Las Vegas Area Seller or Transaction Category #5: The "Flip"
This is part 5 in a series describing different types of sellers and transactions in the Las Vegas Area market.
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.
To read about more Las Vegas Area Sellers and Sales Transaction Categories Click Here!
Renee - Nice Post. We haven't seen to much of this in Tennessee yet, but It's coming.
I love the term Flip flops, I have had a few of those this year and may have another one soon.
Larry: We are seeing these increase tremendously!
Debbie: The novice investors that get the late night informercial packages drive me insane!
Hey Renee,
Some times the biggest impediment to a Flip Sale of either type is the potential Buyer's inability to get past the fact that someone else might make a dollar.
Over the years I have seen countless transactions scuttled by Buyer's who although they new the property was a great deal, unable to bring themselves to pull the trigger because in their minds could not justify the Seller's profit.
So sad that some people feel that it is Okay for them to get a great deal as long as no one else does well.
Nice post.
Renee - Love your term Flip Flops. Lots of meaning in them thar words.
Not seeing too much of this in my area, unless I am unaware, which is a distinct possiblity. Herb's point is right on target - I see lots of buyers who want a DEAL but don;t seem to be able to deal with how much money some buyers are able to make, even in this market, because they have owned their homes for so long. Who CARES what the purchase price was 10 years ago?!
Jeff
We have a lot of foreclosure sales and the average consumer can't compete with the investor buyers who are picking up foreclosures, redecorating and "flipping" to that same consumer who wanted it in the first place.
Renee,
Funny use of the term "flip flop".
Jeff,
I agree with you I can't imagine someone caring about a purchase price 10 years ago.
Morning Renee, Very well written post. Any idea of the ratio between " Flips " and " Flops " ?
On the flip-flop, more mortgage companies are saying absolutley no. They want an arms length relationship.
Renee,
This is a great series to educate buyers and sellers and help them negotiate the real estate waters.
Sharon
Oh, my goodness. As if short sales weren't complicated enough! Without having an extra buyer involved.
Sarah in Nashville
Renee- Great post and insight to "flippers". I have several clients that fit into this catagory and still trying to find them a house. The "flip floppers" is a great term because those guys are not really flippers at all. In fact I think they are full of it. I would never give them control of my transaction.
We've got a group in Reno doing flip flops. They get the NOD list and approach defaulted homeowners, write a lowball contract, get the bank to take it, and then they list the property in the MLS for sale. One just went through for $80,000 higher. They have the seller put them on title as a 1% owner so it's not a true flip flop. I keep waiting for the banks to get hip to this because the value in the initial contract is way lower than market value - I don't know why they get accepted...
Renee, I like the real flippers (not so much the flip-flops) because they turn an eyesore into an attractive home, which helps all of us in the neighborhood with aesthetics and value. Thank you for pointing out the difference.
Hi Reene,
Great post today, thanks for getting it out to the AR community.
Patricia Aulson/portsmouth nh
Quite a few flips going on here in Phx with the biggest issue needing 91 days before it can go FHA. Most of the buyers buying these homes are FHA buyers so that's a bit of a hitch in the git-a-long. Some agents disclose that upfront in MLS, others don't say anything and then try to 'bait and switch' buyers to a diffferent loan with their lender. No. No.
Flip flops - I am amazed that these are actually going thru with non-disclosure. At some point this will be yet another big problem to fix. They must be non- licensed people negotiating them.
I really like the Flip Flop term! That says it all.
Herb: The crazy irony is that (when done properly) the real flipper has done some cosmetic repairs through their systems and it would have cost MORE for the buyer to do those repairs or replacements. Real flippers are genuinely resourceful with their skill and craft, thereby everyone has saved a buck. The buyers who think that way wouldn't have given the dump a second look if they would have seen what it looked like in the beginning!
OK Jeff Dowler: You know I like that "them thar" phrase you used, LOL! My dad is a "real flipper" so I understand the objections. Maybe the seller could put the before and after shots out there. We have no problem with buyers wanting a deal - they are not really caring how much someone makes off of it - they just want it. People who are looking for a house that is move in ready condition (hard to find in my market) find real flips the perfect solutions!
Lenn: true! Most of the real and experienced investors here are picking them up at trustee's sales to flip. I would NOT encourage the novice investor to flip in this market and I would NOT encourage the novice investor to buy at a trustee's sale. For the most part, the consumer is loving the fact that it (cosmetics) is already done and if they are not FHA and they can roll in that extra couple of dollars per square foot into their loan (provided the appraisal doesn't come in low :-/) We have lots of pigs in our market and not enough that have lipstick on them. So buyers go kind of ga-ga with these types of sellers - provided it is priced right!
Knightyme Video Tours: Thanks :blush:
Bill: The Real Flips get through (I have been involved on the buyer side of these transactions.) Never heard of a flip flop getting through!
Joe Pryor.com: ABSOLUTELY RIGHT ON THAT ACCOUNT! They will not allow for re-assignment of contract AND they want an arms length relationship!
