On Dec. 31, 2014, a colleague purchased a fully redeveloped home in Brookland. The property, a stunning, newly renovated single-family home on Newton Street, N.E., was staged and showed beautifully. After several months on the market and under contract for improvements from a home inspection, my colleague and his husband closed on the property for nearly $800,000. When they arrived to their walkthrough, the buyers found that the aesthetically pleasing light hardwood floor had been severely worn after all the staging material was removed. In addition, the material used in producing the cabinets was easily damaged, and the house had frozen pipes just days after move-in. In short, the aesthetic charm had reduced the quality of the finishes; moreover, the lack of quality in the renovation had already become apparent.
Flipping property, often times a misnomer also used to describe illegal practices in building a real estate bubble, is often the term used for housing redevelopment. In D.C., neighborhoods such as Petworth, Columbia Heights and Shaw have seen large-scale development over the past decade. These residential projects, often associated with a particular town home or multi-unit redevelopment, rely on a developer who purchases the distressed property at low cost, renovates, and finally sells it for a significant markup. This type of purchase is popular among buyers who are looking for a move-in ready home with historic charm. However, as with the case of my colleague, what should buyers (as well as flipping sellers) be on the lookout for with these types of renovations?
For buyers looking at flipped properties, there are a couple of great tips and tricks to consider before making an offer. First, start asking questions. Learn about the builder and the history of the property; find out exactly what improvements were made. For properties with extensions or add-ons made to them, were permits legally produced prior to renovation (this could be a deal breaker for your financing if not done properly)?
Next, a home inspection will be key while the property is under contract. Find a home inspector that will provide a thorough inspection of all elements of the property. If your expectation is to move into a pristine property, negotiate as much as possible in order to get as much work done to the property prior to closing. Additionally, do not rely solely on the home warranties of new appliances. For properties where appliances are new but installed months prior to use, the home warranty is effective from day of installation, not the day of first use.
And what about sellers in the flipping market? If you are thinking of purchasing the shell of a property and rehabilitating the property, what should you consider in advance? As with buyers, pay close attention to construction companies you may choose to affiliate with during the flip. If you plan to finance a flip project, be sure to balance quality of repair and renovation with the aesthetic value instead of strictly awarding the project to the lowest bidder. While D.C. does predominately operate as a seller’s market, a seller flipping property can easily draw out costs and stress months after closing if a renovation falls apart for the new owners.
As you can see, flipping property has clear benefits to both the buyer and seller, however, the process is certainly profit driven for the seller, and buyers should beware of the longer-term implications of less-than-ideal flip jobs.
Wrapping up the story of my colleague’s Brookland home, several months after moving in and preparing their new home with quickly deteriorating floors, the seller of the property will be providing a new material (with additional cost to my colleague), requiring the hassle of moving all furniture while new material is installed. At the end of the day, residential redevelopment can capture the charm of a historic home with contemporary finishes; however, close attention should be paid to the scale of aesthetics and quality of renovation.
Tim Savoy is a real estate agent with Coldwell Banker Residential Brokerage, Dupont Circle. He can be reached at 202-400-0534 or by email at firstname.lastname@example.org.