300) completed by an inspector who has “no interest in the property”.

The inspector must be paid by the LOAN OFFICER/BROKER.

The borrower MAY reimburse the lender at loan closing.

Then seller has to provide evidence verifying sufficient legitimate renovation, repair, and rehabilitation work on the subject property.


Herein lies several more problems:

1) Often repairs and renovations are shoddy and completed hurriedly.

2) There’s a lack of disclosure of those hidden defects.

3) Sellers don’t want to fix anything in a standard transaction, so this issue is PARTICULARY “acute” with flippers.

4) Most flippers are borrowing short term money (i.e. “hard $$$”) so they want the shortest escrow possible. Given that we need 2 appraisals AND an a “in house “ lender inspection YOU’RE LOOKING AT 45 -60 DAYS TO COE.

5) Even though these delays are not anyone fault…all of which will aggravate the borrowers and may lead them to find another property with OR without YOU AND/OR I.

91 to 180 Days since Seller Acquisition

If property is being sold between 91 and 180 days of the seller’s acquisition and the sales price increases by more than 20%...only 1 appraisal and 1 property inspection is required.

The buyer cannot pay for this inspection either.

In Closing

At this point you are probably wondering why all the additional hoops.

Simply stated: Buyers who purchase substandard properties are more likely to walk away!

Lenders and PMI companies (and the government agencies who guarantee the loan.) don’t want need any more foreclosures on their hands crashing local values.

So they put everyone thru more hoops than a Barnum and Bailey circus to insure the value/workmanship of the property.

Professional flippers provide a real service to the community by rehabbing dilapidated properties and maintaining the values of neighborhood.

Our job as real estate professionals are protecting our clients. And all these rules are not supporting us in doing that.