Las Vegas Area Seller or Transaction Category #5: The "Flip"
The "Flipper" is a type of seller.
To "Flip" means that the property was recently purchased (at a discount) and is quickly being resold. There are two main types of "flippers" in this market:
- Those that buy directly from "trustee's sales" (foreclosure sales.) I am going to call these "Real Flips"
- Those that are trying to leverage nothing by negotiating short sale transaction - these are the most difficult to get through. I am going to call these "Flip Flops"
Real Flips are attractive to potential buyers because:
- They are usually rehabbed beautifully and have the smell of fresh paint, carpet and neutral colors.
- They usually have a quicker answer or response than REO or Short Sale
The pitfall of a Real Flip is:
- They are usually FHA financing ineligible because of deed seasoning rules.
- Some major home defects may be covered up during the cosmetic repair process
All about the "Flip Flop":
A flip flop is when an "investor" comes in to negotiate a short sale. They leverage NOTHING except the time, (maybe a little) money and effort to negotiate the short sale. They then turn around and request that a Realtor list the home on the free market to find a buyer.
Here are some potential pitfalls of the "flip flop"
- The negotiator (or flip flopper) must DISCLOSE that they are turning around and doing a "double escrow". The BANK MUST APPROVE THIS. Many times they do not know or approve it. This makes the transaction fraudulent.
- Title companies are sometimes NOT insuring the title on these types of transactions.
- Many times money is exchanged outside of escrow or "off HUD". This may be considered mortgage fraud in the eyes of the buyer's lender if the buyer is financed.
Technically there is nothing wrong with these types of transactions (the flip flop)- if they are transacted in a legal manner per the short sale contingency (bank's knowledge & approval process), state laws and the buyer's lending underwriting guidelines.