Sharon: I am using this series to put into my buyer's counseling packet. Needed to do it anyways ;)
Sarah: NO DOUBT, huh?
Tim: Sounds like you have been contacted by some to "list property" huh? They are always preying on us Realtors. I like sellable listings. Too much time and money involved.
Christianne: I call that the "fishing expedition". Every once in a while (if they put in enough offers) they will get the big one!
David: BINGO. My dad does this as a hobby. He just did one in Omaha that got multiple offers and he settled on a (rare for Omaha) all cash. His systems make it cheaper than the regular consumer to do the same!
Patricia: You are welcome and thanks for stopping by!
Anna: I don't know of any that have gone through. The ones that have contacted me to list are non-licensed (ergo more problems)
Renee, I bet you see a lot of these flips in your area, or at least you used to. Maybe less of them now.
Hey Renee, I was going to comment on this post last night and at the bottom it said author won't allow comments. I figured it might go gold, but how did you stop from others commenting? You would think I was a (Newbie) or something!
Great post by the way!
Robert
Renee,
My wife works in a large book store and at least twice a week she comes home and tells me about a customer who was looking for book on how to flip, how to make a killing with foreclosures, short sales, etc. etc.
Maybe you should write one on how NOT to flop!
Great post,
Michael
Don't you just love the term flip-flop!!! LOL
I read this before it became featured . . . so why didn't I comment? Oh well, good post, good points. I've not heard of the flip-flopping game here in Portland, OR -- not saying it's not happening, but not that many shorts or foreclosures might be why.
Hi Renee -- I have not run across a flip flop before, very interesting, and one I think I would personally stay away from, fraught with perils around every corner.
Hi Renee! Never heard of the flip flop other than the ones for our feet but, do see how that could lead to potential litigation! Sound advice to stay away from them because I doubt many banks will approve this these days!
Congrats on that little gold star!
Renee,
Today is my first day at activerain and this is a fantastic post. Very informative and gives everyone a heads up on the terms and conditions. The FHA hold time is 91 days before it can even be listed as I understand it... so if you are a real flipper and take 91 days to re-hab you should be ok. Better check with the lender on that.. and don't push the envelope on FHA loans. Just factor in the 91 days of holding costs in the expenses on the flip. Checking and double checking on new rules and regulations should keep the parties out of jail!
Carra Riley CRB, CRS, GRI aka Cosmic Cow Pie
I just had my first experience with an attempted "flip flop", an enlightening experience.
Renee,
You might want to trademark the use of "Flip Flop" in the real estate market! :)
Mike in Tucson
I am constantly bombarded by emails and calls from so called buyers giving me two ifs and a maybe. If I can get a property for $100K less than it is currently worth, If I could turn around and sell it before I close, then maybe I will buy it...ugh!!! NEXT!!!!!!
Gary: Actually we do. I may have been a little "Backwards" in getting these posts out. The real investors and real flippers are purchasing at Trustee's Sales.
Robert: I didn't stop others from commenting. I seem to be getting comments now so that is irrelevant I guess.
Michael: Serious! The late not infomercials teaching the floppers make me insane! Working in conjunction with several sound real estate professionals (someone who is well rounded and deals with different types of sales) will save them some money and time.
Steve: I hate to sound very into myself but I kind of do like that term. Came up with it when I was copying and pasting my original draft to the post. Obviously it was last minute and I think it was clever ;)
Carla: Probably the reason. Flip floppers are running around asking agents to list their properties right now ;)
Chris: I think if done correctly the flip flop may have an advantage. Unfortunately you have to put a lot of lines out there to catch the "big fish".
Debe: Not with the "arms length transaction" in our reach!
Carra: Welcome to Active Rain! The FHA deed seasoning rule is DEFINITELY something that will keep 35% of the buyers away from the property!
Damon: Interesting in the least probably, huH?
Mike in Tucson: LOL Seriously it came to me in the last minute. Sounds like a reality show, eh?
Fort Collins Real Estate: Yea, good luck with that. REO and short sales don't allow for reassignments for the most part. Gotta love these people. More often than not if they say they are paying with cash (these people usually do) they need "proof" or to PROVE they can pay for properties with cash. Normally they can't "proof"
Ok... So the Flipper actually produces something and the Flip Flopper doesn't.
I get it!
;-)
Renee:
We don't have a lot of flip floppers in Bergen County as I can see. There are some, but not much. Our values are too high here. Flippers exist, but not too much either. A lot of capital is required.
Richard
Renee,
Good info on these different flips. Vegas has a bunch of both kinds nowadays, but those flip flops folks ought to be careful with.
Renee
Thanks for the post. Great term "Flip Flops". We are seeing a lot of those here too, and investors are not disclosing.
Tom: Very good ;)
Richard: Yes! Capital is required for quicker and successful flips. Capital is not required for the flops.
Esko: Yes, all the intricacies of keeping the flip flop legal is mind boggling!
Valerie: Are they going through without disclosure? I am just curious if one goes through without disclosure and they sign an arm's length...........