House Flippers vs. First-Time Buyers

Since the beginning of the year the market in Marin has been on fire and it has continually sustained that pace throughout the year. We usually see seasonal ups and downs throughout the year but that hasn’t really happened in 2012. The big questions are what is causing this and will it continue into next year?

One major factor is that interest rates are at historic lows. These low rates have made it possible for buyers to push their limits and be able to afford more home. Inventory is low because homes are being snatched up with multiple offers and we think sellers are seeing this and waiting to put their homes on the market, hoping to make more money if they wait. Another factor is the dramatic drop in short sales and foreclosures coming on the market. Also, some say the latest boom happening in San Francisco is pushing people out of the city and up to Marin because it is more affordable. All of these factors have contributed to making it very competitive in the Marin housing market but there is one other factor that has frustrated buyers and agents–the house flippers who have become so prevalent in Marin and Sonoma counties.

We often say to our buyers that the best investment is trying to find “grandma’s” house because it has often been well maintained and the list price usually reflects the updating that it needs. Most buyers want to pick their own finishes and are okay with pulling out old green carpet, refinishing the hardwood floors underneath, painting and picking out kitchen and bath counter tops. In Marin this usually means instant equity once a buyer transforms the house. The problem is that most of these nuggets are being snatched up by flippers who slap on some cheap updates and re-list for a hefty profit, thus pricing out many young families who would otherwise be able to benefit from such a situation. Of course some flippers are buying foreclosed properties on the courtyard steps for all cash, which in my opinion is fair game since they’re taking that risk, and most buyers don’t have all cash and aren’t willing to take the home subject to all outstanding liens.

But when a sweet home with upside potential hits the MLS buyers need to realize they are probably going to have to go up against flippers, who end up putting in cash offers with no contingencies. This is frustrating because these buyers, who would otherwise be able to compete for a good home with upside, instead end up with the option of buying the flipped house, often with updates done with poor craftsmanship, sometimes with concealed problems, and at an inflated price.

We know it’s “just business” and there is no law against flipping homes. But this trend is making buyers do things they wouldn’t have otherwise done in order to compete. One major concern we have is that now buyers are feeling like they have to rush to do pre-inspections and are basically being forced to write offers without a buyer inspection contingency, which can be very risky. A lot of buyers don’t want to spend up to $2,000 inspecting a home that they aren’t even sure they are going to own, which totally makes sense. We don’t want buyers to feel rushed doing their inspections yet we also want them to be competitive when they are going up against an all-cash flipper in a multiple offer situation. Each home and buyer is different and we of course council each situation differently, but overall we want buyers to have time to do their inspections and have time to reflect on a home’s condition, or to get further inspections if needed.

There’s no easy answer to all of this, but unfortunately it’s something buyers need to be aware of in this market. Obviously there are some good contractor/investor types who do a nice job when flipping a home and take pride in the outcome, but we’ve also seen a rise in the number of flip outfits that have turned the practice into a big business. And that trend is making it tough for regular buyers to compete for those homes, and it’s making them feel like they have to take risks if they want to try.