New Flipper Disclosure Law
A new law went into effect July 1, 2024 impacting properties that are flipped.
What happens if the flipper doesn’t comply or won’t provide the information? The law is only as good as the willingness of people to comply. Yes it is not uncommon that flippers will claim they do not know anything about a property they just spent months renovating.
What is your recourse if you enter escrow? We can remind them of the law but if they refuse to comply, there really isn’t much you can do to compel them.
Details of the law from the California Association of Realtors:
"Flippers" of residential 1 to 4 properties must disclose recent repairs and renovations to the property in addition to all other existing disclosures. Applies to properties that are resold within 18 months of closing.
Applies to transactions if:
Residential 1 to 4 units,
Seller accepts an offer within 18 months from the date that title to the property was transferred to seller and
Renovations or repairs were performed by a contractor with whom the seller entered into a contract
Requires a seller to disclose to the buyer:
Any room additions
Structural modifications
Other alterations
Repairs
A copy of any permits if obtained or if the seller contracted with a third party and was not provided with a copy of any permits, the seller may inform the buyer that the permits may be obtained through the third party and provide their contact information
These disclosures may alternatively be disclosed as a list as given by the contractor to the seller.
Additionally, where the cost of labor and materials was $500 or greater, the seller will disclose
The name of each contractor.
The contact information of each contractor (as provided to the seller)
When does this law go into effect? This law applies to the sale of a residential 1 to 4 unit property where the seller accepts an offer from a buyer to purchase the property on or after July 1, 2024.
How To Protect Yourself
If you are Buying a flipper property, you should scrutinize the property using SMEs even more so than an owner occupied property, and do every inspection you can afford to do. However even with thorough SMEs evaluating the property, this doesn’t mean they can uncover every issue behind walls, under flooring, or just takes time or the right circumstances to show up.
Just because a Seller pulled permits, it does not mean the work was done correctly. I have seen too updates done by homeowners with permits and the work was not done correctly or not to code. Just remember the city inspector is not a trade expert. In other words just because they’re inspecting electrical, plumbing, etc doesn’t mean they have ever done the work.
You should assume there are defects in the work they did, some that you cannot see and inspectors cannot find and budget for that. There are issues that take time to show up like improper waterproofing that requires repeated water exposure and a level of saturation to show the problem. Or windows and doors that leak when it rains. Versus when a property is occupied by a homeowner, the updates they did months or years ago will have been time and situationally tested to have likely shown install issues.
You should assume they used very cheap materials and cheap labor and that you may be redoing a fair amount of. For example, it’s not uncommon to hear you’re replacing every plumbing fixture within a couple of years. Or that the roof leaks.
They focus on what’s pretty, but did they put pretty on top of ugly and failing? The structure and the main systems are critically important to understand the condition of
If they added square footage or a structure without a permit, this is a potentially big issue. You could fail to benefit from the additional value of the ESF/structure, it is unsafe to rent or is not a habitable space that creates a liability, and if you go to pull permits retroactively or for future other work on the property, the City could inspect the rest of the home and require you to remediate the issue, including demolishing and restoring, or significantly re-doing the work
And if it turns out the flipper is a unicorn and actually did great work, then great, you ended up with a great house.